As filed with the Securities and Exchange Commission
on February 13, 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. 3 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 4 [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)
| | on (date) pursuant to paragraph (b
| | 60 days after filing pursuant to paragraph (a)(1)
| | on (date) pursuant to paragraph (a)(1)
|X| 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
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<PAGE>
PBHG INSURANCE SERIES FUND, INC.
CROSS REFERENCE SHEET
(as required by Rule 495 (a))
<TABLE>
<CAPTION>
PART A
N-1A
- ----
Item No. Location
- -------- --------
<S> <C> <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
PART B
10. Cover Page Cover Page
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
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 (a) insurance companies ("Participating Insurance Companies") to
fund benefits under their variable annuity contracts ("VA Contracts") and
variable life insurance policies ("VLI Policies") and (b) tax-qualified pension
and retirement plans ("Qualified Plans"), including participant-directed
Qualified Plans which elect to make the Portfolios available as investment
options for Qualified Plan Participants.
Please read this Prospectus carefully and retain it for future reference. This
Prospectus should be read in conjunction with the prospectuses issued by the
Participating Insurance Companies for the VA Contracts and VLI Policies that
accompany this Prospectus or with the Qualified Plan documents or other
informational materials supplied by Qualified Plan sponsors. Additional
information about the 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 (i) AS A
POOLED FUNDING VEHICLE FOR LIFE INSURANCE COMPANIES WRITING ALL TYPES OF
VARIABLE LIFE INSURANCE POLICIES AND VARIABLE ANNUITY CONTRACTS AND (ii) TO
TAX-QUALIFIED PENSION AND RETIREMENT PLANS.
<PAGE>
TABLE OF CONTENTS
PAGE
SUMMARY 3
EXPENSE SUMMARY 6
FINANCIAL HIGHLIGHTS 8
INVESTMENT OBJECTIVES AND POLICIES 9
GENERAL INVESTMENT POLICIES AND STRATEGIES 14
RISK FACTORS 16
INVESTMENT LIMITATIONS 18
PURCHASES AND REDEMPTIONS 18
NET ASSET VALUE 19
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS 20
PERFORMANCE ADVERTISING 21
GENERAL INFORMATION 25
GLOSSARY OF PERMITTED INVESTMENTS 31
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 securities
3
<PAGE>
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. Such risks include the potential of imperfect
correlation between the change in the value of a futures contract purchased or
sold and the market value of the securities held by the Portfolios and the risk
that the Portfolios may not be able to close out a particular futures contract
because of a lack of a liquid secondary market in such futures contract. See
"Investment Objectives and Policies," "Risk Factors" and "Glossary of Permitted
Investments."
WHO ARE THE ADVISER AND THE SUB-ADVISER? Pilgrim Baxter & Associates, Ltd. (the
"Adviser") serves as the investment adviser to each Portfolio. Pilgrim Baxter
Value Investors, Inc., (the "Sub-Adviser") 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 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
4
<PAGE>
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 or through Qualified Plans, including
participant-directed Qualified Plans which elect to make the Portfolios
available as investment options for Qualified Plan Participants. See "Purchases
and Redemptions."
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
Dividends None None None None None None None
- --------------------------------------------------------------------------------------------------------------------------------
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>
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, VLI POLICIES OR QUALIFIED PLANS. SUCH
CHARGES AND EXPENSES ARE DESCRIBED IN THE PROSPECTUS OF THE PARTICIPATING
INSURANCE FUND SEPARATE ACCOUNT OR IN THE QUALIFIED PLAN DOCUMENTS OR OTHER
INFORMATIONAL MATERIALS SUPPLIED BY QUALIFIED PLAN SPONSORS. The purpose of this
table is to assist the investor in understanding the various costs and expenses
that may be directly or indirectly borne by investors in the Portfolios. See
"The Adviser," "The Sub-Adviser," and "The Administrator."
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 Company'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>
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 S&P 500 Index. Because the
investment techniques employed by the Adviser are responsive to near-term
earnings trends of the companies whose securities are owned by the Portfolio,
portfolio turnover can be expected to be fairly high.
Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market. The
Portfolio may invest up to 15% of its total assets in securities of foreign
issuers (including American Depositary Receipts ("ADRs")), and may invest up to
15% of its net assets in illiquid securities. This limitation does not include
any Rule 144A security that has been determined to be liquid pursuant to
procedures established by the Board. See "Risk Factors" and "Glossary of
Permitted Investments" in this Prospectus for a fuller description of the
Portfolio's permitted investments and their risks.
LARGE CAP GROWTH PORTFOLIO
The Large Cap Growth Portfolio, a diversified portfolio, seeks long-term growth
of capital. The Portfolio will normally be substantially invested in equity
securities (including ADRs and foreign securities). The equity securities in
which the Portfolio will invest are common stocks, warrants and rights to
purchase common stocks, and debt securities and preferred stock convertible into
common stocks. Normally, the Portfolio will purchase exchange-traded and
over-the-counter equity securities, including foreign securities traded in the
United States. The Portfolio may invest in convertible debt
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 out-
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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 weighings 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 may
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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 use
high-quality money market investments or short-term bonds to reduce downside
volatility during uncertain or declining market conditions. For temporary or
defensive purposes, the Portfolio may invest in money market securities or
short-term bonds without limitation. The Portfolio may purchase securities on a
when-issued or delayed delivery basis.
The utilization of a valuation approach may result in investment selections that
may be out-of-favor or counter to those of other investors. However, such an
approach may also produce significant capital appreciation. See "Risk Factors"
and "Glossary of Permitted Investments" in this Prospectus for a fuller
description of the Portfolio's permitted investments and their risks.
TECHNOLOGY & COMMUNICATIONS PORTFOLIO
The Technology & Communications Portfolio, a diversified portfolio, seeks
long-term growth of capital. Current income is incidental to the Portfolio's
objective. Under normal market conditions, the Portfolio will invest at least
65% of its total assets in common stocks of companies which rely extensively on
technology or communications in their product development or operations, or
which are expected to benefit from technological advances and improvements, and
that may be experiencing exceptional growth in sales and earnings driven by
technology-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 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
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or pursuing scientific breakthroughs to large, blue chip firms with established
track records in developing and marketing such scientific advances.
Normally, the Portfolio will purchase securities traded in the U.S. or Canada on
registered exchanges or in the over-the-counter market. The Portfolio may also
invest, in the aggregate, up to 10% of its net assets in restricted securities
and securities of foreign issuers traded outside the U.S. and Canada and, for
hedging purposes, may purchase and sell options on stocks or stock indices. The
Portfolio also may invest up to 15% of its net assets in illiquid securities.
See "Risk Factors" and "Glossary of Permitted Investments" in this Prospectus
for a fuller description of the Portfolio's permitted investments and their
risks.
SELECT 20 PORTFOLIO
The Select 20 Portfolio, a non-diversified portfolio, seeks long-term growth of
capital. The Portfolio will normally be substantially invested in equity
securities (including ADRs and foreign equity securities). The equity securities
in which the Portfolio will invest are common stocks, warrants and rights to
purchase common stocks, and debt securities and preferred stock that are
convertible into common stocks. The Portfolio may invest in convertible debt
securities rated investment grade by an NRSRO (i.e., within one of the four
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.
GENERAL INVESTMENT POLICIES AND STRATEGIES
INVESTMENT PROCESS: GROWTH II, LARGE CAP GROWTH, TECHNOLOGY &
COMMUNICATIONS, AND SELECT 20 PORTFOLIOS
The Adviser's investment process in managing the assets of each Portfolio is
both quantitative and fundamental, and is focused on quality earnings growth. In
seeking to identify the investment opportunities for the Portfolios, the Adviser
begins by creating a universe of rapidly growing companies with market
capitalizations within the parameters described for each Portfolio and that
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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 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 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
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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 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
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companies which initially satisfy certain defined standards. Generally, the
volume of trading in an unlisted or over-the-counter common stock is less than
the volume of trading in a listed stock. This means that the depth of market
liquidity of some stocks in which these Portfolios invest may not be as great as
that of other securities and if the Portfolios were to dispose of such a stock,
they might have to offer the shares at a discount from recent prices, or sell
the shares in small lots over an extended period of time.
FOREIGN SECURITIES
Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies. These
risks and considerations include differences in accounting, auditing and
financial reporting standards, generally higher commission rates on foreign
portfolio transactions, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control regulations,
political instability which could affect U.S. investment in foreign countries
and potential restrictions on the flow of international capital and currencies.
Foreign issuers may also be subject to less government regulation than U.S.
companies. Moreover, the dividends and interest payable on foreign securities
may be subject to foreign withholding taxes, thus reducing the net amount of
income available for distribution to a Portfolio's shareholders. Further,
foreign securities often trade with less frequency and volume than domestic
securities and, therefore, may exhibit greater price volatility. Changes in
foreign exchange rates will affect, favorably or unfavorably, the value of those
securities which are denominated or quoted in currencies other than the U.S.
dollar.
INVESTMENTS IN TECHNOLOGY COMPANIES
Equity securities of technology companies have tended to be subject to greater
volatility than securities of companies that are not dependent upon or
associated with technological issues. Although the Technology & Communications
Portfolio will invest in the securities of technology companies operating in
various industries, many of these industries share common characteristics.
Therefore, an event or issue affecting one such industry may have a significant
impact on these other, related industries and, thus, may affect the value of the
Technology & Communications Portfolio's investments in technology companies. For
example, the technology companies in which the Technology & Communications
Portfolio invests may be strongly affected by worldwide scientific or
technological developments and their products and services may be subject to
governmental regulation or adversely affected by governmental policies.
FUTURES CONTRACTS
The primary risks associated with the use of futures contracts are: (i)
imperfect correlations between the change in market value of the securities held
by a Portfolio and the prices of futures contracts purchased or sold by a
Portfolio; and (ii) possible lack of a liquid secondary market for a futures
contract and the resulting inability to close a futures position, which could
have an adverse impact on a Portfolio's ability to execute futures and options
strategies.
For additional information regarding risks and permitted investments for each
Portfolio, see "Glossary of Permitted Investments" and the Statement of
Additional Information.
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INVESTMENT LIMITATIONS
The investment objectives of each Portfolio, the investment limitations set
forth below and certain investment limitations contained in the Statement of
Additional Information are fundamental policies of the Portfolios. A Portfolio's
fundamental policies cannot be changed without the consent of the holders of a
majority of the Portfolio's outstanding shares.
A Portfolio, as a fundamental policy, may not:
1. Except for the Select 20 Portfolio, purchase securities of any issuer (except
securities issued or guaranteed by the United States, its agencies or
instrumentalities and repurchase agreements involving such securities) if, as a
result, more than 5% of the total assets of the Portfolio would be invested in
the securities of such issuer. This restriction applies to 75% of each
Portfolio's total assets.
With respect to the Select 20 Portfolio only, purchase securities of any issuer
(except securities issued or guaranteed by the United States, its agencies and
instrumentalities and repurchase agreements involving such securities) if, as a
result, more than 5% of the total assets of the Portfolio would be invested in
securities of such issuer. This restriction applies to 50% of the Select 20
Portfolio's total assets.
2. Purchase any securities which would cause 25% or more of the total assets of
a Portfolio to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation, (i)
utility companies will be divided according to their services, for example, gas
distribution, gas transmission, electric and telephone will each be considered a
separate industry, and (ii) financial service companies will be classified
according to the end users of their services, for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry. For purposes of this limitation, supranational organizations are
deemed to be issuers conducting their principal business activities in the same
industry.
3. Borrow money except for temporary or for emergency purposes and then only in
an amount not exceeding 10% of the value of each Portfolio's total assets
(except not exceeding 33 1/3% of the value of total assets with respect to the
Growth II, 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
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Participating Insurance Companies or through Qualified Plans, including
participant-directed Qualified Plans which elect to make the Portfolios
available as investment options for Qualified Plan participants. Please refer to
the prospectus of the sponsoring Participating Insurance Company separate
account or to the Qualified Plan documents or other informational materials
supplied by Qualified Plan sponsors for instructions on purchasing a VA Contract
or VLI Policy and on how to select the Portfolios as investment options for a VA
Contract, VLI Policy or Qualified Plan.
PURCHASES. All investments in the Portfolios are credited to a Participating
Insurance Company's separate account immediately upon acceptance of the
investments by the Portfolios. Each Participating Insurance Company receives
orders from its contract owners to purchase or redeem shares of each Portfolio
on each day that the Portfolio calculates its net asset value (a "Business
Day"). That night, all orders received by the Participating Insurance Company
prior to the close of regular trading on the New York Stock Exchange Inc. (the
"NYSE") (currently 4:00 p.m., Eastern time) on that Business Day are aggregated,
and the Participating Insurance Company places a net purchase or redemption
order for shares of the Portfolios during the morning of the next Business Day.
These orders are executed at the net asset value (described below under "Net
Asset Value") next computed after receipt of such order by the Participating
Insurance Company.
Qualified Plan participants may invest in shares of the Portfolios through their
Qualified Plans by directing the Qualified Plan trustee to purchase shares for
their account. Participants should contact their Qualified Plan sponsors for
information concerning the appropriate procedure for investing in the
Portfolios. All investments in the Portfolios by Qualified Plans are credited to
the Qualified Plans immediately upon acceptance of the investments by the
Portfolios. All orders received from Qualified Plans are executed at the net
asset value next computed after receipt of such orders by the Portfolios.
The Portfolios reserve the right to reject any specific purchase order. Purchase
orders may be refused if, in the Adviser's opinion, they are of a size that
would disrupt the management of the Portfolio. A Portfolio may discontinue sales
of its shares if management believes that a substantial further increase in
assets may adversely effect the Portfolio's ability to achieve its investment
objective. In such event, however, it is anticipated that existing VA Contract
owners, VLI Policy owners and Qualified Plan participants would be permitted to
continue to authorize investments in the Portfolios and to reinvest any
dividends or capital gains distributions.
REDEMPTIONS. Shares of a Portfolio may be redeemed on any Business Day.
Redemption orders which are received by a Participating Insurance Company or
Qualified Plan prior to the close of regular trading on the NYSE on any Business
Day and transmitted to the 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 or Qualified
Plan. Redemption proceeds will normally be wired to the Participating Insurance
Company or Qualified Plan on the Business Day following receipt of the
redemption order by the Participating Insurance Company or Qualified Plan, but
in no event later than seven days after receipt of such order.
NET ASSET VALUE
Each Portfolio calculates the net asset value of a share by dividing the total
value of its assets, less liabilities, by the number of shares outstanding.
Shares are valued as of the close of trading on the NYSE (currently 4:00 p.m.,
Eastern time). Portfolio securities listed on an exchange or quoted on a
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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, VLI Policy or Qualified
Plan, refer to the Participating Insurance Company separate account prospectus
or Qualified Plan documents or other informational materials supplied by
Qualified Plan sponsors.
Each Portfolio intends to qualify and elect to be treated as a regulated
investment company that is taxed under the rules of Subchapter M of the Code. As
such, a Portfolio will not be subject to federal income tax on its net ordinary
income and net realized capital gains to the extent such income and gains are
distributed to the separate accounts of Participating Insurance Companies and
Qualified Plans which hold its shares. Because shares of the Portfolios may be
purchased only through VA Contracts, VLI Policies and Qualified Plans, it is
anticipated that any income, dividends or capital gain distributions from the
Portfolios are taxable, if at all, to the Participating Insurance Companies and
Qualified Plans and will be exempt from current taxation of the VA Contract
owner, VLI Policy owner, or Qualified Plan participant if left to accumulate
within the VA Contract, VLI Policy or Qualified Plan.
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 behalf of a
separate account of a Participating Insurance Company to receive distributions
in cash. Participating Insurance Companies and Qualified Plan sponsors will be
informed at least annually about the amount and character of distributions from
the fund for federal income tax purposes.
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PERFORMANCE ADVERTISING
From time to time, each Portfolio may advertise its yield and total return.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made regarding actual
future yields or returns. Yield refers to the annualized income generated by an
investment in the Portfolio over a specified 30-day period. The yield is
calculated by assuming that the same amount of income generated by the
investment during that period is generated in each 30-day period over one year
and is shown as a percentage of the investment.
The total return of each Portfolio refers to the average compounded rate of
return on a hypothetical investment for designated time periods (including but
not limited to the period from which the Portfolio commenced operations through
the specified date), assuming that the entire investment is redeemed at the end
of each period and assuming the reinvestment of all dividend and capital gain
distributions.
Total returns quoted for a Portfolio include the effect of deducting the
Portfolio's expenses, but may not include charges and expenses attributable to
any particular Variable Contract or Qualified Plan. Accordingly, the prospectus
of the sponsoring Participating Insurance Company separate account or Qualified
Plan documents or other informational materials supplied by Qualified Plan
sponsors should be carefully reviewed for information on relevant charges and
expenses. Excluding these charges and expenses from quotations of a Portfolio's
performance has the effect of increasing the performance quoted, and the effect
of these charges should be considered when comparing a Portfolio's performance
to that of other mutual funds.
Each Portfolio may periodically compare its performance to that of other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.) or by financial and business publications and periodicals, broad
groups of comparable mutual funds, unmanaged indices which may assume investment
of dividends but generally do not reflect deductions for administrative and
management costs and other investment alternatives. Each Portfolio may quote
services such as Morningstar, Inc., a service that ranks mutual funds on the
basis of risk-adjusted performance, and Ibbotson Associates of Chicago,
Illinois, which provides historical returns of the capital markets in the U.S.
Each Portfolio may use long-term performance of these capital markets to
demonstrate general long-term risk versus reward scenarios and could include the
value of a hypothetical investment in any of the capital markets. Each Portfolio
may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.
Each Portfolio may quote various measures of volatility and benchmark
correlation in advertising and may compare these measures to those of other
funds. Measures of volatility attempt to compare historical share price
fluctuations or total returns to a benchmark while measures of benchmark
correlation indicate how valid a comparative benchmark might be. Measures of
volatility and correlation are calculated using averages of historical data and
cannot be calculated precisely.
PUBLIC FUND PERFORMANCE
The Mid-Cap Value Portfolio is newly organized and does not yet have its own
performance. The Large Cap Growth, Technology & Communications, and Select 20
Portfolios do not have
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performance records of historical significance. However, the Large Cap Growth,
Technology & Communications, Select 20, and Mid-Cap Value Portfolios have the
same investment objectives and follow substantially the same investment
strategies as four series of a mutual fund ("public fund") whose shares are
currently sold to the public and managed by the Adviser.
Set forth below is the performance data for the Large Cap Growth, Technology and
Communications, and Select 20 Portfolios. Also set forth below is the historical
performance of each of the corresponding series of the public fund. Investors
should not consider the performance data of the series of the public fund as an
indication of the future performance of the Portfolios. The performance figures
shown below reflect the deduction of the historical fees and expenses paid by
the corresponding series of the public fund, AND NOT THOSE TO BE PAID BY THE
PORTFOLIOS. The figures also do not reflect the deduction of any insurance fees
or charges which are imposed by the Participating Insurance Company in
connection with its sale of the VA Contracts and VLI Policies. Investors should
refer to the separate account prospectuses describing the VA Contracts and VLI
Policies for information pertaining to these insurance fees and charges. The
insurance separate account fees will have a detrimental effect on the
performance of the Portfolios. Additionally, although it is anticipated that
each Portfolio and its corresponding public fund series will hold similar
securities, their investment results are expected to differ. In particular,
differences in asset size and in cash flow resulting from purchases and
redemptions of Portfolio shares may result in different security selections,
differences in the relative weightings of securities or differences in the price
paid for particular portfolio holdings. The results shown reflect the
reinvestment of dividends and distributions, and were calculated in the same
manner that will be used by the Portfolios to calculate their own performance.
The following tables show average annualized total returns for the time periods
shown for the PBHG Large Cap Growth, PBHG Technology & Communications, PBHG
Large Cap 20, and PBHG Mid-Cap Value Funds.
LARGE CAP GROWTH PORTFOLIO
1 Year Since Inception
------ ---------------
CORRESPONDING SERIES OF THE PUBLIC FUND
The PBHG Funds, Inc. - PBHG Large Cap Growth Fund 22.36% 29.27%
The Large Cap Growth Portfolio has been in operation since May 1, 1997. The
aggregate total return for the period May 1, 1997 through December 31, 1997 was
18.20%.
TECHNOLOGY & COMMUNICATIONS PORTFOLIO
1 Year Since Inception
------ ---------------
CORRESPONDING SERIES OF THE PUBLIC FUND
The PBHG Funds, Inc. - PBHG Technology &
Communications Fund 3.32% 31.40%
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The Technology & Communications Portfolio has been in operation since May 1,
1997. The aggregate total return for the period May 1, 1997 through December 31,
1997 was 4.10%.
SELECT 20 PORTFOLIO
1 Year Since Inception
------ ---------------
CORRESPONDING SERIES OF THE PUBLIC FUND 32.96% 28.04%
The PBHG Funds, Inc. - PBHG Large Cap 20 Fund
The Select 20 Portfolio has been in operation since September 26, 1997. The
aggregate total return for the period September 26, 1997 through December 31,
1997 was 0.30%.
MID-CAP VALUE PORTFOLIO
Since Inception
---------------
CORRESPONDING SERIES OF THE PUBLIC FUND
The PBHG Funds, Inc. - PBHG Mid-Cap Value Fund 67.69%
Results shown are through the period ended December 31, 1997. The inception
dates for each public fund series are April 5, 1995 for the PBHG Large Cap
Growth Fund, October 2, 1995 for the PBHG Technology & Communications Company,
December 2, 1996 for the PBHG Large Cap 20 Fund, and May 1, 1997 for the PBHG
Mid-Cap Value Fund. The aggregate total return (not annualized) since inception
for the PBHG Mid-Cap Value Fund was 41.48%.
HISTORICAL PERFORMANCE - SMALL CAP VALUE PORTFOLIO MANAGER
Gary D. Haubold, CFA, has managed the Small Cap Value Portfolio since its
inception. Mr. Haubold joined the Sub-Adviser in January 1997. Prior to joining
the Sub-Adviser, Mr. Haubold was employed by Miller Anderson & Sherrerd ("MAS")
from 1993 until January 1997. At MAS, Mr. Haubold served as the co-manager of
the Mid-Cap Value Portfolio of the MAS Fund and the co-manager of the Small Cap
Value Portfolio of the MAS Fund ("MAS Small Cap Value Portfolio"). Prior to
joining MAS, Mr. Haubold was Senior Vice President of Wood, Struthers &
Winthrop.
Although Mr. Haubold co-managed the MAS Small Cap Value Portfolio from June 1993
through January 1997, Mr. Haubold was the person primarily responsible for the
day-to-day management of the MAS Small Cap Value Portfolio during that period.
During the time that Mr. Haubold managed the MAS Small Cap Value Portfolio, it
had an investment objective, policies, and strategies that were substantially
similar to those of the Small Cap Value Portfolio. The cumulative total return
for the MAS Small Cap Value Portfolio from January 1, 1995 through December 31,
1996 was 63.59% as compared to 49.65% for the Russell 2000 Index over the same
period. The average annual total returns for the MAS Small Cap Value Portfolio
for one-year and since the inception of Mr. Haubold's management of the
Portfolio (through December 31, 1996) compared with the performance of the
Russell 2000 Index were:
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Year MAS Small Cap
ended 12/31/96 Value Portfolio(1) Russell 2000 Index (2)
- -------------- ------------------ ----------------------
1 Year 35.15% 16.51%
Since the inception of
Mr. Haubold's management (6/93)
of the Portfolio 19.97% 15.00%
(1) Average annual total returns reflect changes in share price of the MAS Small
Cap Value Portfolio, reinvestment of all dividends and distributions and are net
of all fund expenses.
(2) The Russell 2000 Index is an unmanaged index of common stocks generally
representative of the small capitalization U.S. stock market. The index does not
reflect investment management fees, brokerage commissions and other expenses
associated with investing in equity securities.
The Small Cap Value Portfolio has been in operation since October 29, 1997. The
aggregate total return for the period October 29, 1997 through December 31, 1997
was 4.80%.
Historical performance does not indicate future performance. THE MAS SMALL CAP
VALUE PORTFOLIO IS A SEPARATE COMPANY AND ITS HISTORICAL PERFORMANCE IS NOT
INDICATIVE OF THE POTENTIAL PERFORMANCE OF THE SMALL CAP VALUE PORTFOLIO. Share
prices and investment returns will fluctuate.
PRIVATE ACCOUNT PERFORMANCE
The Growth II Portfolio has been in operation since May 1, 1997. The aggregate
total return for the period from May 1, 1997 through December 31, 1997 was
7.50%. The Growth II Portfolio has an investment objective, policies and
strategies which are substantially similar to those employed by the Adviser with
respect to certain Private Accounts.
Thus, the performance information derived from these Private Accounts may be
relevant to an investor. The performance of the Growth II Portfolio will vary
from the Private Account composite information because the Growth II Portfolio
will be actively managed and its investments will vary from time to time and
will not be identical to the past portfolio investments of the Private Accounts.
Moreover, the Private Accounts are not subject to certain investment
limitations, diversification requirements and other restrictions imposed by the
Investment Company Act of 1940 and the Code which, if applicable, may have
adversely affected the performance results of the Private Account Composites.
The chart below shows performance information derived from historical composite
performance of the Private Accounts included in the Pilgrim Baxter & Associates,
Ltd. Mid-Cap Growth Composite. The performance figures shown for the Growth II
Portfolio represent the performance results of the composite of Private Accounts
managed in a comparable manner, adjusted to reflect the deduction of the fees
and expenses anticipated to be paid by the Growth II Portfolio. Please refer to
"Expense Summary" for further information concerning fees and expenses.
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The Private Account composite performance figures are time-weighted rates of
return which include all income and accrued income and realized and unrealized
gains or losses, but do not reflect the deduction of investment advisory fees
actually charged to the Private Accounts.
Investors should not consider the performance data of these Private Accounts as
an indication of the future performance of the Growth II Portfolio.
The following tables show performance information derived from Private Account
historical composite performance reduced by anticipated Growth II Portfolio fees
and expenses, as well as comparisons with the Russell Mid-Cap Growth Index, an
unmanaged index which includes companies of a comparable capitalization size to
those in which the Growth II Portfolio invests.
PRIVATE ACCOUNT COMPOSITE PERFORMANCE
1 Year 5 Years 10 Years
------ ------- --------
Pilgrim Baxter & Associates, Ltd.
Mid-Cap Growth Composite -1.16% 13.36% 14.45%
Russell Mid-Cap Growth Index 22.35% 15.99% 16.80%
Results shown are through the period ended December 31, 1997. The inception date
is January 1, 1983 for the Pilgrim Baxter & Associates, Ltd. Mid-Cap Growth
Composite.
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
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Exchange listed holding company principally engaged, through affiliated firms,
in providing institutional investment management services and acquiring
institutional investment management firms. UAM's corporate headquarters are
located at One International Place, Boston, Massachusetts 02110. The Adviser
currently has discretionary management authority with respect to over $14
billion in assets. In addition to advising the Portfolios, the Adviser provides
advisory services to other mutual funds and to pension and profit-sharing plans,
charitable institutions, corporations, trusts and estates, and other investment
companies. The principal business address of the Adviser is 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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<PAGE>
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, who will also manage the Mid-Cap Value Portfolio. (See "Historical
Performance - Small Cap Value Portfolio Manager" for biographical information
with respect to Mr. Haubold.) 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, two series of The PBHG Funds, Inc., and serves as President
of Farrell Seiwell, Inc., an investment adviser. Prior to joining the
Sub-Adviser, he was an Investment Counselor in a sole proprietorship for two
years. From 1983 to 1994, he was a partner at Cashman, Farrell and Associates,
an investment advisory firm.
John F. Force, CFA, 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
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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 a fee at the annual rate of 0.07% of the average daily net
assets of each Portfolio with respect to $2.5 billion of the total average daily
net assets of (i) the Company and (ii) The PBHG Funds, Inc., and a fee at the
annual rate of 0.025% of the average daily net assets of each Portfolio with
respect to the total average daily net assets of (i) the Company and (ii) The
PBHG Funds, Inc. in excess of $2.5 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.
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.
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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. Qualified
Plans may or may not pass through voting rights to Qualified Plan participants,
depending on the terms of the Qualified Plan's governing documents. For a more
complete discussion of voting rights, refer to the Participating Insurance
Company separate account prospectus or the Qualified Plan documents or other
informational materials supplied by Qualified Plan sponsors.
CONFLICTS OF INTEREST
The Portfolio offers its shares to (i) VA Contracts and VLI Policies offered
through separate accounts of Participating Insurance Companies which may or may
not be affiliated with each other and (ii) Qualified Plans including
Participant-directed Plans which elect to make the Portfolios available as
investment options for Qualified Plan participants. Due to differences of tax
treatment and other considerations, the interests of VA Contract and VLI Policy
owners and Qualified Plan participants participating in the Portfolios may
conflict. The Board will monitor the Portfolios for any material conflicts that
may arise and will determine what action, if any, should be taken. If a conflict
occurs, the Board may require one or more Participating Insurance Company
separate accounts and/or Qualified Plans to withdraw its investments in the
Portfolios. As a result, the Portfolios may be forced to sell securities at
disadvantageous prices and orderly portfolio management could be disrupted. In
addition, the Board may refuse to sell shares of the Portfolios to any VA
Contract, VLI Policy or Qualified Plan or may suspend or terminate the offering
of shares of the Portfolios if such action is required by law or regulatory
authority or is in the best interests of the shareholders of the Portfolios.
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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.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Ballard Spahr Andrews & Ingersoll 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 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, the Adviser will consider the
frequency of trades and quotes for the security, the number of dealers
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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"). STRIPS are
usually structured with two classes that receive different proportions of the
interest and principal distributions on a pool of mortgage assets. One type of
STRIPS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the principal. In some cases, one class will
receive all of the interest ("interest-only" or "IO class"), while the other
class will receive all of the principal ("principal-only" or "PO class"). The
yield to maturity on IO classes and PO classes is extremely sensitive to the
rate of principal payments (including prepayments) on the related underlying
mortgage assets, and a rapid rate of principal payments may have a material
adverse effect on the portfolio yield to maturity. If the underlying mortgage
assets experience greater than anticipated prepayments of principal, a Portfolio
may fail to fully recoup its initial investment in these securities, even if the
security is in one of the highest rating categories.
Variable and Floating Rate Instruments -- Certain of the obligations purchased
by a Portfolio may carry variable or floating rates of interest, may involve a
conditional or unconditional demand feature and may include variable amount
master demand notes. Such instruments bear interest at rates which are not
fixed, but which vary with changes in specified market rates or indices, such as
a Federal Reserve composite index. The interest rates on these securities may be
reset daily, weekly, quarterly or some other reset period, and may have a floor
or ceiling on interest rate changes. There is a risk that the current interest
rate on such obligations may not accurately reflect existing market interest
rates. A demand instrument with a demand notice exceeding seven days may be
considered illiquid if there is no secondary market for such securities.
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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 30
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. By using futures contracts as a risk management
technique, given the greater liquidity in the futures market than in the cash
market, it may be possible to accomplish certain results more quickly and with
lower transaction costs.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
pay the excess to the Portfolio. These subsequent payments called "variation
margin," to and from the futures broker, are made on a daily basis as the price
of the underlying assets fluctuate making the long and short positions in the
futures contract more or less valuable, a process known as "marking to the
market." A Portfolio expects to earn interest income on its initial and
variation margin deposits.
A Portfolio will incur brokerage fees when it purchases and sells futures
contracts. Positions taken in the futures markets are not normally held until
delivery or cash settlement is required, but are instead liquidated through
offsetting transactions which may result in a gain or a loss.
While futures positions taken by a Portfolio will usually be liquidated in this
manner, a Portfolio may instead make or take delivery of underlying securities
whenever it appears economically advantageous to the Portfolio to do so. A
clearing organization associated with the exchange on which futures are traded
assumes responsibility for closing out transactions and guarantees that as
between the clearing members of an exchange, the sale and purchase obligations
will be performed with regard to all positions that remain open at the
termination of the contract.
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Securities Index Futures Contracts. Purchases or sales of securities index
futures contracts may be used in an attempt to protect a Portfolio's current or
intended investments from broad fluctuations in securities prices. A securities
index futures contract does not require the physical delivery of securities, but
merely provides for profits and losses resulting from changes in the market
value of the contract to be credited or debited at the close of each trading day
to the respective accounts of the parties to the contract. On the contract's
expiration date a final cash settlement occurs and the futures positions are
simply closed out. Changes in the market value of a particular index futures
contract reflect changes in the specified index of securities on which the
future is based.
By establishing an appropriate "short" position in index futures, the Portfolio
may also seek to protect the value of its portfolio against an overall decline
in the market for such securities. Alternatively, in anticipation of a generally
rising market, a Portfolio can seek to avoid losing the benefit of apparently
low current prices by establishing a "long" position in securities index futures
and later liquidating that position as particular securities are in fact
acquired. To the extent that these hedging strategies are successful, a
Portfolio will be affected to a lesser degree by adverse overall market price
movements than would otherwise be the case.
Limitations on Purchase and Sale of Futures Contracts. A Portfolio will not
purchase or sell futures contracts unless either (1) 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
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period. The types of options transactions that the Portfolios are permitted to
utilize are discussed below.
Writing Call Options. A call option is a contract which gives the purchaser of
the option (in return for a premium paid) the right to buy, and the writer of
the option (in return for a premium received) the obligation to sell, the
underlying security at the exercise price at any time prior to the expiration of
the option, regardless of the market price of the security during the option
period. A call option on a security is covered, for example, when the writer of
the call option owns the security on which the option is written (or on a
security convertible into such a security without additional consideration)
throughout the option period.
A Portfolio will write covered call options both to reduce the risks associated
with certain of its investments and to increase total investment return through
the receipt of premiums. In return for the premium income, the Portfolio will
give up the opportunity to profit from an increase in the market price of the
underlying security above the exercise price so long as its obligations under
the contract continue, except insofar as the premium represents a profit.
Moreover, in writing the call option, a Portfolio will retain the risk of loss
should the price of the security decline. The premium is intended to offset that
loss in whole or in part. Unlike the situation in which a Portfolio owns
securities not subject to a call option, a Portfolio, in writing call options,
must assume that the call may be exercised at any time prior to the expiration
of its obligation as a writer, and that in such circumstances the net proceeds
realized from the sale of the underlying securities pursuant to the call may be
substantially below the prevailing market price.
A Portfolio may terminate its obligation under an option it has written by
buying an identical option. Such a transaction is called a "closing purchase
transaction." The Portfolio will realize a gain or loss from a closing purchase
transaction if the amount paid to purchase a call option is less or more than
the amount received from the sale of the corresponding call option. Also,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the exercise or closing out of a call option is likely to be offset in
whole or part by unrealized appreciation of the underlying security owned by the
Portfolio. When an underlying security is sold from the Portfolio's securities
portfolio, the Portfolio will effect a closing purchase transaction so as to
close out any existing covered call option on that underlying security.
Writing Put Options. The writer of a put option becomes obligated to purchase
the underlying security at a specified price during the option period if the
buyer elects to exercise the option before its expiration date. A Portfolio when
it writes a put option will be required to "cover" it, for example, by
depositing and maintaining in a segregated account with its custodian cash, or
other liquid obligations having a value equal to or greater than the exercise
price of the option.
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A Portfolio may write put options either to earn additional income in the form
of option premiums (anticipating that the price of the underlying security will
remain stable or rise during the option period and the option will therefore not
be exercised) or to acquire the underlying security at a net cost below the
current value (e.g., the option is exercised because of a decline in the price
of the underlying security, but the amount paid by the Portfolio, offset by the
option premium, is less than the current price). The risk of either strategy is
that the price of the underlying security may decline by an amount greater than
the premium received. The premium which the Portfolio receives from writing a
put option will reflect, among other things, the current market price of the
underlying security, the relationship of the exercise price to that market
price, the historical price volatility of the underlying security, the option
period, supply and demand and interest rates.
A Portfolio may effect a closing purchase transaction to realize a profit on an
outstanding put option or to prevent an outstanding put option from being
exercised.
Purchasing Put and Call Options. A Portfolio may purchase put options on
securities to protect its holdings against a substantial decline in market
value. The purchase of put options on securities will enable the Portfolio to
preserve, at least partially, unrealized gains in an appreciated security in its
portfolio without actually selling the security. In addition, a Portfolio will
continue to receive interest or dividend income on the security. A Portfolio may
also purchase call options on securities to protect against substantial
increases in prices of securities that the Portfolio intend to purchase pending
its ability to invest in an orderly manner in those securities. A Portfolio may
sell put or call options it has previously purchased, which could result in a
net gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction cost paid on the put or call option
which was bought.
Securities Index Options. A Portfolio may write covered put and call options and
purchase call and put options on securities indexes for the purpose of hedging
against the risk of unfavorable price movements adversely affecting the value of
the Portfolio's securities or securities it intends to purchase. A Portfolio
will only write "covered" options. A call option on a securities index is
considered covered, for example, if, so long as the Portfolio is obligated as
the writer of the call, it holds securities the price changes of which are, in
the opinion of the Adviser, expected to replicate substantially the movement of
the index or indexes upon which the options written by the Portfolio are based.
A put on a securities index written by the Portfolio will be considered covered
if, so long as it is obligated as the writer of the put, the Portfolio
segregates with its custodian cash or other liquid obligations having a value
equal to or greater than the exercise price of the option. Unlike a stock
option, which gives the holder the right to purchase or sell a specified stock
at a specified price, an option on a securities index gives the holder the right
to receive a cash "exercise settlement amount" equal to (i) the difference
between the exercise price of the option and the value of the underlying stock
index on the exercise date, multiplied by (ii) a fixed "index multiplier."
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A securities index fluctuates with changes in the market value of the securities
so included. For example, some securities index options are based on a broad
market index such as the S&P 500 or the NYSE Composite Index, or a narrower
market index such as the S&P 100. Indexes may also be based on an industry or
market segment such as the AMEX Oil and Gas Index or the Computer and Business
Equipment Index.
Over-the-Counter Options. A Portfolio may enter into contracts with primary
dealers with whom it may write over-the-counter options. Such contracts will
provide that the Portfolio has the absolute right to repurchase an option it
writes at any time at a repurchase price which represents the fair market value,
as determined in good faith through negotiation between the parties, but which
in no event will exceed a price determined pursuant to a formula contained in
the contract. Although the specific details of the formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by the Portfolio for writing the option, plus
the amount, if any, of the option's intrinsic value (i.e., the amount the option
is "in-the-money"). The formula will also include a factor to account for the
difference between the price of the security and the strike price of the option
if the option is written "out-of-the-money." A Portfolio has established
standards of creditworthiness for these primary dealers, although the Portfolio
may still be subject to the risk that firms participating in such transactions
will fail to meet their obligations. In instances in which a Portfolio has
entered into agreements with respect to the over-the-counter options it has
written, and such agreements would enable the Portfolio to have an absolute
right to repurchase at a pre-established formula price the over-the-counter
option written by it, the Portfolio would treat as illiquid only securities
equal in amount to the formula price described above less the amount by which
the option is "in-the-money," i.e., the amount by which the price of the option
exceeds the exercise price.
For information concerning the risks associated with utilizing options and
futures contracts, please see "Risks of Transactions in Futures Contracts and
Options" below.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS
Futures. The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in the market and interest
rates, which in turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading sessions. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures
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contract prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and subjecting some futures traders to
substantial losses.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the futures contract were closed out.
Thus, a purchase or sale of a futures contract may result in losses in excess of
the amount invested in the futures contract.
A decision of whether, when, and how to hedge involves skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior, market trends or interest rate trends. There are
several risks in connection with the use by a Portfolio of futures contracts as
a hedging device. One risk arises because of the imperfect correlation between
movements in the prices of the futures contracts and movements in the prices of
the underlying instruments which are the subject of the hedge. The Advisers
will, however, attempt to reduce this risk by entering into futures contracts
whose movements, in its judgment, will have a significant correlation with
movements in the prices of the Portfolio's underlying instruments sought to be
hedged.
Successful use of futures contracts by a Portfolio for hedging purposes is also
subject to the Portfolio's ability to correctly predict movements in the
direction of the market. It is possible that, when the Portfolio has sold
futures to hedge its portfolio against a decline in the market, the index,
indices, or instruments underlying futures might advance and the value of the
underlying instruments held in the Portfolio's portfolio might decline. If this
were to occur, the Portfolio would lose money on the futures and also would
experience a decline in value in its underlying instruments.
Positions in futures contracts may be closed out only on an exchange or a board
of trade which provides the market for such futures. Although each Portfolio
intends to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active market, there is no guarantee that such will exist
for any particular contract or at any particular time. If there is not a liquid
market at a particular time, it may not be possible to close a futures position
at such time, and, in the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin.
However, in the event futures positions are used to hedge portfolio securities,
the securities will not be sold until the futures positions can be liquidated.
In such circumstances, an increase in the price of securities, if any, may
partially or completely offset losses on the futures contracts.
8
<PAGE>
Options. A closing purchase transaction for exchange-traded options may be made
only on a national securities exchange (exchange). There is no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time, and for some options, such as over-the-counter options,
no secondary market on an exchange may exist. If a Portfolio is unable to effect
a closing purchase transaction, the Portfolio will not sell the underlying
security until the option expires or the Portfolio delivers the underlying
security upon exercise.
Options traded in the over-the-counter market may not be as actively traded as
those on an exchange. Accordingly, it may be more difficult to value such
options. In addition, it may be difficult to enter into closing transactions
with respect to options traded over-the-counter. A Portfolio will engage in such
transactions only with firms of sufficient credit so as to minimize these risks.
Such options and the securities used as "cover" for such options may be
considered illiquid securities.
The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the selected
securities index. Perfect correlation is not possible because the securities
held or to be acquired by the Portfolio will not exactly match the composition
of the securities indexes on which options are written. In the purchase of
securities index options the principal risk is that the premium and transaction
costs paid by a Portfolio in purchasing an option will be lost if the changes
(increase in the case of a call, decrease in the case of a put) in the level of
the index do not exceed the cost of the option.
INVESTMENT COMPANY SHARES
The Portfolios may invest in shares of money market mutual funds, to the extent
set forth under "Investment Limitations" below. Since such funds pay management
fees and other expenses, shareholders of a Portfolio would indirectly pay both
the Portfolio's expenses and the expenses of underlying funds with respect to
the Portfolio's assets invested therein. Applicable regulations prohibit a
Portfolio from acquiring the securities of other investment companies that are
"not part of the same group of investment companies" if, as a result of such
acquisition, the Portfolio owns more than 3% of the total voting stock of the
company; more than 5% of the Portfolio's total assets are invested in securities
of any one investment company; or more than 10% of the total assets of the
Portfolio are invested in securities (other than treasury stock) issued by all
investment companies.
ILLIQUID INVESTMENTS
Illiquid investments are investments that cannot be sold or disposed of in the
ordinary course of business within seven (7) days at approximately the prices at
which they are valued. Under the supervision of the Board of Directors, the
Advisers determine the liquidity of the Company's
9
<PAGE>
investments and, through reports from the Advisers, the Board monitors
investments in illiquid instruments. In determining the liquidity of a
Portfolio's investments, the Advisers may consider various factors including (1)
the frequency of trades and quotations, (2) the number of dealers and
prospective purchasers in the marketplace, (3) dealer undertakings to make a
market, (4) the nature of the security (including any demand or tender
features), and (5) the nature of the market place for trades (including the
ability to assign or offset a Portfolio's rights and obligations relating to the
investment). Investments currently considered by a Portfolio to be illiquid
include repurchase agreements not entitling the holder to payment of principal
and interest within seven (7) days, over the-counter options, and non-government
stripped fixed-rate mortgage backed securities. Also, the Advisers may determine
some government-stripped fixed-rate mortgage backed securities, loans and other
direct debt instruments, and swap agreements to be illiquid. However, with
respect to over-the-counter options a Portfolio writes, all or a portion of the
value of the underlying instrument may be illiquid depending on the assets held
to cover the option and the nature and terms of any agreement a Portfolio may
have to close out the option before expiration. In the absence of market
quotations, illiquid investments are priced at fair value as determined in good
faith by a committee appointed by the Board of Directors. If, through a change
in values, net assets or other circumstances, a Portfolio was in a position
where more than 15% of its net assets were invested in illiquid securities, it
would seek to take appropriate steps to protect liquidity.
RESTRICTED SECURITIES
Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is required,
a Portfolio may be obligated to pay all or part of the registration expense and
a considerable period may elapse between the time it decides to seek
registration and the time a Portfolio may be permitted to sell a security under
an effective registration statement. If, during such a period, adverse market
conditions were to develop, a Portfolio might obtain a less favorable price than
prevailed when it decided to seek registration of the security.
FOREIGN CURRENCY TRANSACTIONS
A Portfolio may hold foreign currency deposits from time to time, and may
convert dollars and foreign currencies in the foreign exchange markets. Currency
conversion involves dealer spreads and other costs, although commissions usually
are not charged. Currencies may be exchanged on a spot (i.e., cash) basis, or by
entering into forward contracts to purchase or sell foreign currencies at a
future date and price. Forward contracts generally are traded in an interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. The parties to a forward contract may agree to
offset or terminate the contract before maturity, or may hold the contract to
maturity and complete the contemplated currency exchange.
10
<PAGE>
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 Company.
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
11
<PAGE>
tandem. Similarly, if the Advisers increase a Portfolio's exposure to a foreign
currency, and that currency's value declines, a Portfolio will realize a loss.
There is no assurance that the Advisers' use of forward currency contracts will
be advantageous to a Portfolio or that it will hedge at an appropriate time.
The policies described in this section of the Statement of Additional
Information are non-fundamental policies of a Portfolio.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
Each Portfolio has adopted certain investment restrictions which (in addition to
those fundamental investment restrictions set forth in the Prospectus) are
fundamental and may not be changed without approval by a majority vote of the
Portfolio's shareholders. Such majority is defined in the 1940 Act as the lesser
of (i) 67% or more of the voting securities of the Portfolio present in person
or by proxy at a meeting, if the holders of more than 50% of the outstanding
voting securities are present or represented by proxy; or (ii) more than 50% of
the outstanding voting securities of the Portfolio.
Each Portfolio may not:
1. Acquire more than 10% of the voting securities of any one issuer except that
such limitation shall only apply to 75% of the Growth II Portfolio's assets.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of the Portfolio's total assets (except
not exceeding 33 1/3% of the value of total assets with respect to the Growth
II, 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.
12
<PAGE>
5. Pledge, mortgage or hypothecate assets, except (i) to secure temporary
borrowings permitted by each Portfolio's limitation on permitted borrowings, or
(ii) in connection with permitted transactions regarding options and futures
contracts.
6. Purchase or sell real estate, real estate limited partnership interests,
futures contracts, commodities or commodity contracts, except that this shall
not prevent a Portfolio from (i) investing in readily marketable securities of
issuers which can invest in real estate or commodities, institutions that issue
mortgages, or real estate investment trusts which deal in real estate or
interests therein, pursuant to the Portfolio's investment objective and
policies, and (ii) entering into futures contracts and options thereon that are
listed on a national securities or commodities exchange where, as a result
thereof, no more than 5% of the total assets for that Portfolio (taken at market
value at the time of entering into the futures contracts) would be committed to
margin deposits on such futures contracts and premiums paid for unexpired
options on such futures contracts; provided that, in the case of an option that
is "in-the-money" at the time of purchase, the "in-the-money" amount, as defined
under the Commodity Futures Trading Commission regulations, may be excluded in
computing the 5% limit. Each Portfolio (as a matter of operating policy) will
utilize only listed futures contracts and options thereon.
7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that each Portfolio may (i) obtain short-term
credits as necessary for the clearance of security transactions and (ii)
establish margin accounts as may be necessary in connection with the Portfolio's
use of options and futures contracts.
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
9. Purchase securities of other investment companies except as permitted by the
1940 Act and the rules and regulations thereunder.
10. Issue senior securities (as defined in the 1940 Act) except in connection
with a permitted borrowing of money or pledging, mortgaging or hypothecating
assets, as described in each Portfolio's limitation on borrowing money and each
Portfolio's limitation on permitted borrowings and each Portfolio's limitation
on pledging, mortgaging or hypothecating assets, or as permitted by rule,
regulation or order of the SEC.
11. Invest in interests in oil, gas or other mineral exploration or development
programs.
12. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if, as a result, more than 5% of the total assets of
the Portfolio would be invested in the securities of such issuer. This
restriction applies to 75% of each Portfolio's total assets, except for the
Select 20 Portfolio for which the restriction applies to 50% of its total
assets.
13
<PAGE>
13. Purchase any securities which would cause 25% or more of the total assets of
a Portfolio to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation, (i)
utility companies will be divided according to their services, for example, gas
distribution, gas transmission, electric and telephone will each be considered a
separate industry, and (ii) financial service companies will be classified
according to the end users of their services, for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry. For purposes of this limitation, supranational organizations are
deemed to be issuers conducting their principal business activities in the same
industry.
NON-FUNDAMENTAL POLICIES
In addition to the foregoing, and the policies set forth in the Portfolios'
Prospectus, each Portfolio has adopted additional investment restrictions which
may be amended by the Board of Directors without a vote of shareholders.
Each Portfolio may not:
1. Invest in illiquid securities in an amount exceeding, in the aggregate, 15%
of its net assets. This limitation does not include any Rule 144A restricted
security that has been determined by, or pursuant to procedures established by,
the Board, based on trading markets for such security, to be liquid.
2. Purchase or sell puts, calls, straddles, spreads, and any combination
thereof, if by reason thereof, the value of its aggregate investment in such
classes of securities will exceed 5% of its total assets.
THE ADVISER
The 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
14
<PAGE>
(3) place orders to purchase and sell securities for each Portfolio, subject to
the supervision of the Board of Directors. The Advisory Agreement requires the
Adviser to pay its overhead and employee costs and the compensation and expenses
of all its partners, officers and employees who serve as officers and executive
employees of the 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 Portfolio(1) $22,720.00 $84,484.00
- -------------------------------------------------------------------------------
Large Cap Growth $ 9,625.00 $52,349.00
Portfolio(1)
- -------------------------------------------------------------------------------
Small Cap Value Portfolio(2) $ 5,577.00 $13,575.00
- -------------------------------------------------------------------------------
Mid-Cap Value Portfolio * *
- -------------------------------------------------------------------------------
Large Cap Value Portfolio(2) $ 972.00 $10,521.00
- -------------------------------------------------------------------------------
Technology & $ 6,824.00 $31,235.00
Communications Portfolio(1)
- -------------------------------------------------------------------------------
Select 20 Portfolio(3) $ 5,406.00 $13,964.00
- -------------------------------------------------------------------------------
15
<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.
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
16
<PAGE>
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 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, 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 Sub-Administrator is entitled to a
fee from the Administrator, which is calculated daily and paid monthly, (i) at
an annual rate of .07% of the average daily net assets of each series of the
Company, including the Portfolios, with respect to the first $2.5 billion of the
total average daily net assets of (a) the Company and (b) The PBHG Funds, Inc.;
and (ii) at the annual rate of .025% of average daily net assets of each series
of the Company, including the Portfolios, with respect to the total average
daily net assets of (a) the Company and (b) The PBHG Funds, Inc. in excess of
$2.5 billion. The Sub-Administrative Agreement provides that the
Sub-Administrator
17
<PAGE>
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 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 Portfolio(1) $4,009.00 $0
- -------------------------------------------------------------------------------
Large Cap Growth $1,925.00 $0
Portfolio(1)
- -------------------------------------------------------------------------------
Small Cap Value Portfolio(2) $ 837.00 $0
- -------------------------------------------------------------------------------
Mid-Cap Value Portfolio * *
- -------------------------------------------------------------------------------
Large Cap Value Portfolio(2) $ 224.00 $0
- -------------------------------------------------------------------------------
Technology & $1,204.00 $0
Communications Portfolio(1)
- -------------------------------------------------------------------------------
Select 20 Portfolio(3) $ 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,
18
<PAGE>
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 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).
- --------
(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>
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.
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, the Sub-Administrator and the Distributor since 1983
and 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,
20
<PAGE>
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:
<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
21
<PAGE>
be lower. VA Contract owners and VLI Policy owners should consult their contract
and policy prospectuses, respectively, for further information. The Portfolio's
results also should be considered relative to the risks associated with its
investment objectives and policies.
COMPUTATION OF YIELD
From time to time, a Portfolio may advertise yield. These figures will be based
on historical earnings and are not intended to indicate future performance. The
yield of a Portfolio refers to the annualized income generated by an investment
in the Portfolio over a specified 30-day period. The yield is calculated by
assuming that the income generated by the investment during that period will be
generated each period over one year and is shown as a percentage of the
investment. In particular, yield will be calculated according to the following
formula:
Yield = (2 (a-b/cd + 1)6 - 1) where a = dividends and interest earned during the
period; b = expenses accrued for the period (net of reimbursement); c = the
current daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
CALCULATION OF TOTAL RETURN
From time to time, a Portfolio may advertise total return. The total return of a
Portfolio refers to the average compounded rate of return to a hypothetical
investment for designated time periods (including but not limited to, the period
from which the Portfolio commenced operations through the specified date),
assuming that the entire investment is redeemed at the end of each period. In
particular, total return will be calculated according to the following formula:
P (1 + T)n = ERV, where P = a hypothetical initial payment of $1,000; T =
average annual total return; n = number of years; and ERV = ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the designated
time period as of the end of such period.
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 Portfolio(1) 7.50%
- -------------------------------------------------------------------------------
Large Cap Growth Portfolio(1) 18.20%
- -------------------------------------------------------------------------------
Small Cap Value Portfolio(2) 4.80%
- -------------------------------------------------------------------------------
Mid-Cap Value Portfolio *
- -------------------------------------------------------------------------------
Large Cap Value Portfolio(2) 4.30%
- -------------------------------------------------------------------------------
22
<PAGE>
- -------------------------------------------------------------------------------
Technology & Communications Portfolio(1) 4.10%
- -------------------------------------------------------------------------------
Select 20 Portfolio(3) 0.30%
- -------------------------------------------------------------------------------
* 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, 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
23
<PAGE>
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.
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
24
<PAGE>
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) each Portfolio must, for taxable
years beginning on or prior to August 5, 1997, derive less than 30% of its gross
income each taxable year from the sale or other disposition of stocks or
securities held for less than three months (the "Short-Short Gain Test") (for
taxable years beginning after August 5, 1997, the Short-Short Gain test has been
repealed by the Taxpayer Relief Act of 1997); (iii) at the close of each quarter
of the Portfolio's taxable year, at least 50% of the value of its total assets
must be represented by cash and cash items, U.S. Government securities,
securities of other RICs and 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 (iv) 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
25
<PAGE>
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. 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
26
<PAGE>
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 "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.
27
<PAGE>
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).
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, including (in
particular) the Short-Short Gain Test, 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 November 1, 1997.
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.
28
<PAGE>
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
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
29
<PAGE>
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 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
30
<PAGE>
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 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 Portfolio(1) $ 5,282 $257 5%
- --------------------------------------------------------------------------------------------------------------
Large Cap Growth Portfolio(1) $ 5,204 $122 2%
- --------------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio(2) $10,608 $ 77 1%
- --------------------------------------------------------------------------------------------------------------
Mid-Cap Value Portfolio * * *
- --------------------------------------------------------------------------------------------------------------
Large Cap Value Portfolio(2) $ 2,778 $ 20 1%
- --------------------------------------------------------------------------------------------------------------
Technology &
Communications Portfolio(1) $ 2,630 $121 5%
- --------------------------------------------------------------------------------------------------------------
Select 20 Portfolio(3) $ 4,599 $ 94 2%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* Not in operation during the period.
31
<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.
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
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 -- 20-fold increase.
32
<PAGE>
- - 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.
5% AND 25% SHAREHOLDERS
As of January 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
Life Insurance Co. of Virginia 64.36%
6610 W. Broad Street
Richmond, VA 23230-1799
AUL American Individual Unit Trust 6.57%
Registered Separate Account
P.O. Box 1995
Indianapolis, IN 46206-9102
Fidelity Investments 24.62%
Life Insurance Co.
82 Devonshire Street R25B
Boston, MA 02109-3614
PBHG Large Cap Growth Portfolio
Life Insurance Co. of Virginia 97.02%
6610 W. Broad Street
Richmond, VA 23230-1799
33
<PAGE>
PBHG Small Cap Value Portfolio
Empire Fidelity Investments 5.35%
Life Insurance Co.
200 Liberty Street
One Financial Center
New York, NY 10281-1003
Fidelity Investments 90.98%
Life Insurance Co.
82 Devonshire Street R25B
Boston, MA 02109-3614
PBHG Large Cap Value Portfolio
UAM Investment Corporation 11.26%
P.O. Box 7048
Wilmington, DE 19803-0048
Pilgrim Baxter & Associates, Ltd. 11.26%
825 Duportail Road
Wayne, PA 19087-5525
Empire Fidelity Investments 21.58%
Life Insurance Co.
200 Liberty Street
One Financial Center
New York, NY 10281-1003
Fidelity Investments 55.14%
Life Insurance Co.
82 Devonshire Street R25B
Boston, MA 02109-3614
PBHG Technology & Communications Portfolio
Annuity Investors Life Insurance Co. 7.69%
250 E. Fifth Street
Cincinnati, OH 45202-4119
34
<PAGE>
Empire Fidelity Investments 6.19%
Life Insurance Co.
200 Liberty Street
One Financial Center
New York, NY 10281-1003
Fidelity Investments 81.95%
Life Insurance Co.
82 Devonshire Street R25B
Boston, MA 02109-3614
PBHG Select 20 Portfolio
Empire Fidelity Investments 7.55%
Life Insurance Co.
200 Liberty Street
One Financial Center
New York, NY 10281-1003
Fidelity Investments 92.32%
Life Insurance Co.
82 Devonshire Street R25B
Boston, MA 02109-3614
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 included in the
Prospectus and 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
2(a) By-Laws (2)
(b) By-law amendment adopted by the Board of Directors on
December 3, 1997
3 Not Applicable
4 Articles of Incorporation filed as Exhibit 1 (1)
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.
(b) 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.
6 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.
<PAGE>
9(a) Transfer Agency Agreement dated April 1, 1997, by and between
the Registrant and DST Systems, Inc.
(b) Administrative Services Agreement dated April 1, 1997 by and
between the Registrant and PBHG Fund Services
(c) Sub-Administrative Services Agreement dated April 1, 1997, by
and among the Registrant, PBHG Fund Services and SEI Fund
Resources
(d) Expense Limitation Agreement dated April 1, 1997 between the
Registrant and Pilgrim Baxter & Associates, Ltd.
(e) Form of Fund Participation Agreement (2)
(f) Organizational Expense Reimbursement Agreement dated April 1,
1997 between the Registrant and Pilgrim Baxter & Associates,
Ltd.
10 Opinion and Consent of Counsel
11 Consent of Independent Accountants
12 Not Applicable
13 Not Applicable
14 Not Applicable
15 Not Applicable
16 Schedule for Computation of Performance Quotations
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.
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.
2
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of January 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 10
PBHG Small Cap Value Portfolio 10
PBHG Large Cap Value Portfolio 10
PBHG Technology & Communications Portfolio 11
PBHG Select 20 Portfolio 8
ITEM 27. INDEMNIFICATION
The Articles of Incorporation of the Registrant include the following:
ARTICLE VII
7.4 Indemnification. The Corporation, including its successors and assigns,
shall indemnify its directors and officers and make advance payment of related
expenses to the fullest extent permitted, and in accordance with the procedures
required, by the General Laws of the State of Maryland and the 1940 Act. The
By-Laws may provide that the Corporation shall indemnify its employees and/or
agents in any manner and within such limits as permitted by applicable law. Such
indemnification shall be in addition to any other right or claim to which any
director, officer, employee or agent may otherwise be entitled. The Corporation
may purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise or employee benefit plan, against any
liability (including, with respect to employee benefit plans, excise taxes)
asserted against and incurred by such person in any such capacity or arising out
of such person's position, whether or not the Corporation would have had the
power to indemnify against such liability. The rights provided to any person by
this Article 7.4 shall be enforceable against the Corporation by such person who
shall be presumed to have relied upon such rights in serving or continuing to
serve in the capacities indicated herein. No amendment of these Articles of
Incorporation shall impair the rights of any person arising at any time with
respect to events occurring prior to such amendment.
The By-Laws of the Registrant include the following:
ARTICLE VI
Indemnification
"The Corporation shall indemnify (a) its Directors and officers, whether serving
the Corporation or at its request any other entity, to the full extent required
or permitted by (i) Maryland law now or hereafter in force, including
3
<PAGE>
the advance of expenses under the procedures and to the full extent permitted by
law, and (ii) the Investment Company Act of 1940, as amended, and (b) other
employees and agents to such extent as shall be authorized by the Board of
Directors and be permitted by law. The foregoing rights of indemnification shall
not be exclusive of any other rights to which those seeking indemnification may
be entitled. The Board of Directors may take such action as is necessary to
carry out these indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such resolutions or contracts implementing
such provisions or such further indemnification arrangements as may be permitted
by law."
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suite or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
To the extent that the Articles of Incorporation, By-Laws or any other
instrument pursuant to which the Registrant is organized or administered
indemnify any director or officer of the Registrant, or that any contract or
agreement indemnifies any person who undertakes to act as investment adviser or
principal underwriter to the Registrant, any such provision protecting or
purporting to protect such persons against any liability to the Registrant or
its security holders to which he would otherwise by subject by reason of willful
misfeasance, bad faith, or gross negligence, in the performance of his duties,
or by reason of his contract or agreement, will be interpreted and enforced in a
manner consistent with the provisions of Sections 17(h) and (i) of the
Investment company Act of 1940, as amended, and Release No. IC-11330 issued
thereunder.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
Other business, profession, vocation, or employment of a substantial nature in
which each director or principal officer of Pilgrim Baxter & Associates, Ltd. is
or has been, at any time during the last two fiscal years, engaged for his own
account or in the capacity of director, officer, employee, partner or trustee
are as follows:
<TABLE>
<CAPTION>
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
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C>
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>
<TABLE>
<CAPTION>
Name and Position with Connection
Pilgrim Baxter Value Investors, 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
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C>
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
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
6
<PAGE>
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
TPI 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").
(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 -
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C>
Carl A. Guarino Senior Vice President -
Larry Hutchinson Senior Vice President -
David G. Lee 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
Robert Wagner Senior Vice President -
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 -
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 -
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C>
W. Kelso Morrill Vice President -
Joanne Nelson Vice President -
Mark Nagle Vice President -
Sandra K. Orlow Vice President & Assistant 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
James Dougherty Director of Brokerage Services -
</TABLE>
c. None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the Rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6); (8);
(12); and 31a-1(d), the required books and records are maintained at the offices
of Registrant's Custodian:
CoreStates Bank, N.A.
Broad and Chestnut Streets
P.O. Box 7618
Philadelphia, PA 19101
(b) With respect to Rules 31a-1(a); 31a-1(b)(1),(4); (2)(C) and (D); (4); (5);
(6); (8); (9); (10); (11) and 31a-1(f), the required books and records are
currently maintained at the offices of Registrant's Sub-Administrator:
SEI Fund Resources
One Freedom Valley Road
Oaks, PA 19456
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the
required books and records are maintained at the principal offices of the
Registrant's Adviser or Sub-Adviser:
9
<PAGE>
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 has duly caused this Post-Effective Amendment No. 3 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
12th day of February, 1998.
PBHG INSURANCE SERIES FUND, INC.
Registrant
By: *
-------------------------------
Harold J. Baxter
Chairman and Director
*By: /s/ John M. Zerr
-------------------------------
John M. Zerr
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 3 to the Registration Statement has been signed below by the
following persons on the 12th day of February, 1998 in the capacities and on
the dates indicated.
Signature And Title Date
- ------------------- ----
* Chairman and Director 2/12/98
- --------------------- ---------------------
Harold J. Baxter
* Director 2/12/98
- --------------------- ---------------------
John R. Bartholdson
* Director 2/12/98
- --------------------- ---------------------
Jettie M. Edwards
* Director 2/12/98
- --------------------- ---------------------
Albert A. Miller
/s/ Gary L. Pilgrim President 2/12/98
- --------------------- ---------------------
Gary L. Pilgrim
* Executive Vice President 2/12/98
- --------------------- ---------------------
Paul J. Hondros
/s/ Brian F. Bereznak Vice President 2/12/98
- --------------------- ---------------------
Brian F. Bereznak
11
<PAGE>
* Treasurer, Chief Financial 2/12/98
- --------------------- Officer and Controller ---------------------
Lee T. Cummings
*By: /s/ John M. Zerr
---------------------
John M. Zerr
Attorney-in-Fact
12
<PAGE>
EXHIBIT LIST
Exhibit
Number Description
- -------- -----------
EX-99.B1 Articles Supplementary of Registrant
EX-99.B2 By-law amendment adopted by the Board of Directors on
December 3, 1997
EX-99.B5(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.
EX-99.B5(b) 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(a) Distribution Agreement dated April 1, 1997 by and between the
Registrant and SEI Financial Services Company
EX-99.B8 Custodian Agreement dated April 1, 1997, by and between the
Registrant and CoreStates Bank, N.A.
EX-99.B9(a) Transfer Agency Agreement dated April 1, 1997, by and between
the Registrant and DST Systems, Inc.
EX-99.B9(b) Administrative Services Agreement dated April 1, 1997 by and
between the Registrant and PBHG Fund Services
EX-99.B9(c) Sub-Administrative Services Agreement dated April 1, 1997, by
and among the Registrant, PBHG Fund Services and SEI Fund
Resources
EX-99.B9(d) Expense Limitation Agreement dated April 1, 1997 between the
Registrant and Pilgrim Baxter & Associates, Ltd.
EX-99.B9(f) Organizational Expense Reimbursement Agreement dated April 1,
1997 between the Registrant and Pilgrim Baxter & Associates,
Ltd.
EX-99.B10 Opinion and Consent of Counsel
EX-99.B11 Consent of Independent Accountants
EX-99.B16 Schedule for Computation of Performance Quotations
EX-99.B24(a) Directors' Power of Attorney
EX-99.B24(b) Officers' Power of Attorney
EX-99.B27 Financial Data Schedules
13
Exhibit 1(b)
PBHG INSURANCE SERIES FUND, INC.
ARTICLES SUPPLEMENTARY
PBHG INSURANCE SERIES FUND, INC., a Maryland corporation registered as
an open-end investment company under the Investment Company Act of 1940, as
amended, having its principal office in the State of Maryland in the City of
Baltimore (hereinafter called the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The Board of Directors of the Corporation has adopted resolutions to
increase the aggregate number of shares of capital stock which the Corporation
shall have the authority to issue from 3,000,000,000 to 10,000,000,000 shares
with a par value of $.001 each.
SECOND: Immediately prior to the filing of these Articles Supplementary,
the Corporation had authority to issue 3,000,000,000 shares with a par value of
$.001 each, all of which shares have been designated as Common Stock and which
shares were classified in the following series (portfolios):
(a) 500,000,000 Shares in PBHG Growth II Portfolio; 500,000,000 Shares
in PBHG Large Cap Growth Portfolio; 500,000,000 Shares in PBHG Small
<PAGE>
Cap Value Portfolio; 500,000,000 Shares in PBHG Large Cap Value Portfolio;
500,000,000 Shares in PBHG Technology & Communications Portfolio; and
500,000,000 Shares in PBHG Select 20 Portfolio.
THIRD: All the shares of Common Stock of the Corporation collectively had
an aggregate par value of $3,000,000.
FOURTH: As of the filing of these Articles Supplementary, the Corporation
shall have authority to issue 10,000,000,000 shares with a par value of $.001
each, all of which shares shall be designated as Common Stock and which shares
shall be classified in the following series (portfolios):
(a) 500,000,000 Shares in PBHG Growth II Portfolio; 500,000,000 Shares
in PBHG Large Cap Growth Portfolio; 500,000,000 Shares in PBHG Small Cap Value
Portfolio; 500,000,000 Shares in PBHG Large Cap Value Portfolio; 500,000,000
Shares in PBHG Technology & Communications Portfolio; 500,000,000 Shares in PBHG
Select 20 Portfolio; and 500,000,000 Shares in PBHG Mid-Cap Value Portfolio.
(b) The remaining 6,500,000,000 shares designated as Common Stock are
without further classification.
2
<PAGE>
FIFTH: Unissued shares of Common Stock (both classified and unclassified)
may be classified and reclassified by the Board of Directors.
SIXTH: All the shares of Common Stock of the Corporation, both classified
and unclassified, collectively have an aggregate par value of $10,000,000.
SEVENTH: The preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption of each class of Shares of Common Stock as set forth in
ARTICLE V of the Corporation's Charter and in the provisions of the Charter
relating to stock of the Corporation generally, remain unchanged.
EIGHTH: The shares of the Corporation authorized, designated and classified
pursuant to these Articles Supplementary have been so authorized by the Board of
Directors of the Corporation under the authority contained in the Charter of the
Corporation and Section 2-105(c) of the Maryland General Corporation Law (the
"MGCL"), and these Articles Supplementary are filed pursuant to Section 2-208.1
of the MGCL.
The undersigned President acknowledges these Articles Supplementary to be
the corporate act of the Corporation and states that to the best of his
knowledge,
3
<PAGE>
information and belief, the matters and facts set forth in these Articles with
respect to authorization and approval are true in all material respects and that
this statement is made under the penalties for perjury.
IN WITNESS WHEREOF, PBHG INSURANCE SERIES FUND, INC. has caused these
Articles Supplementary to be executed in its name and on its behalf by its
President and witnessed by its Secretary on January 30, 1998.
PBHG INSURANCE SERIES FUND, INC.
Witness:
/s/ John M. Zerr By: /s/ Gary L. Pilgrim
- ----------------------- -------------------------------
John M. Zerr, Secretary Gary L. Pilgrim, President
4
Exhibit 2(b)
The following amendment to the Bylaws of PBHG Insurance Series Fund, Inc. was
adopted by resolution of the Board of Directors on December 3, 1997:
NOW THEREFORE BE IT RESOLVED, that the second paragraph of Section 8 of Article
II of the Bylaws of each Company is hereby amended to read in its entirety as
follows:
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 attorney-in-fact. A stockholder may duly authorize such
attorney in fact through written, electronic, telephonic, computerized,
facsimile, telecommunication, telex or oral communication or by any other form
of communication. No proxy shall be valid after the expiration of eleven months
from the date thereof, unless otherwise provided in the proxy. Every proxy shall
be revocable at the pleasure of the stockholder executing it, except in those
cases where such proxy states that it is irrevocable and where an irrevocable
proxy is permitted by law. Except as otherwise provided by statute, the Articles
of Incorporation or these ByLaws, any corporate action to be taken by vote of
the stockholders shall be authorized by a majority of the total votes validly
cast at a meeting of stockholders at which a quorum is present.
Exhibit 5(a)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, effective commencing on April 1, 1997, between Pilgrim
Baxter & Associates, Ltd. (the "Adviser") and PBHG Insurance Series Fund, Inc.
(the "Fund").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated December 23, 1996, (the "Articles") and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end,
diversified management investment company;
WHEREAS, the Fund wishes to retain the Adviser to render investment
advisory services to the Fund and the Adviser is willing to furnish such
services to the portfolios listed on Schedule A hereto (the "Portfolios");
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act");
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Fund and the Adviser as follows:
1. Appointment. The Fund hereby appoints the Adviser to act as investment
adviser to the Fund for the periods and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. Investment Advisory Duties. Subject to the supervision of the Directors of
the Fund, the Adviser will, (a) provide a program of continuous investment
management for the Portfolios in accordance with the Portfolios' investment
objectives, policies and limitations as stated in each Portfolio's prospectus
and Statement of Additional Information included as part of the Fund's
Registration Statement filed with the Securities and Exchange Commission, as
they may be amended from time to time, copies of which shall be provided to the
Adviser by the Fund; (b) make investment decisions for the Portfolios; and (c)
place orders to purchase and sell securities for the Portfolios.
In performing its investment management services to the Portfolios
hereunder, the Adviser will provide the Portfolios with ongoing investment
guidance and policy direction, including oral and written research, analysis,
advice, statistical and economic data and judgments regarding individual
investments, general economic conditions and trends and long-range investment
policy. The Adviser will determine the securities, instruments,
<PAGE>
repurchase agreements, options, futures and other investments and techniques
that the Portfolios will purchase, sell, enter into or use, and will provide an
ongoing evaluation of the Portfolios' investments. The Adviser will determine
what portion of the Portfolios' investments shall be invested in securities and
other assets, and what portion, if any, should be held uninvested. The Adviser
shall furnish to the Fund adequate (i) office space, which may be space within
the offices of the Adviser or in such other places as may be agreed upon from
time to time and (ii) office furnishings, facilities and equipment as may be
reasonably required for managing the
3. Additional Services. If the Fund so requests, the Adviser shall also maintain
all internal bookkeeping, accounting and auditing services and records in
connection with maintaining the Fund's financial books and records, and shall
calculate each Portfolio's daily net asset value. For these services, each
Portfolio shall pay to the Adviser a monthly fee, which shall be in addition to
the fees payable pursuant to Section 5 hereof, to reimburse the Adviser for its
costs, without profit, for performing such services.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this Section 4, the Adviser shall pay the compensation and expenses of all
its directors, officers and employees who serve as officers and executive
employees of the Fund (including the Fund's share of payroll taxes for such
persons), and the Adviser shall make available, without expense to the Fund, the
service of its directors, officers and employees who may be duly-elected
officers of the Fund, subject to their individual consent to serve and to any
limitations imposed by law.
The Adviser shall not be required to pay any expenses of the Fund other
than those specifically allocated to the Adviser in this Section 4. In
particular, but without limiting the generality of the foregoing, the Adviser
shall not be responsible, except to the extent of the reasonable compensation of
such of the Fund's employees as are officers or employees of the Adviser whose
services may be involved, for the following expenses of the Fund; organization
and certain offering expenses of the Fund (including out-of-pocket expenses, but
not including the Adviser's overhead and employee costs); fees payable to the
Adviser and to any other Fund advisers or consultants; legal expenses; auditing
and accounting expenses; interest expenses; telephone, telex, facsimile, postage
and other communications expenses; taxes and governmental fees; fees, dues and
expenses incurred by or with respect to the Fund in connection with membership
in investment company trade organizations; costs of insurance relating to
fidelity coverage for the Fund's officers and employees; fees and expenses of
the Fund's custodian, any sub-custodian, transfer agent registrar, or dividend
disbursing agent; payments to the Adviser for maintaining the Fund's financial
books and records and calculating the daily net asset value pursuant to Section
3 hereof, other payments for portfolio pricing or valuation services to pricing
agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates; other expenses in connection with the issuance,
offering, distribution, sale or redemption of securities issued by the Fund;
2
<PAGE>
expenses relating to investor and public relations; expenses of registering and
qualifying shares of the Fund for sale; freight, insurance and other charges in
connection with the shipment of the Fund's portfolio securities; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
or other assets of the Fund, or of entering into other transactions or engaging
in any investment practices with respect to the Fund; expenses of printing and
distributing prospectuses, Statements of Additional Information, reports,
notices and dividends to stockholders; costs of stationery; any litigation
expenses; costs of stockholders' meetings; the compensation and all expenses
(specifically including travel expenses relating to the Fund's business) of
officers, directors and employees of the Fund who are not interested persons of
the Adviser; and travel expenses (or an appropriate portion thereof) of officers
or directors of the Fund who are officers, directors or employees of the Adviser
to the extent that such expenses relate to attendance at meetings of the Board
of Directors of the Fund with respect to matters concerning the Fund, or any
committees thereof or advisers thereto.
5. Compensation. As compensation for the services provided and expenses assumed
by the Adviser under this Agreement, except for any additional services provided
by the Adviser pursuant to Section 3 hereof, each Portfolio will pay the Adviser
at the end of each calendar month an advisory fee as set forth in Schedule A
hereto. The advisory fee is computed daily as a percentage of each Portfolio's
average daily net assets. The "average daily net assets" of a Portfolio shall
mean the average of the values placed on the Portfolio's net assets as of 4:00
p.m. (Eastern time) on each day on which the net asset value of the Portfolio is
determined consistent with the provisions of Rule 22c-1 under the 1940 Act or,
if the Portfolio lawfully determines the value of its net assets as of some
other time on each business day, as of such other time. The value of net assets
of the Portfolio shall always be determined pursuant to the applicable
provisions of the Articles and the Registration Statement. If, pursuant to such
provisions, the determination of net asset value is suspended for any particular
business day, then for the purposes of this Section 5, the value of the net
assets of the Portfolio as last determined shall be deemed to be the value of
its net assets as of the close of regular trading on the New York Stock
Exchange, or as of such other time as the value of the net assets of the
Portfolio's securities may lawfully be determined, on that day. If the
determination of the net asset value of the shares of a Portfolio has been so
suspended for a period including any month and when the Adviser's compensation
is payable at the end of such month, then such value shall be computed on the
basis of the value of the net assets of the Portfolio as last determined
(whether during or prior to such month). If the Portfolio determines the value
of the net assets more than once on any day, then the last such determination
thereof on that day shall be deemed to be the sole determination thereof on that
day for the purposes of this Section 5.
In the event that the Adviser's gross compensation hereunder shall,
when added to the other expenses of a Portfolio, cause the aggregate expenses of
the Portfolio to exceed the maximum expenses permitted under the lowest
applicable expense limitation established
3
<PAGE>
pursuant to the statutes or regulations of any jurisdiction in which the shares
of the Portfolio may be qualified for offer and sale, the total compensation
paid or payable to the Adviser shall be reduced (but not below zero), to the
extent necessary to cause the Portfolio not to exceed such expense limitation.
Except to the extent that such reduction has been reflected in lowered monthly
payments to the Adviser, the Adviser shall refund to the Portfolio the amount by
which the total of payments received by the Adviser are in excess of such
expense limitation as promptly as practicable after the end of such fiscal year,
provided that the Adviser shall not be required to pay the Portfolio an amount
greater than the fee otherwise payable to the Adviser in respect of such year.
As used in this Section 5, "expenses" shall mean those expenses included in the
applicable expense limitation having the broadest specifications thereof, and
"expense limitation" mean a limitation on the maximum annual expenses which may
be incurred by an investment company as determined by applicable law. The words
"lowest applicable expense limitation" shall be deemed to be that which results
in the largest reduction of the Adviser's compensation for any fiscal year of a
Portfolio; provided, however, that nothing in this Agreement shall limit the
Adviser's fees if not required by an applicable statute or regulation referred
to above in this Section 5.
6. Books and Records. The Adviser agrees to maintain such books and records with
respect to its services to the Fund as are required by Section 31 under the 1940
Act, and rules adopted thereunder, and by other applicable legal provisions, and
to preserve such records for the periods and in the manner required by that
Section, and those rules and legal provisions. The Adviser also agrees that
records it maintains and preserves pursuant to Rules 31a-1 and 3la-2 under the
1940 Act as otherwise in connection with its services hereunder are the property
of the Fund and will be surrendered promptly to the Fund upon its request. And
the Adviser further agrees that it will furnish to regulatory authorities having
the requisite authority any information or reports in connection with its
services hereunder which may be requested in order to determine whether the
operations of the Fund are being conducted in accordance with applicable law and
regulations.
7. Standard of Care and Limitation of Liability. The Adviser shall exercise its
best judgment in rendering the services provided by it under this Agreement. The
Adviser shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund or the holders of the Fund's shares in connection
with the matters to which this Agreement relates, provided that nothing in this
Agreement shall be deemed to protect or purport to protect the Adviser against
any liability to the Fund or to holders of the Fund's shares to which the
Adviser would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or by reason of
the Adviser's reckless disregard of its obligations and duties under this
Agreement. As used in this Section 7, the term "Adviser" shall include any
officers, directors, employees or other affiliates of the Adviser performing
services with respect to the Fund.
4
<PAGE>
8. Services Not Exclusive. It is understood that the services of the Adviser are
not exclusive, and that nothing in this Agreement shall prevent the Adviser from
providing similar services to other investment companies or to other series of
investment companies, or from engaging in other activities, provided such other
services and activities do not, during the term of the Agreement, interfere in a
material manner with the Adviser's ability to meet its obligations to the Fund
hereunder. When the Adviser recommends the purchase or sale of the same security
for a Portfolio, it is understood that in light of its fiduciary duty to the
Portfolio, such transactions will be executed on a basis that is fair and
equitable to the Portfolio. In connection with purchases or sales of portfolio
securities for the account of a Portfolio, neither the Adviser nor any of its
directors, officers or employees shall act as a principal or agent or receive
any commission, provided that portfolio transactions for a Portfolio may be
executed through firms affiliated with the Adviser, in accordance with
applicable legal requirements. If the Adviser provides any advice to its clients
concerning the shares of the Fund, the Adviser shall act solely as investment
counsel for such clients and not in any way on behalf of the Fund.
9. Duration and Termination. This Agreement shall continue until April 1, 1999,
and thereafter shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by (i) the
Directors or (ii) a vote of a "majority" (as defined in the 1940 Act) of each
Portfolio's outstanding voting securities (as defined in the 1940 Act), provided
that in either event the continuance is also approved by a majority of the
Directors who are not "interested persons" (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. Notwithstanding the foregoing, this
Agreement may be terminated as to a Portfolio (a) at any time without penalty by
the Fund upon the vote of a majority of the Directors or by vote of the majority
of the Portfolio's outstanding voting securities, upon sixty (60) days' written
corporate affairs and conducting the business of the Fund, including complying
with the corporate reporting requirements of the various states in which the
Fund does business, and conducting correspondence and other communications with
the stockholders of the Fund. The Adviser shall employ or provide and compensate
the executive, secretarial and clerical personnel necessary to provide such
services. Subject to the approval of the Board of Directors (including a
majority of the Fund's Directors who are not "interested persons" of the Fund as
defined in the 1940 Act) and of the shareholders of the Fund, the Adviser may
delegate to a sub-adviser its duties enumerated in Section 2 hereof. The Adviser
shall continue to supervise the performance of any such sub-adviser and shall
report regularly thereon to the Fund's Board of Directors. The Adviser further
agrees that, in performing its duties hereunder, it will:
(a) comply with the 1940 Act and all rules and regulations thereunder,
the Advisers Act, the Internal Revenue Code (the "Code") and all other
applicable federal and state laws and regulations, and with any applicable
procedures adopted by the Directors;
5
<PAGE>
(b) use reasonable efforts to manage each Portfolio so that it will
qualify, and continue to qualify, as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder;
(c) place orders pursuant to its investment determinations for each
Portfolio directly with the issuer, or with any broker or dealer, in accordance
with applicable policies expressed in each Portfolio's prospectus and/or
Statement of Additional Information and in accordance with applicable legal
requirements;
(d) furnish to the Fund whatever statistical information the Fund may
reasonably request with respect to each Portfolio's assets or contemplated
investments. In addition, the Adviser will keep the Fund and the Directors
informed of developments materially affecting each Portfolio's investments and
shall, on the Adviser's own initiative, furnish to the Fund from time to time
whatever information the Adviser believes appropriate for this purpose;
(e) make available to the Fund, promptly upon its request, such copies
of the Adviser's investment records and ledgers with respect to the Portfolios
as may be required to assist the Fund in its compliance with applicable laws and
regulations. The Adviser will furnish the Directors with such periodic and
special reports regarding each Portfolio as they may reasonably request; and
(f) immediately notify the Fund in the event that the Adviser or any of
its affiliates; (1) becomes aware that it is subject to a statutory
disqualification that prevents the Adviser from serving as investment adviser
pursuant to this Agreement; or (2) becomes aware that it is the subject of an
administrative proceeding or enforcement action by the Securities and Exchange
Commission ("SEC") or other regulatory authority. The Adviser further agrees to
notify the Fund immediately of any material fact known to the Adviser respecting
or relating to the Adviser that is not contained in the Fund's Registration
Statement, or any amendment or supplement thereto, but that is required to be
disclosed therein, and of any statement contained therein that becomes untrue in
any material respect.
notice to the Adviser or (b) by the Adviser at any time without penalty, upon
sixty (60) days' written notice to the Fund. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
10. Amendments. No provision of this Agreement may be changed, waived,
discharged, or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) a majority of the outstanding
voting securities of the Fund, and (ii) a majority of the Directors, including a
majority of Directors who are not interested persons of any party to this
Agreement, cast in
6
<PAGE>
person at a meeting called for the purpose of voting on such approval, if such
approval is required by applicable law.
11. Miscellaneous.
a. This Agreement shall be governed by the laws of the State of
Maryland, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act, or rules or orders of the SEC
thereunder.
b. The captions of this Agreement are included for convenience only and
in no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
c. If any provision of this Agreement shall be held or made invalid by
a court decision statute, rule or otherwise, the remainder of this Agreement
shall not be affected hereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
d. Nothing herein shall be construed as constituting the Adviser as an
agent of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of April 1, 1997.
PBHG INSURANCE SERIES FUND, INC.
By: /s/ Brian F. Bereznak
------------------------------------
Title: Vice President
PILGRIM BAXTER & ASSOCIATES, LTD.
By: /s/ Gary L. Pilgrim
------------------------------------
Title: Chief Investment Officer
7
<PAGE>
Schedule A dated April 1, 1997
to the Investment Advisory Agreement dated
April 1, 1997 between
PBHG Insurance Series Fund, Inc.
and
Pilgrim Baxter & Associates, Ltd.
Pursuant to Section 5 of this Agreement, each Portfolio shall pay the
Adviser, at the end of each calendar month, compensation computed daily at an
annual rate of the Portfolio's average daily net assets as follows:
Portfolio Fee
--------- ---
PBHG Growth II Portfolio .85%
PBHG Large Cap Growth Portfolio .75%
PBHG Select 20 Portfolio .85%
PBHG Technology & Communications Portfolio .85%
PBHG Large Cap Value Portfolio .65%
PBHG Small Cap Value Portfolio 1.00%
8
Exhibit 5(b)
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made as of this 1st day of April 1997, by and among Pilgrim
Baxter & Associates, Ltd. (the "Adviser"), Newbold's Asset Management, Inc. (the
"Sub-Adviser") and PBHG Insurance Series Fund, Inc., a Maryland corporation (the
"Company").
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, pursuant to the Investment Advisory Agreement dated April 1,
1997 and Schedule A dated April 1, 1997 between the Adviser and the Company, the
Adviser will act as investment adviser to certain series of the Company as set
forth in Schedule A attached hereto ("Portfolios"); and
WHEREAS, the Adviser and the Company each desire to retain the
Sub-Adviser to provide investment advisory services to the Company in connection
with the management of the Portfolios, and the Sub-Adviser is willing to render
such investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. (a) Subject to supervision by the Adviser and the Company's Board of
Directors, the Sub-Adviser shall manage the investment operations
of each Portfolio and the composition of each Portfolio's
portfolio, including the purchase, retention and disposition
thereof, in accordance with each Portfolio's investment
objectives, policies and restrictions as stated in the Portfolios'
Prospectus (such Prospectus and Statement of Additional
Information, as currently in effect and as amended or supplemented
from time to time, being herein called the "Prospectus"), and
subject to the following understandings:
(1) The Sub-Adviser shall provide supervision of each Portfolio's
investments and determine from time to time what investments and
securities will be purchased, retained or sold by each Portfolio,
and what portion of the assets will be invested or held uninvested
in cash.
(2) In the performance of its duties and obligations under this
Agreement, the Sub-Adviser shall act in conformity with the
Company's Articles of Incorporation and the Prospectus and with
the instructions and directions of the Adviser and of the Board of
Directors and will conform and comply with the requirements of the
1940 Act, the Internal Revenue Code of 1986, as amended, and all
other
<PAGE>
applicable federal and state laws and regulations, as each is
amended from time to time.
(3) The Sub-Adviser shall determine the securities to be purchase or
sold by each Portfolio and will place orders with or through such
persons, brokers or dealers to carry out the policy with respect
to brokerage set forth in the Portfolios' Registration Statement
(as defined herein) and Prospectus or as the Board of Directors or
the Adviser may direct from time to time, in conformity with
federal securities laws. In providing each Portfolio with
investment supervision, the Sub-Adviser will give primary
consideration to securing the most favorable price and efficient
execution. Within the framework of this policy, the Sub-Adviser
may consider the financial responsibility, research and investment
information and other services provided by brokers or dealers who
may effect or be a party to any such transaction or other
transactions to which the Sub-Adviser's other clients may be a
party. It is understood that it is desirable for each Portfolio
that the Sub-Adviser have access to supplemental investment and
market research and security and economic analysis provided by
brokers who may execute brokerage transactions at a higher cost to
the Portfolios than may result when allocating brokerage to other
brokers on the basis of seeking the most favorable price and
efficient execution. Therefore, the Sub-Adviser is authorized to
place orders for the purchase and sale of securities for each
Portfolio with such brokers, subject to review by the Company's
Board of Directors from time to time with respect to the extent
and continuation of this practice. It is understood that the
services provided by such brokers may be useful to the Sub-Adviser
in connection with the Sub-Adviser's services to other clients.
On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interest of a Portfolio as well as
other clients of the Sub-Adviser, the Sub-Adviser, to the extent
permitted by applicable laws and regulations, may, but shall be
under no obligation to, aggregate the securities to be so
purchased or sold in order to obtain the most favorable price or
lower brokerage commissions and efficient execution. In such
event, allocation of the securities so purchased or sold, as well
as the expenses incurred in the transaction, will be made by the
Sub-Adviser in the manner it considers to be the most equitable
and consistent with its fiduciary obligations to the Portfolio in
question and to such other clients.
(4) The Sub-Adviser shall maintain all books and records with respect
to each Portfolio's portfolio transactions required by
subparagraphs (b)(5), (6), (7), (9), (10) and (11) and paragraph
(f) of Rule 31a-1 under the 1940 Act and shall render to the
Company's Board of Directors such periodic and special reports as
the Company's Board of Directors may reasonably request.
2
<PAGE>
(5) The Sub-Adviser shall provide the Portfolios' Custodian on each
business day with information relating to all transactions
concerning each Portfolio's assets and shall provide the Adviser
with such information upon request of the Adviser.
(6) The investment management services provided by the Sub-Adviser
under this Agreement are not to be deemed exclusive and the
Sub-Adviser shall be free to render similar services to others, as
long as such services do not impair the services rendered to the
Adviser or the Company.
(b) Services to be furnished by the Sub-Adviser under this Agreement
may be furnished through the medium of any of the Sub-Adviser's of
officers or employees. It is understood that the Sub-Adviser may
obtain certain administrative services, including, without
limitation, services relating to trade reconciliation and the
production of client reports, from its parent company in carrying
out its obligations under this Agreement.
(c) The Sub-Adviser shall keep each Portfolio's books and records
required to be maintained by the Sub-Adviser pursuant to paragraph
1(a) of this Agreement and shall timely furnish to the Adviser all
information relating to the Sub-Adviser's services under this
Agreement needed by the Adviser to keep the other books and
records of the Portfolios required by Rule 31a-1 under the 1940
Act. The Sub-Adviser agrees that all records that it maintains on
behalf of each Portfolio are property of the Portfolios and the
Sub-Adviser will surrender promptly to the Portfolio any of such
records upon that Portfolio's request; provided, however, that the
Sub-Adviser may retain a copy of such records. The Sub-Adviser
further agrees to preserve for the periods prescribed by Rule
31a-2 under the 1940 Act any such records as are required to be
maintained by it pursuant to paragraph 1(a) of this Agreement.
2. The Adviser shall continue to have responsibility for all services to
be provided to each Portfolios pursuant to the Advisory Agreement and
shall oversee and review the Sub-Adviser's performance of its duties
under this Agreement.
3. The Adviser has delivered to the Sub-Adviser copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation, as filed with the Secretary of State
of Maryland (such Articles of Incorporation as in effect on the
date of this Agreement and as amended from time to time, are
herein called the "Articles of Incorporation");
(b) By-Laws of the Company (such By-Laws, as in effect on the date of
this Agreement and as amended from time to time, are herein called
the "By-Laws");
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<PAGE>
(c) Certified resolutions of the Company's Board of Directors
authorizing the appointment of the Adviser and the Sub-Adviser
and approving the form of this Agreement;
(d) Registration Statement under the 1940 Act and the Securities Act
of 1933, as amended, on form N-1A (the "Registration Statement"),
as filed with the Securities and Exchange Commission (the
"Commission") relating to the Portfolios and shares of the
Portfolios' beneficial shares, and all amendments thereto;
(e) Notification of Registration of the Portfolios under the 1940 Act
on form N-8A as filed with the Commission, and all amendments
thereto; and
(f) Prospectus of the Portfolios.
4. For the services to be provided by the Sub-Adviser pursuant to this
Agreement for each of the Portfolios set forth in Schedule A, the
Adviser will pay to the Sub-Adviser as full compensation therefor a fee
at an annual rate as specified in Schedule A. Each such fee will be
paid to the Sub-Adviser from the Adviser's advisory fee for such
Portfolio.
5. The Sub-Adviser shall not be liable for any error of judgment or for
any loss suffered by a Portfolio or the Adviser in connection with
performance of its obligations under this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt
of compensation for services (in which case any award of damages shall
be limited to the period and the amount set forth in Section 36(b)(3)
of the 1940 Act), or a loss resulting from willful misfeasance, bad
faith or gross negligence on the Sub-Adviser's part in the
performance of its duties or from reckless disregard of its obligations
and duties under this Agreement, except as may otherwise be provided
under provisions of applicable state law which cannot be waived or
modified hereby.
6. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as continuance is specifically
approved at least annually in conformance with the 1940 Act; provided,
however, that this Agreement may be terminated (a) by a Portfolio at
any time, without the payment of any penalty, by the vote of a majority
of Directors of the company or by the vote of a majority of the
outstanding voting securities of a Portfolio, (b) by the Adviser at any
time, without the payment of any penalty, on not more than 60 days' nor
less than 30 days' written notice to the other parties, or (c) by the
Sub-Adviser at any time, without the payment of any penalty, on 90
days' written notice to the other parties. This Agreement shall
terminate automatically and immediately in the event of its assignment.
As used in this Section 6, the terms "assignment" and "vote of a
majority of the outstanding voting securities" shall have the
respective meanings set forth in the 1940 Act and the rules and
regulations
4
<PAGE>
thereunder, subject to such exceptions as may be granted by the
Commission under the 1940 Act.
7. Nothing in this Agreement shall limit or restrict the right of any of
the Sub-Adviser's directors, officers, or employees to engage in any
other business or to devote his or her time and attention in part to
the management or other aspects of any business, whether of a similar
or dissimilar nature, nor limit or restrict the Sub-Adviser's right to
engage in any other business or to render services of any kind to any
other corporation, firm, individual or association.
8. During the term of this Agreement, the Adviser agrees to furnish the
Sub-Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature or other materials prepared
for distribution to shareholders of the Portfolios, the Company or the
public that refers to the Sub-Adviser or its clients in any way prior
to use thereof and not to use material if the Sub-Adviser reasonably
objects in writing within five business days (or such other period as
may be mutually agreed) after receipt thereof. The Sub-Adviser's right
to object to such materials is limited to the portions of such
materials that expressly relate to the Sub-Adviser, its services and
its clients. The Adviser agrees to use its reasonable best efforts to
ensure that materials prepared by its employees or agents or its
affiliates that refer to the Sub-Adviser or its clients in any way are
consistent with those materials previously approved by the Sub-Adviser
as referenced in the first sentence of this paragraph. Sales literature
may be furnished to the Sub-Adviser by first-class or overnight mail,
facsimile transmission equipment or hand delivery.
9. No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be
effective until approved by the vote of the majority of the outstanding
voting securities of a Portfolio.
10. This Agreement shall be governed by the laws of the state of Maryland;
provided, however, that nothing herein shall be construed as being
inconsistent with the 1940 Act.
11. This Agreement embodies the entire agreement and understanding among
the parties hereto, and supersedes all prior agreements and
understandings relating to this Agreement's subject matter. This
Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
12. Should any part of this Agreement be held invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This
5
<PAGE>
Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors.
13. Any notice, advice or report to be given pursuant to this Agreement
shall be delivered or mailed:
To the Adviser at:
1255 Drummers Lane, Suite 300
Wayne, PA 19087
To the Sub-Adviser at:
950 Haverford Road
Bryn Mawr, PA 19010
To the Company or the Portfolio at:
680 East Swedesford Road
Wayne, PA 19087
Attention: General Counsel
14. Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order
of the Commission, whether of special or general application, such
provision shall be deemed to incorporate the effect of such rule,
regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first written
above.
PILGRIM BAXTER & ASSOCIATES, LTD. PBHG INSURANCE SERIES FUND, INC.
By: /s/ Gary L. Pilgrim By: /s/ Brian F. Bereznak
----------------------------- ----------------------------
Title: Chief Investment Officer Title: Vice President
NEWBOLD'S ASSET MANAGEMENT, INC.
By: /s/
-----------------------------
Title: Chief Investment Officer
6
<PAGE>
SCHEDULE A dated April 1, 1997
Pursuant to Section 4 of this Agreement, the Sub-Adviser for each Portfolio
listed below shall be entitled to compensation, to be paid by the Adviser, which
shall be computed daily and paid monthly at the annual rate specified below with
respect to each Portfolio's average daily net assets:
Portfolio Fee
--------- ---
Small Cap Value Portfolio 0.65%
Large Cap Value Portfolio 0.40%
less 50% of any fee waivers borne by the Adviser.
Exhibit 6
DISTRIBUTION AGREEMENT
PBHG INSURANCE SERIES FUND, INC.
THIS AGREEMENT is made as of this 1st day of April, 1997 between PBHG
Insurance Series Fund, Inc. (the "Company"), a Maryland corporation, and SEI
Financial Services Company (the "Distributor"), a Pennsylvania corporation.
WHEREAS, the Company is registered as an investment company with the
Securities and Exchange Commission ("SEC") under the Investment Company Act of
1940, as amended (the "1940 Act"), and is authorized to issue shares of common
stock ("Shares") in separately designated series ("Funds"), each with its own
objectives, investment program, policies and restrictions; and
WHEREAS, the Company has registered the Shares of the Funds under the
Securities Act of 1933, as amended (the "1933 Act"), pursuant to a registration
statement on Form N-1A (the "Registration Statement"), including a prospectus
("Prospectus") and a statement of additional information ("Statement of
Additional Information"); and
WHEREAS, the Distributor is registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "1934 Act"); and
WHEREAS, the Company wishes to continue to engage the services of the
Distributor as principal underwriter and distributor of the Shares of the Funds
that now exist and that hereafter may be established, which are listed on
Schedule A to this Agreement as may be amended from time to time, and the
Distributor is willing to continue to serve in that capacity.
NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Appointment of Distributor.
(a) The Company hereby appoints the Distributor as principal
underwriter and distributor of the Funds of the Company to sell the Shares
of the Funds in jurisdictions wherein the Shares may be legally offered for
sale. The Distributor shall be the exclusive agent for the distribution of
Shares of the Funds; provided, however, that the Company in its absolute
discretion may issue Shares of the Funds otherwise than through the
Distributor in connection with (i) the payment or reinvestment of dividends
or distributions, (ii) any merger or consolidation of the Company or a Fund
with any other investment company or trust or any personal holding company,
or the acquisition of the assets of any such entity by the Company or any
Fund, and (iii) any offer of exchange authorized by the Board of Directors
of the Company. Notwithstanding any other
<PAGE>
provision hereof, the Company may terminate, suspend, or withdraw the
offering of the Shares of a Fund whenever, in its sole discretion, it deems
such action to be desirable.
(b) The Distributor agrees that it will use all reasonable efforts,
consistent with its other business, in connection with the distribution of
Shares of the Company; provided, however, that the Distributor shall not be
prevented from entering into like arrangements with other issuers. The
provisions of this paragraph do not obligate the Distributor to register as
a broker or dealer under the state Blue Sky laws of any jurisdiction when
it determines it would be uneconomical for it to do so or to maintain its
registration in any jurisdiction in which it is now registered nor obligate
the Distributor to sell any particular number of Shares. The Distributor is
currently registered as a broker-dealer or exempt from registration in all
jurisdictions listed in Schedule B hereto. The Distributor shall promptly
notify the Company in the event it fails to maintain its registration in
any jurisdiction in which it is currently registered. The Distributor shall
sell Shares of the Funds as agent for the Company at prices determined as
hereinafter provided and on the terms set forth herein, all according to
applicable federal and state Blue Sky laws and regulations and the Articles
of Incorporation and By-Laws of the Company. The Distributor may sell
Shares of the Funds to or through qualified brokers, dealers or others and
shall require each such person to conform to the provisions hereof, the
Registration Statement, the then current Prospectus and Statement of
Additional Information, and applicable law. Neither the Distributor nor any
such person shall withhold the placing of purchase orders for Shares so as
to make a profit thereby.
(c) The Distributor shall order Shares of the Funds from the Company
only to the extent that it shall have received purchase orders therefor.
The Distributor will not make, or authorize any brokers, dealers, or others
to make, (i) any short sales of Shares or (ii) any sales of Shares to any
Director or officer of the Company, the Distributor, or any corporation or
association furnishing investment advisory, managerial, or supervisory
services to the Company, or to any such corporation or association, unless
such sales are made in accordance with the Company's then current
Prospectus and Statement of Additional Information.
(d) The Distributor is not authorized by the Company to give any
information or to make any representation other than those contained in the
then current Prospectus, Statement of Additional Information, and Fund
shareholder reports ("Shareholder Reports"), or in supplementary sales
materials specifically approved by the Company. The Distributor may prepare
and distribute sales literature and other material as it may deem
appropriate, provided that such literature and materials have been approved
by the Company prior to their use.
2
<PAGE>
2. Offering Price of Shares. All Shares of each Fund sold under this
Agreement shall be sold at the public offering price per Share in effect at the
time of the sale as described in the Company's then current Prospectus and
Statement of Additional Information; provided, however, that any public offering
price for the Shares shall be the net asset value per Share, as determined in
the manner described in the Company's then current Prospectus and/or Statement
of Additional Information. At no time shall the Company receive less than the
full net asset value of the Shares, determined in the manner set forth in the
then current Prospectus and/or Statement of Additional Information.
3. Registration of Shares. The Company agrees that it will take all actions
necessary to register Shares under the Federal and state Blue Sky securities
laws so that there will be available for sale the number of Shares the
Distributor may reasonably be expected to sell and to pay all fees associated
with said registration.
4. Payment of Expenses.
(a) Except as otherwise provided herein, the Distributor shall pay, or
arrange for others to pay, all of the following expenses: (i) payments to
sales representatives of the Distributor and at the discretion of the
Distributor to qualified brokers, dealers and others in respect of the sale
of Shares of the Funds; (ii) compensation and expenses of employees of the
Distributor who engage in or support distribution of Shares of the Funds or
render shareholder support services not otherwise provided by the Company's
transfer and shareholder servicing agent; and (iii) the cost of obtaining
such information, analyses, and reports with respect to marketing and
promotional activities as the Company may from time to time reasonably
request.
(b) The Company shall pay, or arrange for others to pay, the following
expenses: (i) preparation, printing, and distribution to shareholders of
Prospectuses and Statements of Additional Information; (ii) preparation,
printing, and distribution of Shareholder Reports and other communications
required by law to shareholders; (iii) registration of the Shares of the
Funds under the federal securities laws; (iv) qualification of the Shares
of the Funds for sale in such states as the Distributor and the Company may
approve; (v) maintaining facilities for the issue and transfer of Shares;
(vi) supplying information, prices, and other data to be furnished by the
Company under this Agreement; and (vii) taxes applicable to the sale or
delivery of the Shares of the Funds or certificates therefor.
(c) In connection with the Distributor's distribution of sales
materials, Prospectuses, Statements of Additional Information, and
Shareholder Reports to potential investors in the Company, the Company
shall make available to the Distributor such number of copies of such
materials as the Distributor may reasonably request. The Company shall also
furnish to the Distributor copies of all information, financial
3
<PAGE>
statements and other documents the Distributor may reasonably request for
use in connection with the distribution of Shares of the Company. The
Company will enter into arrangements providing that persons other than the
Company will bear any and all expenses of preparing, printing and providing
to the Distributor, sales materials, Prospectuses, Statements of Additional
Information and Shareholder Reports for distribution to potential investors
in the Company.
5. Compensation. It is understood that the Distributor will not receive any
commissions or other compensation for acting as the Company's principal
underwriter and distributor.
6. Repurchase of Shares. The Distributor as agent and for the account of
the Company may repurchase Shares of the Funds offered for resale to it and
redeem such Shares at their net asset value determined as set forth in the then
current Prospectus and Statement of Additional Information.
7. Indemnification of Distributor. The Company agrees to indemnify and hold
harmless the Distributor and each of its directors and officers and each person,
if any, who controls the Distributor within the meaning of Section 15 of the
1933 Act against any loss, liability, claim, damages or expense (including the
reasonable cost of investigating or defending any alleged loss, liability,
damages, claim, or expense, and any reasonable counsel fees and disbursements
incurred in connection therewith) arising by reason of any person acquiring any
Shares, based upon the ground that the Registration Statement, Prospectuses,
Statements of Additional Information, Shareholder Reports or other information
filed or made public by the Company (as from time to time amended) included an
untrue statement of a material fact or omitted to state a material fact required
to be stated or necessary in order to make the statements made not misleading.
However, the Company does not agree to indemnify the Distributor or hold it
harmless to the extent that the statements or omission was made in reliance
upon, and in conformity with, information furnished to the Company by or on
behalf of the Distributor.
In no case (i) is the indemnity of the Company to be deemed to protect the
Distributor against any liability to the Company or its shareholders to which
the Distributor or such person otherwise would be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties or by
reason of its failure to exercise due care in rendering its services and duties
under this Agreement, or (ii) is the Company to be liable to the Distributor
under the indemnity agreement contained in this section with respect to any
claim made against the Distributor or any person indemnified unless the
Distributor or other person shall have notified the Company in writing of the
claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon the Distributor or such other person (or after the Distributor or
the person shall have received notice of service on any designated agent).
However, failure to notify the Company of any claim shall not relieve the
Company from any liability which it may have to the Distributor or
4
<PAGE>
any person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this section.
The Company shall be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity provision. If the Company elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Company and satisfactory to the indemnified defendants in the suit
whose approval shall not be unreasonably withheld. In the event that the Company
elects to assume the defense of any suit and retain counsel, the indemnified
defendants shall bear the fees and expenses of any additional counsel retained
by them. If the Company does not elect to assume the defense of a suit, it will
reimburse the indemnified defendants for the reasonable fees and expenses of any
counsel retained by the indemnified defendants.
The Company agrees to notify the Distributor promptly of the commencement
of any litigation or proceedings against it or any of its officers or Directors
in connection with the issuance or sale of any of its Shares.
8. Indemnification of Company. The Distributor covenants and agrees that it
will indemnify and hold harmless the Company and each of its directors and
officers and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act, against any loss, liability, damages, claim or
expense (including the reasonable cost of investigating or defending any alleged
loss, liability, damages, claim or expense, and reasonable counsel fees and
disbursements incurred in connection therewith) based upon the 1933 Act or any
other statute or common law and arising by reason of any person acquiring any
Shares, and alleging (i) a wrongful act or deed of the Distributor or any of its
employees or sales representatives, or (ii) that the Registration Statement,
Prospectuses, Statements of Additional Information, shareholder reports or other
information fled or made public by the Company (as from time to time amended)
included an untrue statement of a material fact or omitted to state a material
fact required to be stated or necessary in order to make the statements not
misleading, insofar as any such statements or omissions were made in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Distributor.
In no case (i) is the indemnity of the Distributor in favor of the Company
or any other person indemnified to be deemed to protect the Company or any other
person against any liability to which the Company or such other person would
otherwise be subject by reason of willful misfeasance or bad faith in the
performance of its duties or by reason of its failure to exercise due care in
rendering its services and duties under this Agreement, or (ii) is the
Distributor to be liable under its indemnity agreement contained in this section
with respect to any claim made against the Company or any person indemnified
unless the Company or person, as the case may be, shall have notified the
Distributor in writing of the claim within a reasonable time after the summons
or other first written notification giving information of the nature of the
5
<PAGE>
claim shall have been served upon the Company or upon any person (or after the
Company or such person shall have received notice of service on any designated
agent). However, failure to notify the Distributor of any claim shall not
relieve the Distributor from any liability which it may have to the Company or
any person against whom the action is brought otherwise than on account on its
indemnity agreement contained in this section.
The Distributor shall be entitled to participate, at its own expense, in
the defense or, if it so elects, to assume the defense of any suit brought to
enforce the claim, but if the Distributor elects to assume the defense, the
defense shall be conducted by counsel chosen by the Distributor and satisfactory
to the indemnified defendants, whose approval shall not be unreasonably
withheld. In the event that the Distributor elects to assume the defense of any
suit and retain counsel, the defendants in the suit shall bear the fees and
expenses of any additional counsel retained by them. If the Distributor does not
elect to assume the defense of any suit, it will reimburse the indemnified
defendants in the suit for the reasonable fees and expenses of any counsel
retained by them.
The Distributor agrees to notify the Company promptly of the commencement
of any litigation or proceedings against it in connection with the issue and
sale of any of the Company's Shares.
9. Term and Termination.
(a) This Agreement shall become effective as of the date hereof.
Unless sooner terminated as herein provided, this Agreement shall remain in
full force and effect for two (2) years from the effective date and
thereafter for successive periods of one year, but only so long as each
such continuance is specifically approved at least annually either by vote
of a majority of the Board of Directors of the Company or by vote of a
majority of the outstanding voting securities of the company.
(b) This Agreement may be terminated at any time, without the payment
of any penalty, by the Board of Directors of the Company, by vote of a
majority of the outstanding voting securities of the Company, or by the
Distributor, on not less than ninety (90) days' written notice to the other
party or upon such shorter notice as may be mutually agreed upon.
(c) This Agreement shall automatically terminate in the event of its
assignment.
(d) The indemnification provisions contained in Sections 7 and 8 of
this Agreement shall remain in full force and effect regardless of any
termination of this Agreement.
6
<PAGE>
10. Amendment. No provisions of this Agreement may be changed, waived,
discharged, or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge, or
termination is sought. If the Company should at any time deem it necessary or
advisable in the best interests of the Company that any amendment of this
Agreement be made in order to comply with the recommendations or requirements of
the SEC or other governmental authority or to obtain any advantage under state
or federal tax laws and notifies Distributor of the form of such amendment, and
the reasons therefor, and if Distributor should decline to assent to such
amendment, the Company may terminate this Agreement forthwith. If Distributor
should at any time request that a change be made in the Company's Articles of
Incorporation or By-Laws or in its methods of doing business, in order to comply
with any requirements of Federal law or regulations of the SEC, or of a national
securities association of which Distributor is or may be a member relating to
the sale of Shares, and the Fund should not make such necessary change within a
reasonable time, Distributor may terminate this Agreement forthwith.
11. Independent Contractor. Distributor shall be an independent contractor
and neither Distributor nor any of its officers, directors, employees, or
representatives is or shall be an employee of the Company in the performance of
Distributor's duties hereunder. Distributor shall be responsible for its own
conduct and the employment, control, and conduct of its agents and employees and
for injury to such agents or employees or to others through its agents or
employees. Distributor assumes full responsibility for its agents and employees
under applicable statutes and agrees to pay all employee taxes thereunder.
12. Definition of Certain Terms. For purposes of this Agreement the terms
"assignment," "interested person," "majority of the outstanding voting
securities," and "principal underwriter" shall have their respective meanings
defined in the 1940 Act and the rules and regulations thereunder, subject,
however, to such exemptions as may be granted to either the Distributor or the
Company by the SEC, or such interpretative positions as may be taken by the SEC
or its staff under the 1940 Act.
13. Notice. Any notice under this Agreement shall be deemed to be
sufficient if it is given in writing, addressed and delivered, or mailed
postpaid (a) if to the Distributor, to SEI Financial Services Company, 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658; and (b) if to the Company, to
Pilgrim Baxter & Associates, Ltd., 1255 Drummers Lane, Suite 300, Wayne,
Pennsylvania 19087-1590, Attention: Michael Harrington.
14. Captions. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect construction or effect.
7
<PAGE>
15. Interpretation. Nothing herein contained shall be deemed to require the
Company or the Distributor to take any action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Board of Directors of its responsibility for and control of the conduct of the
affairs of the Company.
16. Governing Law. This Agreement shall be construed in accordance with the
laws of the Commonwealth of Pennsylvania and the applicable provisions of the
1940 Act. To the extent that the applicable laws of the Commonwealth of
Pennsylvania or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
17. Multiple Originals. This Agreement may be executed in two or more
counterparts, each of which when so executed shall be deemed to be an original,
but such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the Company and Distributor have each duly executed
this Agreement, as of the day and year above written.
ATTEST: PBHG INSURANCE SERIES FUND, INC.
/s/ John M. Zerr By: /s/ Brian F. Bereznak
- ---------------------------------- -------------------------------
Title: Vice President Title: Vice President
and Secretary
ATTEST: SEI FINANCIAL SERVICES COMPANY
/s/ By: /s/ Barbara A. Nugent
- ---------------------------------- -------------------------------
Title: Title: Vice President
8
<PAGE>
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
9
<PAGE>
SCHEDULE B
The Distributor is currently registered as a broker-dealer or exempt from
registration in all fifty states and Puerto Rico.
10
Exhibit 8
CUSTODIAN AGREEMENT
This Agreement, dated as of the 1st day of April, 1997 by and between
PBHG Insurance Series Fund, Inc. ("Fund"), a corporation operating as an
open-end management investment company and duly organized under the laws of the
State of Maryland, and CoreStates Bank N.A.;
WITNESSETH
WHEREAS, the Fund desires to deposit cash and securities of certain of
its series ("Portfolios"), which Portfolios shall be set forth in Schedule A
hereto attached, with CoreStates Bank N.A. as custodian; and
WHEREAS, CoreStates Bank N.A. is qualified and authorized to act as
custodian for the cash and securities of an open-end management investment
company and is willing to act in such capacity upon the terms and conditions
herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
do hereby agree as follows:
SECTION 1. The terms as defined in this Section wherever used in this Agreement,
or in any amendment or supplement hereto, shall have meanings herein specified
unless the context otherwise requires.
CUSTODIAN: The term Custodian shall mean CoreStates Bank N.A. in its capacity as
Custodian under this Agreement.
PROPER INSTRUCTIONS: For purposes of this Agreement the Custodian shall be
deemed to have received Proper Instructions upon receipt of written (including
instructions received by means of computer terminals), telephone or telegraphic
instructions from a person or persons authorized from time to time by the
Directors of the Fund to give the particular class of instructions. Telephone or
telegraphic instructions shall be confirmed in writing by such person or persons
as said Board of Directors shall have from time to time authorized to give the
particular class of instructions in question. The Custodian may act upon
telephone or telegraphic instructions without awaiting receipt of written
confirmation, and shall not be liable for the Fund's or its investment adviser's
failure to confirm such instructions in writing.
SHAREHOLDERS: The term Shareholders shall mean the registered owners from time
to time of the Shares of the Fund in accordance with the registry records
maintained by the Fund or agents on its behalf.
<PAGE>
SHARES: The term Shares of the Fund shall mean the shares of the Fund.
SECTION 2. The Fund shall from time to time file with the Custodian a certified
copy of each resolution of its Board of Directors authorizing the person or
persons to give Proper Instructions (as defined in Section 1) and specifying the
class of instructions that may be given by each person to the Custodian under
this Agreement, together with certified signatures of such persons authorized to
sign, which shall constitute conclusive evidence of the authority of the
officers and signatories designated therein to act, and shall be considered in
full force and effect with the Custodian fully protected in acting in reliance
thereon until it receives written notice to the contrary; provided, however,
that if the certifying officer is authorized to give Proper Instructions, the
certification shall be also signed by a second officer of the Fund.
SECTION 3. The Fund hereby appoints the Custodian as custodian of cash and
securities of the Portfolios from time to time on deposit hereunder, to be held
by the Custodian and applied as provided in this Agreement. The Custodian hereby
accepts such appointment subject to the terms and conditions hereinafter
provided. Such cash and securities shall, however, be segregated from the assets
of others and shall be and remain the sole property of the company and the
Custodian shall have only the bare custody thereof.
The Custodian may perform some or all of its duties hereunder through a
subcustodian.
The Custodian may deposit the Fund's portfolio securities with a U.S. securities
depository or in U.S. Federal book-entry systems pursuant to rules and
regulations of the Securities and Exchange Commission.
SECTION 4. The Fund will make an initial deposit of cash to be held and applied
by the Custodian hereunder. Thereafter the Fund will cause to be deposited with
the Custodian hereunder the applicable net asset value of Shares sold from time
to time whether representing initial issue, other stock or reinvestments of
dividends and/or distributions payable to Shareholders.
SECTION 5. The Custodian is hereby authorized and directed to disburse cash from
time to time upon receipt of and in accordance with Proper Instructions.
SECTION 6. The Custodian's compensation shall be as set forth in Schedule B
hereto attached, and the Custodian will charge fees for specific transactions as
set forth in Schedule C hereto attached, or as shall be set forth in amendments
to such Schedules approved by the Fund and the Custodian.
SECTION 7. In connection with its functions under this Agreement, the Custodian
shall:
2
<PAGE>
(a) render to the Fund a daily report of all monies received or
paid on behalf of the Fund.
(b) create, maintain and retain all records relating to its
activities and obligations under this Agreement in such manner
as will meet the obligations of the Fund with respect to said
Custodian's activities in accordance with generally accepted
accounting principles. All records maintained by the Custodian
in connection with the performance of its duties under this
Agreement will remain the property of the Fund and in the
event of termination of this Agreement will be relinquished to
the Fund.
SECTION 8. No liability of any kind shall be attached to or incurred by the
Custodian by reason of its custody of the assets held by it from time to time
under this Agreement, or otherwise by reason of its position as Custodian
hereunder except only for its own negligence, bad faith, or willful misconduct
in the performance of its duties as specifically set forth in the Agreement.
Without limiting the generality of the foregoing sentence, the Custodian:
(a) may rely upon the advice of counsel, who may be counsel for
the Fund or for the Custodian, and upon statements of
accountants, brokers and other persons believed by it in good
faith to be expert in the matters upon which they are
consulted; and for any action taken or suffered in good faith
based upon such advice or statements the Custodian shall not
be liable to anyone;
(b) shall not be liable for anything done or suffered to be done
in good faith in accordance with any request or advice of, or
based upon information furnished by, the Fund or its
authorized officers or agents;
(c) is authorized to accept a certificate of the Secretary or
Assistant Secretary of the Fund, or Proper Instructions, to
the effect that a resolution in the form submitted has been
duly adopted by its Board of Directors or by the Shareholders,
as conclusive evidence that such resolution has been duly
adopted and is in full force and effect; and
(d) may rely and shall be protected in acting upon any signature,
written (including telegraph or other mechanical)
instructions, request, letter of transmittal, certificate,
opinion of counsel, statement, instrument, report, notice,
consent, order, or other paper or document reasonably believed
by it to be genuine and to have been signed, forwarded or
presented by the purchaser, Fund or other proper party or
parties.
SECTION 9. The Fund, its successors and assignees hereby indemnify and hold
harmless the Custodian, its successors and assignees, of and from any and all
liability whatsoever arising out
3
<PAGE>
of or in connection with the Custodian's status, acts, or omissions under this
Agreement, except only for liability arising out of the Custodian's own
negligence, bad faith, or willful misconduct in the performance of its duties
specifically set forth in this Agreement.
Without limiting the generality of the foregoing, the Fund, its successors and
assignees do hereby fully indemnify and hold harmless the Custodian its
successors and assignees from any and all loss, liability, claims, demand,
actions, suits and expenses of any nature as the same may arise from the failure
of the Fund to comply with any law, rule, regulation or order of the United
States, any state or any other jurisdiction, governmental authority, body, or
board relating to the sale, registration, qualification of units of beneficial
interest in the Fund, or from the failure of the Fund to perform any duty or
obligation under this Agreement.
Upon written request of the Custodian, the Fund shall assume the entire defense
of any claim subject to the foregoing indemnity, or the joint defense with the
Custodian of such claim, as the Custodian shall request. The indemnities and
defense provisions of this Section 9 shall indefinitely survive termination of
this Agreement.
SECTION 10. This Agreement may be amended from time to time without notice to or
any approval of the Shareholders by a supplemental agreement executed by the
Fund and the Custodian and amending and supplementing this Agreement in the
manner mutually agreed.
SECTION 11. Either the Fund or the Custodian may give one hundred twenty (120)
days' written notice to the other of the termination of this Agreement, such
termination to take effect at the time specified in the notice. In case such
notice of termination is given either by the Fund or by the Custodian, the
Directors of the Fund shall, by resolution duly adopted, promptly appoint a
Successor Custodian which Successor Custodian shall be a bank, trust company, or
a bank and trust company in good standing, with legal capacity to accept custody
of the cash and securities of a mutual fund.
Upon receipt of written notice from the company of the appointment of such
successor and upon receipt of Proper Instructions, the Custodian shall deliver
such cash and securities as it may then be holding hereunder directly and only
to the Successor Custodian. Unless or until a Successor Custodian has been
appointed as above provided, the Custodian then acting shall continue to act as
Custodian under this Agreement.
Every Successor Custodian appointed hereunder shall execute and deliver an
appropriate written acceptance of its appointment and shall thereupon become
vested with the rights, powers, obligations and custody of its predecessor
Custodian. The Custodian ceasing to act shall nevertheless upon request of the
company and the Successor Custodian and upon payment of its charges and
disbursements, execute an instrument in form approved by its counsel
transferring to the Successor Custodian all the predecessor Custodian's rights,
duties, obligations and custody.
4
<PAGE>
In case the Custodian shall consolidate with or merge into any other
corporation, the corporation remaining after or resulting from such
consolidation or merger shall ipso facto without the execution or fling of any
papers or other documents, succeed to and be substituted for the Custodian with
like effect as though originally named as such.
SECTION 12. This Agreement shall take effect when assets of the Fund are first
delivered to the Custodian.
SECTION 13. This Agreement may be executed in two or more counterparts, each of
which when so executed shall be deemed to be an original, but such counterparts
shall together constitute but one and the same instrument.
SECTION 14. A copy of the Amended Articles of Incorporation of the Fund are on
file with the Secretary of State of Maryland, and notice is hereby given that
this instrument is executed on behalf of the Directors of the Fund as Directors
and not individually and that the obligations of this instrument are not binding
upon any of the Directors, officers or Shareholders of the Fund individually,
but binding only upon the assets and property of the Fund.
SECTION 15. The Custodian shall create and maintain all records relating to its
activities and obligations under this Agreement in such manner as will meet the
obligations of the Fund under the Investment Fund Act of 1940, with particular
attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder, applicable
Federal and state tax laws and any other law or administrative rules or
procedures which may be applicable to the Fund.
Subject to security requirements of the Custodian applicable to its own
employees having access to similar records within the Custodian and such
regulations as to the conduct of such monitors as may be reasonably imposed by
the Custodian after prior consultation with an officer of the Fund, the books
and records of the Custodian pertaining to its actions under this Agreement
shall be open to inspection and audit at any reasonable times by officers of,
attorneys for, and auditors employed by, the Fund.
SECTION 16. Nothing contained in this Agreement is intended to or shall require
the Custodian in any capacity hereunder to perform any functions or duties on
any holiday or other day of special observance on which the Custodian is closed.
Functions or duties normally scheduled to be performed on such days shall be
performed on, and as of, the next business day the Custodian is open.
SECTION 17. This Agreement shall extend to and shall be binding upon the parties
hereto and their respective successors and assignees; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Custodian, or by the Custodian without the written consent of the Fund,
authorized or approved by a resolution of its Board of Directors.
5
<PAGE>
IN WITNESS WHEREOF, the Fund and the Custodian have caused this Agreement to be
signed by their respective officers as of the day and year first above written.
PBHG INSURANCE SERIES FUND, INC.
By: /s/ Brian F. Bereznak
----------------------------------
Attest: /s/ Lee. T. Cummings
------------------------------
CORESTATES BANK N.A.
By: /s/
----------------------------------
Attest: /s/ Alan Staley
------------------------------
6
<PAGE>
SCHEDULE A
PORTFOLIOS OF PBHG INSURANCE SERIES FUND, INC.
This Custodian Agreement is by and between CoreStates Bank N.A. and the
Fund, on behalf of the following Portfolios:
PBHG Growth II Portfolio
PBHG Select 20 Portfolio
PBHG Large Cap Growth Portfolio
PBHG Technology & Communications Portfolio
PBHG Large Cap Value Portfolio
PBHG Small Cap Value Portfolio
Date: April 1, 1997
-------------
PBHG INSURANCE SERIES FUND, INC.
By: /s/ Brian F. Bereznak
--------------------------------
Attest: /s/ Lee. T. Cummings
----------------------------
CORESTATES BANK N.A.
By: /s/
--------------------------------
Attest: /s/ Alan Staley
----------------------------
<PAGE>
SCHEDULE A
PORTFOLIOS OF PBHG INSURANCE SERIES FUND, INC.
This Custodian Agreement is by and between CoreStates Bank N.A. and the
Fund, on behalf of the following Portfolios:
PBHG Growth II Portfolio
PBHG Select 20 Portfolio
PBHG Large Cap Growth Portfolio
PBHG Technology & Communications Portfolio
PBHG Large Cap Value Portfolio
PBHG Small Cap Value Portfolio
Date: April 1, 1997
-------------
<PAGE>
SCHEDULE B
FEE SCHEDULE
1.00 BASIS POINTS ON THE FIRST $2.5 BILLION
.75 BASIS POINTS ON THE NEXT $2.5 BILLION
.50 BASIS POINTS ON THE NEXT $4 BILLION
.40 BASIS POINTS ON THE REMAINDER
Transactions billed separately by Portfolio at the now current rates. Asset
level charges billed as one invoice covering all Portfolios custodied at
CoreStates Bank N.A. Pilgrim Baxter Fund Services will allocate charges back to
individual Portfolios. Transaction charges are subject to change.
<PAGE>
SCHEDULE C
CUSTODY SERVICES
TRANSACTION FEES
<TABLE>
<S> <C>
$ 4.00 Per trade and maturity clearing through Depository Trust Company.
$10.00 Per trade and maturity clearing book-entry through Federal Reserve.
$15.00 Per trade and maturity for assets requiring physical settlement.
$10.00 Per trade and maturity clearing through Participants Trust Company.
$ 4.00 Paydowns on Mortgage Backed securities.
$ 5.50 Fed wire charge on Repo Collateral in/out.
$ 5.50/7.50 Other cash wire transfers in/out.
$ 5.50 Dividend Re-Investment.
$ 2.50 Fed charge for sale/return of Collateral.
</TABLE>
Exhibit 9(a)
TRANSFER AGENCY AGREEMENT
Agreement made as of the 1st of April 1997 between the PBHG Insurance Series
Fund, Inc. ("Fund"), on behalf of itself and its series ("Portfolios"), a
Maryland corporation, and DST Systems, Inc. ("DST") a Delaware corporation
(hereinafter referred to as the "Transfer Agent").
WITNESSETH:
That for and in consideration of the mutual promises hereinafter set forth, the
parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases shall have the
following meanings:
1. "Approved Institution" shall mean an entity so named in a
Certificate. From time to time the Fund may amend a previously delivered
Certificate by delivering to the Transfer Agent a Certificate naming an
additional entity or deleting any entity named in a previously delivered
Certificate.
2. The "Board of Directors" shall mean the Board of Directors of the
Fund.
3. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Transfer Agent by the Fund which is signed by any Officer, as hereinafter
defined, and actually received by the Transfer Agent.
<PAGE>
4. "Custodian(s)" shall mean the financial institution(s) appointed as
custodian(s) under the terms and conditions of the Custody Agreement(s) between
the financial institution(s) and the Fund, or its successor(s).
5. "Fund Business Day" shall be deemed to be each day on which the New
York Stock Exchange, Inc. is open for trading.
6. "Officer" shall be deemed to be the Fund's President, any Vice
President of the Fund, the Fund's Secretary, the Fund's Treasurer, the Fund's
Controller, any Assistant Controller of the Fund, any Assistant Treasurer of the
Fund and any Assistant Secretary of the Fund, and any other person duly
authorized by the Board of Directors of the Fund to execute any Certificate,
instruction, notice or other instrument on behalf of the Fund and named in the
Certificate annexed hereto as Appendix A, as such Certificate may be amended
from time to time, and any person reasonably believed by the Transfer Agent to
be such a person.
7. "Out-of-Pocket Expenses" means amounts reasonably necessary and
actually incurred by Transfer Agent in the provision of Transfer Agent services
or pursuant to this Agreement for the following purpose: postage (and first
class mail insurance in connection with mailing share certificates), envelopes,
check forms, continuous forms, forms for reports and statement, stationery, and
other similar items, telephone and telegraph charges incurred in answering
inquiries from dealers or shareholders, microfilm used to record transactions in
shareholder accounts and computer tapes used for permanent storage of records
and cost of insertion of materials in mailing envelopes by outside firms.
Transfer Agent may, at its option, arrange to have various service providers
submit invoices directly to the Fund for payment of
2
<PAGE>
out-of-pocket expenses reimbursable hereunder; and such other expenses paid or
incurred by Transfer Agent at the request of the Fund. Any charges associated
with special or exception processing shall also be considered Out-of-Pocket
Expenses.
8. "Prospectus(es)" shall mean the last Fund prospectus(es) with
respect to a Portfolio and any supplements actually received by the Transfer
Agent from the Fund with respect to which the Fund has indicated a registration
statement under the Federal Securities Act of 1933 has become effective,
including the Statement(s) of Additional Information, incorporated by reference
therein.
9. "Shares" shall mean all or any part of each class or series of the
shares of common stock of the Fund or Portfolio listed in the Certificate as to
which the Transfer Agent acts as transfer agent hereunder, as may be amended
from time to time, which are authorized and/or issued by the Fund.
10. "Transfer Agent" shall mean DST, as transfer agent and dividend
disbursing agent under the terms and conditions of this Agreement, its
successor(s) or assign(s).
ARTICLE II
APPOINTMENT OF TRANSFER AGENT
1. The Fund hereby constitutes and appoints the Transfer Agent as
transfer agent of all the Shares of the Fund and as dividend disbursing agent
during the period of this Agreement.
2. The Transfer Agent hereby accepts appointment as transfer agent and
dividend disbursing agent and agrees to perform duties thereof as hereinafter
set forth.
3
<PAGE>
3. In connection with such appointment, the Fund upon the request of
the Transfer Agent, shall deliver the following documents to the Transfer Agent:
(i) A copy of the Articles of Incorporation of the Fund and all
amendments thereto certified by the Secretary of the Fund;
(ii) A copy of the By-Laws of the Fund certified by the Secretary of
the Fund;
(iii) A copy of a resolution of the Board of Directors of the Fund
certified by the Secretary of the Fund appointing the Transfer Agent and
authorizing the execution of this Transfer Agency Agreement;
(iv) A Certificate signed by the Secretary of the Fund specifying:
The number of authorized Shares, if any, the number of such authorized Shares
issued, the number of such authorized Shares issued and currently outstanding;
the names and specimen signatures of the Officers of the Fund; and the name and
address of the legal counsel for the Fund;
(v) In the event the Fund issues shares, specimen share certificate
for each or series class of Shares in the form approved by the Board of
Directors of the Fund (and in a format compatible with the Transfer Agent's
system), together with a Certificate signed by the Secretary of the Fund as to
such approval;
(vi) Copies of the Fund's Registration Statement, as amended to
date, and the most recently filed Post-Effective Amendment thereto, filed by the
Fund with the Securities and Exchange Commission under the Securities Act of
1933, as amended, and under the Investment Company Act of 1940, as amended,
together with any applications fled in connection therewith; and
4
<PAGE>
(vii) Opinion of counsel for the Fund with respect to the validity
of the authorized and outstanding Shares, whether such Shares are fully paid and
non-assessable and the status of such Shares under the Securities Act of 1933,
as amended, and any other applicable federal law or regulation (i.e., if subject
to registration, that they have been registered and that the Registration
Statement has become effective or, if exempt, the specific grounds therefor.)
ARTICLE III
AUTHORIZATION AND ISSUANCE OF SHARES
1. The Fund shall deliver to the Transfer Agent the following documents
on or before the effective date of any increase or decrease in the total number
of Shares authorized to be issued:
(a) A certified copy of the amendment to the Articles of
Incorporation giving effect to such increase or decrease;
(b) In the case of an increase, an opinion of counsel for the Fund
with respect to the validity of the Shares of the Fund and the status of such
Shares under the Securities Act of 1933, as amended, and any other applicable
federal law or regulation (i.e., if subject to registration, that they have been
registered and that the Registration Statement has become effective or, if
exempt, the specific grounds therefor); and
(c) In the case of an increase, if the appointment of the Transfer
Agent was theretofore expressly limited, a certified copy of a resolution of the
Board of Directors of the Fund increasing the authority of the Transfer Agent.
5
<PAGE>
2. Prior to the issuance of any additional Shares of the Fund pursuant
to stock dividends or stock splits, etc., and prior to any reduction in the
number of shares outstanding, the Fund shall deliver the following documents to
the Transfer Agent:
(a) A certified copy of the resolution(s) adopted by the Board of
Directors and/or the shareholders of the Fund authorizing such issuance of
additional Shares of the Fund or such reduction, as the case may be, and
(b) An opinion of counsel for the Fund with respect to the validity
of the Shares of the Fund and the status of such Shares under the Securities Act
of 1933, as amended, and any other applicable federal law or regulation (i.e.,
if subject to registration, that they have been registered and that the
Registration Statement has become effective, or, if exempt, the specific grounds
therefor).
ARTICLE IV
RECAPITALIZATION OR CAPITAL ADJUSTMENT
1. In the case of any negative stock split, recapitalization or other
capital adjustment requiring a change in the form of Share certificates, the
Transfer Agent will issue Share certificates in the new form in exchange for, or
upon transfer of, outstanding Share certificates in the old form, upon
receiving:
(a) A Certificate authorizing the issuance of the Share certificates
in the new form;
(b) A certified copy of any amendment to the Articles of
Incorporation with respect to the change;
6
<PAGE>
(c) Specimen Share certificates for each class of Shares in the new
form approved by the Board of Directors of the Fund, with a Certificate signed
by the Secretary of the Fund as to such approval; and
(d) An opinion of counsel for the Fund with respect to the validity
of the Shares in the new form and the status of such Shares under the Securities
Act of 1933, as amended, and any other applicable federal law or regulation
(i.e., if subject to registration, that the Shares have been registered and that
the Registration Statement has become effective or, if exempt, the specific
grounds therefor).
2. The Fund at its expense shall furnish the Transfer Agent with a
sufficient supply of blank Share certificates in the new form and from time to
time will replenish such supply upon the request of the Transfer Agent. Such
blank Share certificates shall be compatible with the Transfer Agent's system
and shall be properly signed by facsimile or otherwise by Officers of the Fund
authorized by law or by the By-Laws to sign Share certificates and, if required
shall bear the corporate Seal or facsimile thereof. The Fund agrees to indemnify
and exonerate, save and hold the Transfer Agent harmless, from and against any
and all claims or demands that may be asserted against the Transfer Agent with
respect to the genuineness of any Share certificate supplied to the Transfer
Agent pursuant to this section.
ARTICLE V
ISSUANCE, REDEMPTION AND TRANSFER OF SHARES
1. (a) The Transfer Agent acknowledges that it has received a copy of
the Fund's prospectus(es) and statement(s) of additional information, which
prospectus(es) and statement(s)
7
<PAGE>
of additional information described how sales and redemption of shares of the
Fund shall be made, and the Transfer Agent agrees to accept purchase orders and
redemption requests with, respect to the Fund shares on each Fund Business Day
in accordance with such prospectus(es) and statement(s) of additional
information; provided, however, that the Transfer Agent shall only accept
purchase orders from states in which the shares of the Fund are registered. The
Fund shall provide the Transfer Agent with a listing of the states in which the
shares of the Fund are registered on a periodic basis. The Fund agrees to
provide the Transfer Agent with sufficient advance notice to enable the Transfer
Agent to effect any changes in the procedures set forth in the prospectus(es)
and statement(s) of additional information regarding such purchase and
redemption procedure; provided, however, that in no event will such advance
notice be less than 30 days.
(b) The Transfer Agent shall also accept with respect to each Fund
Business Day, at such times as are agreed upon from time to time by the Transfer
Agent and the Fund, a computer tape or electronic data transmission consistent
in all respects with the Transfer Agent's tape layout package, as amended from
time to time, which is believed by the Transfer Agent to be furnished by or on
behalf of any Approved Institution. The Transfer Agent shall not be liable for
any losses or damages to the Fund or its shareholders in the event that a
computer tape or electronic data transmission from an Approved Institution is
unable to be processed for any reason beyond the control of the Transfer Agent,
or if any of the information on such tape or transmission is found to be
incorrect.
8
<PAGE>
2. On each Fund Business Day the Transfer Agent shall, as of the time
at which the Fund computes the net asset value of the Fund, issue to and redeem
from the accounts specified in a purchase order, redemption request, or computer
tape, which in accordance with the Prospectus(es) is effective on such Fund
Business Day, the appropriate number of full and fractional Shares based on the
net asset value per Share of such Fund specified in an advice received on such
Fund Business Day from the Fund. Notwithstanding the foregoing, if a redemption
specified in a computer tape is for a dollar value of Shares in excess of the
dollar value of uncertificated Shares in the specified account, the Transfer
Agent shall not effect such redemption in whole or in part and shall within
twenty-four hours orally advise the Approved Institution which supplied such
tape of the discrepancy.
3. In connection with a reinvestment of a dividend or distribution of
shares of the Fund, the Transfer Agent shall as of each Fund Business Day, as
specified in a Certificate or resolution described in paragraph 1 of succeeding
Article VI, issue Shares of the Fund based on the net asset value per Share of
such Fund specified in an advice received form the Fund on such Fund Business
Day.
4. On each Fund Business Day the Transfer Agent shall supply the Fund
with a statement specifying with respect to the immediately preceding Fund
Business Day: the total number of Shares of the Fund (including fractional
Shares) issued and outstanding at the opening of business on such day; the total
number of Shares of the Fund sold on such day, pursuant to preceding paragraph 2
of this Article; the total number of Shares of the Fund redeemed from
Shareholders by the Transfer Agent on such day; the total number of Shares of
the Fund, if any,
9
<PAGE>
sold on such day pursuant to preceding paragraph 3 of this Article, and the
total number of Shares of the Fund issued and outstanding.
5. In connection with each purchase and each redemption of Shares, the
Transfer Agent shall send such statements as are prescribed by the Federal
Securities laws applicable to transfer agents and Section 8-408 of the Uniform
Commercial Code as enacted in the Commonwealth of Massachusetts or as described
in the Prospectus(es). If the Prospectus(es) indicates that certificates for
Shares are available and if specifically requested in writing by any
shareholder, or if otherwise required hereunder, the Transfer Agent will
countersign, issue and mail to such shareholder at the address set forth in the
records of the Transfer Agent a Share certificate for any full Share requested.
6. As of each Fund Business Day the Transfer Agent shall furnish the
Fund with an advice setting forth the number of dollar amount of Shares to be
redeemed on such Fund Business Day in accordance with paragraph 2 of this
Article.
7. Upon receipt of a proper redemption request and moneys paid to it by
the Custodian(s) in connection with a redemption of Shares, the Transfer Agent
shall cancel the redeemed Shares and after making appropriate deduction for any
withholding of taxes required of it by applicable law (a) in the case of a
redemption of Shares pursuant to a redemption described in preceding paragraph
l(a) of this Article, make payment in accordance with the Fund's redemption and
payment procedures described in the Prospectus(es), and (b) in the case of a
redemption of Shares pursuant to a computer tape described in preceding
paragraph l(b) of
10
<PAGE>
this Article, make payment by directing a federal funds wire order to the
account previously designated by the Approved Institution specified in said
computer tape.
8. The Transfer Agent shall not be required to issue any Shares after
it has received from an Officer of the Fund or from an appropriate federal or
state authority written notification that the sale of Shares has been suspended
or discontinued, and the Transfer Agent shall be entitled to rely upon such
written notification.
9. Upon the issuance of any Shares in accordance with this Agreement
the Transfer Agent shall not be responsible for the payment of any original
issue or other taxes required to be paid by the Fund in connection with such
issuance of any Shares.
10. The Transfer Agent shall accept a computer tape consistent with the
Transfer Agent's tape layout package, as amended from time to time, which is
reasonably believed by the Transfer Agent to be furnished by or on behalf of any
Approved Institution and is represented to be instructions with respect to the
transfer of Shares from one account of such Approved, Institution to another
such account, and shall effect the transfers specified in said computer tape.
The Transfer Agent shall not be liable for any losses to the Fund or its
shareholders in the event that a computer tape or electronic data transmission
from an Approved Institution is unable to be processed for any reason beyond the
control of the Transfer Agent, or if any of the information on such tape or
transmission is found to be incorrect.
11. (a) Except as otherwise proved in sub-paragraph (b) of this
paragraph and in paragraph 13 of this Article, Shares will be transferred or
redeemed upon presentation to the Transfer Agent of Share certificates or
instructions properly endorsed for transfer or redemption,
11
<PAGE>
accompanied by such documents as the Transfer Agent deems necessary to evidence
the authority of the person making such transfer or redemption, and bearing
satisfactory evidence of the payment of stock transfer taxes. In the case of
small estates where no administration is contemplated, the Transfer Agent may,
when furnished with an appropriate surety bond, and without further approval of
the Fund, transfer or redeem Shares registered in the name of a decedent where
the current market value of the Shares being transferred does not exceed such
amount as may from time to time be prescribed by various states. The Transfer
Agent reserves the right to refuse to transfer or redeem Shares until it is
satisfied that the endorsement on the stock certificate or instructions is valid
and genuine, and for that purpose it will require, unless otherwise instructed
by an authorized officer of the Fund, a guarantee of signature by an "Eligible
Guarantor Institution" as that term is defined by SEC Rule 17Ad-15. The Transfer
Agent also reserves the right to refuse to transfer or redeem Shares until it is
satisfied that the requested transfer or redemption is legally authored, and its
shall incur no liability for the refusal, in good faith, to make transfers or
redemptions which the Transfer Agent, in its judgment, deems improper or
unauthorized, or until it is satisfied that there is no basis to any claims
adverse to such transfer or redemption. The Transfer Agent may, in effecting
transfers, and redemptions of Shares, rely upon those provisions of the Uniform
Act for the Simplification of Fiduciary Security Transfers or the Uniform
Commercial Code, as the same may be amended from time to time, applicable to the
transfer of securities, and the Fund shall indemnify the Transfer Agent for any
act done or omitted by it in good faith in reliance upon such laws. In
12
<PAGE>
no event will the Fund indemnify the Transfer Agent for any act done by it as a
result of willful misfeasance, bad faith, gross negligence or reckless disregard
of its duties.
(b) Notwithstanding the foregoing or any other provision contained
in this Agreement to the contrary, the Transfer Agent shall be fully protected
by the Fund in not requiring any instruments, documents, assurances,
endorsements or guarantees, including, without limitation, any signature
guarantees, in connection with a redemption, or transfer, of Shares whenever the
Transfer Agent reasonably believes that requiring the same would be inconsistent
with the transfer and redemption procedures as described in the Prospectus(es).
12. Notwithstanding any provision contained in this Agreement to the
contrary, the Transfer Agent shall not be required or expected to require, as a
condition to any transfer of any Shares pursuant to paragraph 11 of this Article
or any redemption of any Shares pursuant to a computer tape described in this
Agreement, any documents, including, without limitation, any documents of the
kind described in sub-paragraph (a) of paragraph 12 of this Article, to evidence
the authority of the person requesting the transfer or redemption and/or the
payment of any stock transfer taxes, and shall be fully protected in acting in
accordance with the applicable provisions of this Article.
13. (a) As used in this Agreement, the terms "computer tape" and
"computer tape believed by the Transfer Agent to be furnished by an Approved
Institution," shall include any tapes generated by the Transfer Agent to reflect
information believed by the Transfer Agent to have been inputted by an Approved
Institution, via a remote terminal or other similar link, into a data
processing, storage, or collection system, or similar system (the "System"),
located on
13
<PAGE>
the Transfer Agent's premises. For purposes of paragraph 1 of this Article, such
a computer tape shall be deemed to have been furnished at such times as are
agreed upon from time to time by the Transfer Agent and Fund only if the
information reflected thereon was inputted into the System at such times as are
agreed upon form time to time by the Transfer Agent and the Fund.
(b) Nothing contained in this Agreement shall constitute any
agreement or representation by the Transfer Agent to permit, or to agree to
permit, any Approved Institution to input information into a System.
(c) The Transfer Agent reserves the right to approve, in advance,
any Approved Institution, such approval not to be unreasonably withheld. The
Transfer Agent also reserves the right to terminate any and all automated data
communications, at its discretion, upon a reasonable attempt to notify the Fund
when in the opinion of the Transfer Agent continuation of such communications
would jeopardize the accuracy and/or integrity of the Fund's records on the
System.
ARTICLE VI
DIVIDENDS AND DISTRIBUTIONS
1. The Fund shall furnish to the Transfer Agent a copy of a resolution
of its Board of Directors, certified by the Secretary or any Assistant
Secretary, either (i) setting forth the date of the declaration of a dividend or
distribution, the date of accrual or payment, as the case may be, thereof, the
record date as of which Shareholders entitle to payment, or accrual, as the case
may be, shall be determined, the amount per Share of such dividend or
distribution, the payment date on which all previously accrued and unpaid
dividends are to be paid, and the total amount,
14
<PAGE>
if any, payable to the Transfer Agent on such payment date, or (ii) authorizing
the declaration of dividends and distributions on a daily or other periodic
basis and authorizing the Transfer Agent to rely on a Certificate setting forth
the information described in subsection (i) of this paragraph.
2. Upon the mail date specified in such Certificate or resolution, as
the case may be, the Fund shall, in the case of a cash dividend or distribution,
cause the Custodian(s) to deposit in an account in the name of the Transfer
Agent on behalf of the Fund an amount of cash, if any sufficient for the
Transfer Agent to make the payment, as of the mail date, specified in such
Certificate or resolution, as the case may be, to the shareholders who were of
record on the record date. The Transfer Agent will, upon receipt of any such
cash, make payment of such cash dividends or distributions to the shareholders
of record as of the record date by: (i) mailing a check, payable to the
registered shareholder, to the address of record or dividend mailing address, or
(ii) wiring such amounts to the accounts previously designated by an Approved
Institution, as the case may be. The Transfer Agent shall not be liable for any
improper payments made in good faith and without negligence, in accordance with
a Certificate or resolution described in the preceding paragraph. If the
Transfer Agent shall not receive from the Custodian(s) sufficient cash to make
payments of any cash dividend or distribution to all shareholders of the Fund as
of the record date, the Transfer Agent shall, upon notifying the Fund, withhold
payment to all shareholders of record as of the record date until sufficient
cash is provided to the Transfer Agent.
15
<PAGE>
3. It is understood that the Transfer Agent shall in no way be
responsible for the determination of the rate or form of dividends or capital
gain distributions due to the shareholders. It is expressly agreed and
understood that the Transfer Agent is not liable for any loss as a result of
processing a distribution based on information provided in the Certificate that
is incorrect. The Fund agrees to pay the Transfer Agent for any and all costs,
both direct and out-of-pocket expenses, incurred in such corrective work as
necessary to remedy such error.
4. It is understood that the Transfer Agent shall file such appropriate
information returns concerning the payment of dividend and capital gain
distributions with the proper federal, state and local authorities as are
required by law to be filed by the Fund but shall in no way be responsible for
the collection or withholding of taxes due on such dividends or distributions
due to shareholders, except and only to the extent, required by applicable law.
ARTICLE VII
CONCERNING THE FUND
1. The Fund represents to the Transfer Agent that:
(a) It is a corporation duly organized and existing under the laws
of the State of Maryland.
(b) It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
(c) All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
16
<PAGE>
(d) It is an investment company registered under the Investment
Company Act of 1940, as amended.
(e) A registration statement under the Securities Act of 1933, as
amended, with respect to the Shares is effective. The Fund shall notify the
Transfer Agent if such registration statement or any state securities
registrations have been terminated or a stop order has been entered with respect
to the Shares.
2. Each copy of the Articles of Incorporation of the Fund and copies of
all amendments thereto shall be certified by the Secretary of State (or other
appropriate official) of the state of organization, and if such Articles of
Incorporation and/or amendments are required by law also to be fled with a
county or other officer or official body, a certificate of such filing shall be
fled with a certified copy submitted to the Transfer Agent. Each copy of the
By-Laws and copies of all amendments thereto, and copies of resolutions of the
Board of Directors of the Fund, shall be certified by the Secretary of the Fund
under seal.
3. The Fund shall promptly deliver to the Transfer Agent written notice
of any change in the officers authorized to sign Share certificates,
notifications or requests, together with a specimen signature of each new
officer. In the event any officer who shall have signed manually or whose
facsimile signature shall have been affixed to blank Share certificates shall
die, resign or be removed prior to issuance of such Share certificates, the
Transfer Agent may issue such Share certificates of the Fund notwithstanding
such death, resignation or removal, and the Fund shall promptly deliver to the
Transfer Agent such approval, adoption or ratification as may be required by
law.
17
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4. It shall be the sole responsibility of the Fund to deliver to the
Transfer Agent the Fund's currently effective Prospectus(es) and, for purposes
of this Agreement, the Transfer Agent shall not be deemed to have notice of any
information contained in such Prospectus(es) until a reasonable time after it is
actually received by the Transfer Agent.
ARTICLE VIII
CONCERNING THE TRANSFER AGENT
1. The Transfer Agent represents and warrants to the Fund that:
(a) It is a corporation duly organized and existing under the laws
of the State of Delaware.
(b) It is empowered under applicable law and by its Charter and
By-laws to enter into and perform this Agreement.
(c) All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
(d) It is duly registered as a transfer agent under Section 17A of
the Securities Exchange Act of 1934, as amended.
2. The Transfer Agent shall not be liable and shall be indemnified in
acting upon any computer tape, writing or document reasonably believed by it to
be genuine and to have been signed or made by an Officer of the Fund or person
designated by the Fund and shall not be held to have any notice of any change of
authority of any person until receipt of written notice thereof from the Fund or
such person. It shall also be protected in processing Share certificates which
18
<PAGE>
bear the proper countersignature of the Transfer Agent and which it reasonably
believes to bear the proper manual or facsimile signature of the Officers of the
Fund.
3. The Transfer Agent upon notice to the Fund may establish such
additional procedures, rules and regulations governing the transfer or
registration of Share certificates as it may deem advisable and consistent with
such rules and regulations generally adopted by mutual fund transfer agents.
4. The Transfer Agent shall keep such records as are specified in
Schedule II hereto in the form and manner, and for such period, as it may been
advisable and is agreeable to the Fund but not inconsistent with the rules and
regulations of appropriate government authorities, in particular Rules 31a-2 and
31a-3 under the Investment Company Act of 1940, as amended. The Transfer Agent
acknowledges that such records are the property of the Fund. The Transfer Agent
may deliver to the Fund from time to time at its discretion, for safekeeping or
disposition by the Fund in accordance with law, such records, papers, documents
accumulated in the execution of its duties as such Transfer Agent, as the
Transfer Agent may deem expedient, other than those which the Transfer Agent is
itself required to maintain pursuant to applicable laws and regulations. The
Fund shall assume all responsibility for any failure thereafter to produce any
record, paper, canceled Share certificate, or other document so returned, if and
when required. The records specified in Schedule II hereto maintained by the
Transfer Agent pursuant to this paragraph 4, which have not been previously
delivered to the Fund pursuant to the foregoing provisions of this paragraph 4,
shall be considered to be the property of the Fund, shall be made available upon
request for inspection by the officers, employees, and auditors of
19
<PAGE>
the Fund, and records shall be delivered to the Fund upon request and in any
event upon the date of termination of this Agreement, as specified in Article IX
of this Agreement, in the form and manner kept by the Transfer Agent on such
date of termination or such earlier date as may be requested by the Fund.
5. The Transfer Agent shall not be liable for any loss or damage,
including counsel fees, resulting from its actions or omissions to act or
otherwise, except for any loss or damage arising out of its bad faith,
negligence, willful misfeasance, gross negligence or reckless disregard of its
duties under this agreement.
6. (a) The Fund shall indemnify and exonerate, save and hold harmless
the Transfer Agent from and against any and all claims (whether with or without
basis in fact or law), demands, expenses (including reasonable attorney's fees)
and liabilities of any and every nature which the Transfer Agent may sustain or
incur or which may be asserted against the Transfer Agent by any person by
reason of or as a result of any action taken or omitted to be taken by any prior
transfer agent of the Fund or as a result of any action taken or omitted to be
taken by the Transfer Agent in good faith and without negligence or willful
misconduct or in reliance upon (i) any provision of this Agreement; (ii) the
Prospectus(es); (iii) any instruction or order including, without limitation,
any computer tape reasonably believed by the Transfer Agent to have been
received from an Approved Institution; (iv) any instrument, order or Share
certificate reasonably believed by it to be genuine and to be signed,
countersigned or executed by any duly authorized Officer of the Fund; (v) any
Certificate or other instructions of an Officer; or (vi) any opinion of legal
counsel for the Fund or the Transfer Agent. The Fund shall
20
<PAGE>
indemnify and exonerate, save and hold the Transfer Agent harmless from and
against any and all claims (whether with or without basis in fact or law),
demands, expenses (including reasonable attorney's fees) and liabilities of any
and every nature which the Transfer Agent may sustain or incur or which may be
asserted against the Transfer Agent by any person by reason of or as a result of
any action taken or omitted to be taken by the Transfer Agent in good faith in
connection with its appointment or in reliance upon any law, act, regulation or
any interpretation of the same even though such law, act or regulation may
thereafter have been altered, changed, amended or repealed.
6. (b) The Transfer Agent shall not settle any claim, demand, expense
or liability to which it may seek indemnity pursuant to paragraph 6(a) above
(each, an "Indemnifiable Claim") without the express written consent of an
Officer of the Fund. The Transfer Agent shall notify the Fund within 15 days of
receipt of notification of an Indemnifiable Claim, provided that the failure by
the Transfer Agent to furnish such notification shall not impair its right to
seek indemnification from the Fund unless the Fund is unable to adequately
defend the Indemnifiable Claim as a result of such failure, and further
provided, that if as a result of the Transfer Agent's failure to provide the
Fund with timely notice of the institution of litigation a judgment by default
is entered, prior to seeking indemnification from the Fund the Transfer Agent,
at its own cost and expense, shall open such judgment. The Fund shall have the
right to defend any Indemnifiable Claim at its own expense, provided that such
defense shall be conducted by counsel selected by the Fund and reasonably
acceptable to the Transfer Agent. The Transfer Agent may join in such defense at
its own expense, but to the extent that it shall so desire the
21
<PAGE>
Fund shall direct such defense. The Fund shall not settle any Indemnifiable
Claim without the express written consent of the Transfer Agent if the Transfer
Agent determined that such settlement would have an adverse effect on the
Transfer Agent beyond the scope of this Agreement. In such event, each of the
Fund and the Transfer Agent shall be responsible for their own defense at their
own cost and expense, and such claim shall not be deemed an Indemnifiable Claim
hereunder. If the Fund shall fail or refuse to defend an Indemnifiable Claim,
the Transfer Agent may provide its own defense at the cost and expense of the
Fund. Anything in this Agreement to the contrary notwithstanding, the Fund shall
not indemnify the Transfer Agent against any liability or expense arising out of
the Transfer Agent's willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties and obligations under this Agreement. The
Transfer Agent shall indemnify and hold the Fund harmless from and against any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to any action or failure or omission to
act by the Transfer Agent as a result of the Transfer Agent's lack of good
faith, negligence or willful misconduct.
7. The Transfer Agent shall not be liable to the fund with respect to
any redemption draft on which the signature of the drawer is forged and which
the fund's Custodian(s) or Cash Management bank has advised the Transfer Agent
to honor the redemption; nor shall Transfer Agent be liable for any material
alteration or absence or forgery of any endorsement, it being understood that
the Transfer Agent's sole responsibility with respect to inspecting redemption
drafts is to use reasonable care to verify the drawer's signature against
signatures on file.
22
<PAGE>
8. There shall be excluded from the consideration of whether the
Transfer Agent has been negligent or has breached this Agreement, any period of
time, and only such period of time, during which the Transfer Agent's
performance is materially affected, by reason of circumstances beyond its
control (collectively, "Causes"), including, without limitation (except as
provided below), (a) mechanical breakdowns of equipment (including any
alternative power supply and operating systems software), flood or catastrophe,
acts of God, failures of transportation, communication or power supply, strikes,
lockouts, work stoppages or other similar circumstances.
9. At any time the Transfer Agent may apply to an Officer of the Fund
for written instructions with respect to any matter arising in connection with
the Transfer Agent's duties and obligations under this Agreement, and the
Transfer Agent shall not be liable for any action taken or permitted by it in
good faith in accordance with such written instructions. Such application by the
Transfer Agent for written instructions from an Officer of the Fund may set
forth in writing any action proposed to be taken or omitted by the Transfer
Agent with respect to its duties or obligations under this Agreement and the
date on and/or after which such action shall be taken. The Transfer Agent shall
not be liable for any action taken or omitted in accordance with a proposal
included in any such application on or after the date specified therein unless,
prior to taking or omitting any such action, the Transfer Agent has received
written instructions in response to such application specifying the action to be
taken or omitted. The Transfer Agent may consult counsel of the Fund, or upon
notice to the Fund, its own counsel, at the expense
23
<PAGE>
of the Fund and shall be fully protected with respect to anything done or
omitted by it in good faith in accordance with the advice or opinion of counsel
to the fund or its own counsel.
10. The Transfer Agent may issue new Share certificates in place of
certificates represented to have been lost, stolen, or destroyed upon receiving
written instructions from the shareholder accompanied by proof of an indemnity
or surety bond issued by a recognized insurance institution specified by the
Fund or the Transfer Agent. If the Transfer Agent receives written notification
from the shareholder or broker dealer that the certificate issued was never
received, and such notification is made within 30 days of the date of issuance,
the Transfer Agent may reissue the certificate without requiring a surety bond.
The Transfer Agent may also reissue certificates which are represented as lost,
stolen, or destroyed without requiring a surety bond provided that the
notification is in writing and accompanied by an indemnification signed on
behalf of a member firm of the New York Stock Exchange and signed by an officer
of said firm with the signature guaranteed. Notwithstanding the foregoing, the
Transfer Agent will reissue a certificate upon written authorization from an
Officer of the Fund.
11. In case of any requests or demands for the inspection of the
shareholder records of the Fund, the Transfer Agent will endeavor to notify the
Fund promptly and to secure instructions from an Officer as to such inspection.
The Transfer Agent reserves the right, however, to exhibit the shareholder
records to any person whenever it receives an opinion from its counsel that
there is a reasonable likelihood that the Transfer Agent will be held liable for
the failure to exhibit the shareholder records to such person; provided,
however, that in
24
<PAGE>
connection with any such disclosure the Transfer Agent shall promptly notify the
Fund that such disclosure has been made or is to be made.
12. At the request of an Officer of the Fund the Transfer Agent will
address and mail such appropriate notices to shareholders as the Fund may
direct.
13. Notwithstanding any of the foregoing provisions of this Agreement,
the Transfer Agent shall be under no duty or obligation to inquire into, and
shall not be liable for:
(a) The legality of the issue or sale of any Shares, the sufficiency
of the amount to be received therefor, or the authority of the Approved
Institution or of the Fund, as the case may be, to request such sale or
issuance;
(b) The legality of a transfer of Shares, or of a redemption of any
Shares, the property of the amount to be paid therefor, or the authority of the
Approved Institution or of the Fund, as the case may be, to request such
transfer or redemption;
(c) The legality of the declaration of any dividend by the Fund, or
the legality of the issue of any Shares in payment of any stock dividend; or
(d) The legality of any recapitalization or readjustment of Shares.
14. The Transfer Agent shall be entitled to receive and the Fund hereby
agrees to pay to the Transfer Agent for its performance hereunder, including its
performance of the duties and functions set forth in Schedule I hereto, (i) its
reasonable out-of-pocket expenses (including reasonable legal expenses and
attorney's fees) incurred in connection with its performance hereunder and (ii)
such compensation as may be agreed upon in writing from time to time by the
Transfer Agent and the Fund.
25
<PAGE>
15. The Transfer Agent shall have not duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set forth
in this Agreement, and no covenant or obligation shall be implied in this
Agreement against the Transfer Agent.
16. Purchase and Prices of Services.
(a) The fund will compensate the Transfer Agent for, and Transfer Agent
will provide, beginning on the execution date of this Agreement and continuing
until the termination of this Agreement as provided hereinafter, the Services
set forth in Schedule I.
(b) The current unit prices for the Services are set forth in Schedule
m (the "Schedule m Fee Schedule"). Once in each calendar year, the Transfer
Agent may elect to raise the Schedule m Fees upon ninety (90) days prior notice
to the Fund. Notwithstanding the annual right to raise the Schedule m Fees, the
Transfer Agent may increase prices due to changes in legal or regulatory
requirements. Any increases in prices or one-time charges due to changes in the
legal or regulatory requirements will be subject to the approval of the Fund,
which approval shall not be unreasonably withheld.
17. Billing and Payment.
(a) The Transfer Agent shall bill the Fund as follows: (i) monthly in
arrears for Accounts maintained and in arrears for any Out-of-Pocket Expenses
incurred by the Transfer Agent, provided, however, that with respect to
Out-of-Pocket Expenses the Transfer Agent shall provide the Fund monthly with an
amount to be advanced to the Transfer Agent for estimated postage expenses for
the following month. Documentation to support reconciliation of actual
26
<PAGE>
postal charges will be provided to the Fund monthly. The Transfer Agent may from
time to time request the Fund to make additional advances when appropriate.
(b) The Fund shall pay the Transfer Agent in immediately available
funds at United Missouri Bank in Kansas City, Missouri within thirty (30) days
of the date of the bill.
ARTICLE IX
TERMINATION
Either of the parties hereto may terminate this Agreement by giving to
the other party a notice in writing specifying the date of such termination,
which shall be not less than 60 days after the date of receipt of such notice.
In the event such notice is given by the Fund, it shall be accomplished by a
copy of a resolution of the Board of Directors of the Fund, certified by the
Secretary or any Assistant Secretary, electing to terminate this Agreement and
designating the successor transfer agent or transfer agents. In the event such
notice is given by the Transfer Agent, the Fund shall on or before the
termination date, deliver to the Transfer Agent a copy of a resolution of its
Board of Directors certified by the Secretary or any Assistant Secretary
designating a successor transfer agent or transfer agents. In the absence of
such designation by the Fund, the Fund shall upon the date specified in the
notice of termination of this Agreement and delivery of the records maintained
hereunder, be deemed to be its own transfer agent and the Transfer Agent shall
thereby be relieved of all duties and responsibilities pursuant to this
Agreement.
In the event this Agreement is terminated as provided herein, the
Transfer Agent, upon the written request of the Fund, shall deliver the records
of the Fund on
27
<PAGE>
electromagnetic media to the Fund or its successor transfer agent. The Fund
shall be responsible to the Transfer Agent for the reasonable costs and expenses
associated with the preparation and delivery of such media.
ARTICLE X
MISCELLANEOUS
1. The Fund agrees that prior to effecting any change in the
Prospectus(es) which would increase or alter the duties and obligations of the
Transfer Agent hereunder, it shall advise the Transfer Agent of such proposed
change at least 30 days prior to the intended date of the same, and shall
proceed with such change only if it shall have received the written consent of
the Transfer Agent thereto, which shall not be unreasonably withheld.
2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at the address first
above written, or at such other place as the Fund may from time to time
designate in writing.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Transfer Agent shall be sufficiently given if
addressed to the Transfer Agent and mailed or delivered to the Senior Vice
President at 1055 Broadway, 7th Floor, Kansas City, MO 64105, or at such other
place as the Transfer Agent may from time to time designate in writing.
4. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the formality of this
Agreement.
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<PAGE>
5. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns. This Agreement shall not be
assignable by either party without the written consent of the other party,
except that the Transfer Agent may assign this Agreement to a corporate
affiliate with advance written notice to the Fund.
6. This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois.
7. This Agreement may be executed in any number of counterparts each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
8. The provisions of this Agreement are intended to benefit only the
Transfer Agent and the Fund, and no rights shall be granted to any other person
by virtue of this Agreement.
9. (a) The Transfer Agent will endeavor to assist in resolving
shareholder inquiries and errors relating to the period during which prior
transfer agents acted as such for the Fund. Any such inquiries or errors which
cannot be expediently resolved by the Transfer Agent will be referred to the
Fund.
(b) The Transfer Agent shall only be responsible for the safekeeping
and maintenance of transfer agency records, canceled certificates and
correspondence of the fund created or produced prior to the time of conversion
which are under its control and acknowledged in a writing to the fund to be in
its possession. Any expenses or liabilities incurred by the Transfer Agent as a
result of shareholder inquiries, regulatory compliance or
29
<PAGE>
audits related to such records and not caused as a result of Transfer Agent's
bad faith, willful malfeasance or negligence shall be the responsibility of the
Fund as provided in Article VIII herein.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officer, hereunto duly authorized and
their respective corporate seals to be hereunto affixed, as the day and year
first above written.
DST Systems, Inc. PBHG Insurance Series, Fund, Inc.
By: /s/ Kenneth V. Hager By: /s/ Brian F. Bereznak
------------------------------ ------------------------------
(Signature) (Signature)
Kenneth V. Hager Brian F. Bereznak
------------------------------ ------------------------------
(Name) (Name)
Vice President and
Chief Financial Officer Vice President
------------------------------ ------------------------------
(Title) (Title)
4/15/97 4/14/97
------------------------------ ------------------------------
(Date Signed) (Date Signed)
31
<PAGE>
SCHEDULE I
DESCRIPTION OF SERVICES
In consideration of the fees to be paid in such manner and at such
times as Fund and Transfer Agent will provide the services set forth below:
Examine and Process New Accounts, Subsequent Payments, Liquidations,
Exchanges, Telephone Transactions, Check Redemptions, Automatic Withdrawals,
Certificate Issuance, Wire Order Trades, Dividends, Dividend Statement, Dealer
Statement.
DAILY ACTIVITY
Maintain the following shareholder information in such a manner as the
Transfer Agent shall determine:
Name and Address, including zip Code
Balance of Uncertificated Shares
Balance of Certificated Shares
Certificate number, number of shares, issuance date of each certificate
outstanding and cancellation date for each certificate date for each
certificate no longer outstanding, if issued
Balance of dollar available for redemption
Dividend code (daily accrual, monthly reinvest, monthly cash or
quarterly cash)
Type of account code
Establishment date indicating the date an account was opened, carrying
forward preconversion data as available
Original establishment date for accounts opened by exchange
W-9 withholding status and periodic reporting
32
<PAGE>
State of residence code
Social Security or taxpayer identification number, and indication of
certification
Historical transactions on the account for the most recent 18 months,
or other period as mutually agreed to from time-to-time
Indication as to whether phone transactions can be accepted for this
account. Beneficial owner code, i.e., male, female, joint tenant, etc.
An alternate or "secondary" account number issued by a dealer (or bank,
etc.) to a customer for use, inquiry and transaction input by "remote
accessors"
FUNCTIONS
Answer investor and dealer telephone and/or written inquiries, except
those concerning Fund policy, or requests for investment advice which
will be referred to the Fund, or those which the Fund chooses to answer
Deposit Fund share certificates into accounts upon receipt of
instructions from the investor or other authorized person, if issued
Examine and process transfers of shares insuring that all transfer
requirements and legal documents have been supplied
Process and confirm address changes
Process standard account record changes as required, i.e., Dividend
Codes, etc.
Microfilm source documents for transactions, such as account
applications and correspondence
Perform backup withholding for those accounts which federal government
regulations indicate is necessary
Perform withholdings on liquidations, if applicable, for employee
benefit plans. Prepare and mail 5498s and 1099R's
Solicit missing taxpayer identification numbers
Provide remote access inquiry to Fund records via Fund supplied
hardware (Fund responsible for connection line and monthly fee)
33
<PAGE>
REPORTS PROVIDED
Daily Journals Reflecting all shares and dollar activity for the
previous day
Blue Sky Report Supply information monthly for Fund's
preparation of Blue Sky Reporting
N-SAR Report Supply monthly correspondence, redemption and
liquidation information for use in fund's N-SAR
Report
Additionally, monthly average daily balance reports will be provided at the
Fund's request to the Fund at no charge
Prepare and mail copies of summary statements to dealers and investment advisers
Generate and mail confirmation statements for financial transactions
DIVIDEND ACTIVITY
Reinvest or pay in cash including reinvesting in other funds within the
fund group serviced by the Transfer Agent as described in each Fund
prospectus(es)
Distribute capital gains simultaneously with income dividends
DEALER SERVICES
Prepare and mail confirmation statements to dealers daily
Prepare and mail copies of statements to dealers, same frequency as
investor statements
ANNUAL MEETINGS
Assist Fund in obtaining a qualified service to: address and mail
proxies and related material, tabulate returned proxies and supply
daily reports when sufficient proxies have been received
Prepare certified list of stockholders, hard copy or microform
34
<PAGE>
PERIODIC ACTIVITIES
Mail transaction confirmation statements daily to investors
Address and mail four (4) periodic financial reports (material must be
adaptable to Transfer Agent's mechanical equipment as reasonably
specified by the Transfer Agent)
Mail periodic statements to investors
Compute, prepare and furnish all necessary reports to Governmental
authorities: Forms 1099R, 1099DIV, 1099B, 1042 and 1042S
Enclose various marketing material as designated by the Fund in
statement mailings, i.e., monthly and quarterly statements (material
must be adaptable to mechanical equipment as reasonably specified by
the Transfer Agent)
35
<PAGE>
SCHEDULE II
RECORDS MAINTAINED BY TRANSFER AGENT
- - Account applications
- - Canceled certificates plus stock powers and supporting documents
- - Checks including check registers, reconciliation records, any adjustment
records and tax withholding documentation
- - Indemnity bonds for replacement of lost or missing stock certificates and
checks
- - Liquidation, redemption, withdrawal and transfer requests including stock
powers, signature guarantees and any supporting documentation
36
<PAGE>
SCHEDULE III
FEE SCHEDULE
PBHG Insurance Series Fund, Inc.
Period* Annual Fee**
------ ----------
0-3 months $20,000
4-6 months $22,500
7-12 months $25,000
* Commencing upon the effectiveness of this agreement.
** The Fee is based upon there being 100 or fewer trades per day. If the
number of trades exceed 100 on a day, the Fund will renegotiate in good
faith these fees.
37
Exhibit 9(b)
ADMINISTRATIVE SERVICES AGREEMENT
ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") made as of the 1st day of
April, 1997 by and between PBHG Insurance Series Fund, Inc., a Maryland
corporation (the "Fund"), and PBHG Fund Services, a Pennsylvania business trust
(the "Administrator").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as an open-end management
investment company of the series type and registered as such under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund desires to retain the Administrator to provide
administrative services to the Fund and each of its several series (the
"Portfolios"), which are identified in Schedule A hereto, in the manner and on
the terms and conditions hereinafter set forth; and
WHEREAS, the Fund and the Administrator propose to engage a
sub-administrator (the "Sub-Administrator") to provide certain administrative
services to the Fund and the Portfolios, subject to the approval of the Fund's
Board of Directors;
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties hereto, intending to be
legally bound, do hereby agree as follows:
1. Duties and Responsibilities of the Administrator.
The Administrator shall oversee the administration of the Fund's and each
Portfolio's business and affairs as set forth herein and shall provide certain
services required for effective administration of the Fund and the Portfolios.
In connection therewith, the Administrator shall:
1.1. Office and Other Facilities. Furnish, without cost to the Fund, or
provide and pay the cost of, such office facilities, furnishings, and office
equipment as are necessary for the performance of the Administrator's duties to
the Fund under this Agreement.
1.2. Personnel. Provide, without additional remuneration from or other cost
to the Fund, the services of individuals competent to perform all of the
Administrator's obligations under this Agreement.
<PAGE>
1.3. Agents. Assist the Fund in selecting, coordinating the activities of,
supervising and acting as liaison with any other person or agent engaged by the
Fund, including the Fund's depository agent or custodian, consultants, transfer
agent, sub-transfer agents, intermediaries with respect to mutual fund alliance
programs, dividend disbursing agent, Sub-Administrator, independent accountants,
and independent legal counsel. The Administrator shall also monitor the
functions of such persons and agents, including without limitation the
compliance of the Fund and the Fund's custodians with Rule 17f-5 under the 1940
Act, if appropriate.
1.4. Directors and Officers. Authorize and permit the Administrator's
directors, officers, and employees that may be elected or appointed as directors
or officers of the Fund to serve in such capacities, without remuneration from
or additional cost to the Fund.
1.5. Books and Records. Maintain customary records, on behalf of the Fund,
in connection with the performance of the Administrator's duties under this
Agreement. The Administrator also will monitor and oversee the performance of
the agents specified in Section 1.3. above, to ensure that all financial,
accounting, corporate, and other records required to be maintained and preserved
by the Fund or on its behalf will be maintained in accordance with applicable
laws and regulations.
1.6. Cost Oversight. Monitor and review activities and procedures of the
Fund and its agents identified in Section 1.3. above, in order to identify and
seek to obtain possible service improvements and cost reductions. In connection
therewith, the Administrator shall, on a quarterly basis, prepare and submit to
the Fund a pro forma budget or similar document concerning the estimated costs
of providing the services to the Fund and shall monitor and periodically report
to the Fund's Board of Directors information and analysis about the actual
expenses incurred in providing such services.
1.7. Fund Accounting and Compliance Policies and Procedures. Assist in
developing, reviewing, maintaining, and monitoring the effectiveness of Fund
accounting and compliance policies and procedures, including portfolio valuation
procedures, expense allocation procedures, and personal trading procedures, and
the Fund's Code of Ethics. The Administrator also will assist and coordinate
participation by the Fund and its agents in any audit by its outside auditors or
any examination by federal or state regulatory authorities or any
self-regulatory organization. The Administrator also will oversee and coordinate
the activities of Fund accountants, outside counsel, and other experts in these
audits or examinations.
1.8. Fund Systems. Assist in developing, implementing, and monitoring the
Fund's use of automated systems for the purchase, sale, redemption and transfer
of Fund shares and the payment of Rule 12b-1 service fees to broker-dealers and
others that provide personal services, distribution support services, and/or
account maintenance services to shareholders, and for recording and tracking
such transactions and/or payments. The Administrator also will assist in
developing, implementing, and monitoring the Fund's use of automated
communications systems with brokers, dealers, custodians, and other service
providers, including without limitation trade clearance systems.
2
<PAGE>
1.9. Reports to the Fund. Furnish to or place at the disposal of the Fund
such information, reports, evaluations, analyses, and opinions relating to its
administrative functions and the administrative functions performed by the
Sub-Administrator, as the Fund may, at any time or from time to time, reasonably
request or as the Administrator may deem helpful to the Fund. The Administrator
also will assist in the preparation of agendas and other materials for meetings
of the Fund's Board of Directors and will attend such meetings.
1.10. Reports and Filings. Provide appropriate assistance in the
development and/or preparation of all reports and communications by the Fund to
Fund shareholders and all reports and filings necessary to maintain the
registrations and qualifications of the Fund's shares under federal securities
law.
1.11. Shareholder Inquiries. Respond to all inquiries from Fund
shareholders or otherwise answer communications from Fund shareholders if such
inquiries or communications are directed to the Administrator. If any such
inquiry or communication would be more properly answered by one of the agents
listed in Section 1.3. above, the Administrator will coordinate, as needed, the
provision of their response.
2. Allocation of Expenses.
2.1. Expenses Paid by the Administrator.
2.1.1. In General. The Administrator shall bear all of its own
expenses in connection with the performance of its duties under this
Agreement.
2.1.2. Salaries and Fees of Directors and Officers. The Administrator
shall pay all salaries, expenses, and fees, if any, of the directors,
officers, and employees of the Administrator who are directors, officers,
or employees of the Fund.
2.1.3. Waiver or Assumption and Reimbursement of Fund Expenses by the
Administrator. The waiver or assumption and reimbursement by the
Administrator of any expense of the Fund that the Administrator is not
required by this Agreement to waive, or assume or reimburse, shall not
obligate the Administrator to waive, assume, or reimburse the same or any
similar expense of the Fund on any subsequent occasion, unless so required
pursuant to a separate agreement between the Fund and the Administrator.
2.2. Expenses Paid by the Fund. The Fund shall bear all expenses of its
organization, operation, and business not specifically waived, assumed, or
agreed to be paid by the Administrator as provided in this Agreement or any
other agreement between the Fund and the Administrator, and as described in the
Fund's then-current Prospectuses and Statements of Additional Information.
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3. Fees.
3.1. Compensation Rate. As compensation for all services rendered,
facilities provided, and expenses paid and any expense waived or assumed and
reimbursed by the Administrator, the Fund shall pay the Administrator a fee per
Portfolio at the annual rate of .15% of the average daily net assets of each
Portfolio.
3.2. Method of Computation. The Administrator's fee shall accrue on each
calendar day and the sum of the daily fee accruals shall be paid monthly to the
Administrator the fifth (5th) business day of the next calendar month. The daily
fee accruals shall be computed by multiplying the fraction of one (1) over the
number of calendar days in the year by the applicable annual rates described in
Section 3.1. above, and multiplying this product by the net assets of the
Portfolios, as determined in accordance with the current Prospectuses of the
Fund, as of the close of business on the last preceding business day on which
the Fund was open for business.
3.3. Proration of Fee. If this Agreement becomes effective or terminates
before the end of any month, the fee for the period from the effective date to
the end of such month or from the beginning of such month to the date of
termination, as the case may be, shall be prorated according to the proportion
which such period bears to the full month in which such effectiveness or
termination occurs.
4. Administrator's Use of the Services of Others.
The Administrator may at its own cost employ, retain, or otherwise avail
itself of the services or facilities of other persons or organizations for the
purpose of providing the Administrator or the Fund with such information,
advice, or assistance as the Administrator may deem necessary, appropriate, or
convenient for the discharge of its obligations hereunder or otherwise helpful
to the Administrator, including consulting, monitoring, and evaluation services
concerning the Fund and the Portfolios.
5. Ownership and Confidentiality of Records.
All records required to be maintained and preserved by the Fund, pursuant
to rules or regulations of the Securities and Exchange Commission under Section
31(a) of the 1940 Act, and maintained and preserved by the Administrator on
behalf of the Fund, are the property of the Fund and shall be surrendered by the
Administrator promptly on request by the Fund. The Administrator shall not
disclose or use any record or information obtained pursuant to this
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Agreement in any manner whatsoever except as expressly authorized by this
Agreement and applicable law. The Administrator shall keep confidential any
information obtained in connection with its duties hereunder and shall disclose
such information only if the Fund has authorized such disclosure or if such
disclosure is expressly required by applicable law or federal or state
regulatory authorities.
6. Reports to the Administrator.
The Fund shall furnish or otherwise make available to the Administrator
such Prospectuses, Statements of Additional Information, financial statements,
proxy statements, reports, and other information relating to the business and
affairs of the Fund, as the Administrator may, at any time or from time to time,
reasonably require in order to discharge its obligations under this Agreement.
7. Services to Other Clients.
Nothing herein contained shall limit the freedom of the Administrator or
any affiliated person of the Administrator to render corporate administrative
services to other investment companies or to engage in other business
activities; however, so long as this Agreement or any extension, renewal, or
amendment hereof shall remain in effect or until the Administrator shall
otherwise consent, the Administrator shall be the only administrator to the
Fund.
8. Limitation of Liability of the Administrator and Indemnification by the Fund.
8.1. Limitation of Liability.
8.1.1. Neither the Administrator nor any of its directors, officers,
employees or agents performing services for the Fund, at the direction or
request of the Administrator in connection with the Administrator's
discharge of its obligations undertaken or reasonably assumed with respect
to this Agreement, shall be liable for any act or omission in the course of
or in connection with the Administrator's services hereunder, including any
error of judgment or mistake of law or for any loss suffered by the Fund,
in connection with the matters to which this Agreement relates; provided,
that nothing herein contained shall be construed to protect the
Administrator or any such person against any liability to the Fund or its
shareholders to which the Administrator or such person would otherwise be
subject by reason of willful misfeasance, bad faith, or negligence in the
performance of its or their duties on behalf of the Fund.
8.1.2. The Administrator's directors, officers, employees and agents
performing services for the Fund shall be covered by errors and omissions
and directors and officers liability insurance, as appropriate, under a
policy maintained by the Administrator or an affiliate of the
Administrator.
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8.1.3. The Administrator may apply to the Board of Directors of the
Fund at any time for instructions and may consult counsel for the Fund or
its own counsel and with accountants and other experts with respect to any
matter arising in connection with the Administrator's duties, and the
Administrator shall not be liable or accountable for any action taken or
omitted by it in good faith in accordance with such instruction or with the
opinion of such counsel, accountants, or other experts.
8.1.4. The Administrator shall at all times have the right to mitigate
or cure any and all losses, damages, costs, charges, fees, disbursements,
payments and liabilities to the Fund and its shareholders.
8.2. Indemnification by the Fund.
8.2.1. As long as the Administrator acts in good faith and with due
diligence and without negligence, the Fund shall indemnify the
Administrator and hold it harmless from and against any and all actions,
suits, and claims, whether groundless or otherwise, and from and against
any and all losses, damages (excluding consequential, punitive or other
indirect damages), costs, charges, reasonable counsel fees and
disbursements, payments, expenses, and liabilities (including reasonable
investigation expenses) arising directly or indirectly out of the
administrative services or any other service rendered to the Fund
hereunder. The indemnity and defense provisions set forth herein shall
indefinitely survive the termination of this Agreement.
8.2.2. The rights hereunder shall include the right to reasonable
advances of defense expenses in the event of any pending or threatened
litigation with respect to which indemnification hereunder may ultimately
be merited. In order that the indemnification provision contained herein
shall apply, however, it is understood that if in any case the Fund may be
asked to indemnify or hold the Administrator harmless, the Board of
Directors of the Fund shall be fully and promptly advised of all pertinent
facts concerning the situation in question, and it is further understood
that the Administrator will use all reasonable care to identify and notify
the Board of Directors of the Fund promptly concerning any situation which
presents or appears likely to present the probability of such a claim for
indemnification against the Fund, but failure to do so in good faith shall
not affect the rights hereunder.
8.2.3. The Administrator shall secure and maintain a fidelity bond, or
be covered by an affiliate's blanket fidelity bond, in at least the amount
required by Rule 17g-1 under the 1940 Act for joint insurance bonds of
investment companies.
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9. Indemnification by the Administrator.
9.1. The Administrator shall indemnify the Fund, its officers and directors
and hold them harmless from and against any and all actions, suits, and claims,
whether groundless or otherwise, and from and against any and all losses,
damages (excluding consequential, punitive or other indirect damages), costs,
charges, reasonable counsel fees and disbursements, payments, expenses, and
liabilities (including reasonable investigation expenses) arising directly or
indirectly out of the administrative services or any other service rendered to
the Fund hereunder and arising or based upon the willful misfeasance, bad faith,
or negligence of the Administrator, its directors, officers, employees, and
agents in the performance of its or their duties on behalf of the Fund. The
indemnity and defense provisions set forth herein shall indefinitely survive the
termination of this Agreement.
9.2. The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Administrator may be asked to indemnify or
hold the Fund, its officers, and directors harmless the Administrator shall be
fully and promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the Fund will use all reasonable
care to identify and notify the Administrator promptly concerning any situation
which presents or appears likely to present the probability of such a claim for
indemnification against the Administrator, but failure to do so in good faith
shall not affect the rights hereunder.
10. Force Majeure.
In the event the Administrator is unable to perform its obligations or
duties under the terms of this Agreement because of any act of God, strike,
riot, act of war, equipment failure, power failure or damage or other causes
reasonably beyond its control, the Administrator shall not be liable for any and
all losses, damages, costs, charges, counsel fees, payments, expenses or
liability to any other party (whether or not a party to this Agreement)
resulting from such failure to perform its obligations or duties under this
Agreement or otherwise from such causes. This provision, however, shall in no
way excuse the Administrator from being liable to the Fund for any and all
losses, damages, costs, charges, counsel fees, payments and expenses incurred by
the Fund due to the non-performance or delay in performance by the Administrator
of its duties and obligation under this Agreement if such non-performance or
delay in performance could have been reasonably been prevented by the
Administrator through back-up systems and other procedures commonly employed by
other administrators in the mutual fund industry, provided that the
Administrator shall have the right, at all times, to mitigate or cure any
losses, including by making adjustments or corrections to any current or former
shareholder accounts.
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11. Retention of Sub-Administrator.
The Administrator may retain a Sub-Administrator to perform corporate
administrative services to the Fund. The retention of a Sub-Administrator shall
be at the cost and expense of the Administrator. The Administrator shall pay and
shall be solely responsible for the payment of the fees of the Sub-Administrator
for the performance of its services for the Fund.
12. Term of Agreement.
The term of this Agreement shall begin on the day and year first written
above, and unless sooner terminated as hereinafter provided, shall continue in
effect for an initial period that will expire on December 31, 1998. Thereafter,
this Agreement shall continue in effect from year to year, subject to the
termination provisions and all other terms and conditions hereof. The
Administrator shall furnish to the Fund, promptly upon its request, such
information as may be reasonably necessary to evaluate the terms of this
Agreement or any extension, renewal, or amendment thereof.
The assignment (as that term is defined in Section 2(a)(4) of the 1940 Act
and rules thereunder) of this Agreement or any rights or obligations thereunder
shall be prohibited by either party without the written consent of the other
party. This Agreement shall inure to the benefit of and be binding upon the
parties and their respected permitted successors and assigns.
13. Termination of Agreement.
This Agreement may be terminated by any of the parties hereto, without the
payment of any penalty:
(a) for a material breach of this Agreement, upon thirty (30) days prior
written notice to the other parties; provided, that this Agreement shall
not terminate if such material breach is cured within such thirty (30) day
period.
(b) following the initial term of this Agreement, for any reason upon
ninety (90) days' prior written notice to the other parties; provided, that
in the case of termination by the Fund such action shall have been
authorized by resolution of the Board of Directors of the Fund or by a vote
of a majority of the outstanding voting securities of the Fund or, in the
case of termination with respect to a particular Portfolio, by a resolution
of the Board of Directors of the Fund or by a vote of a majority of the
outstanding voting securities of such Portfolio. In the case of termination
by the Administrator, such termination shall not be effective until the
Fund and the Administrator shall have contracted with one or more persons
to serve as successor Administrator(s) for the Fund and such person(s)
shall have assumed such position.
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14. Amendment and Assignment of Agreement.
Any amendment to this Agreement shall be in writing and signed by the
parties hereto; provided, that no material amendment shall be effective unless
authorized by resolution of the Board of Directors of the Fund or by a majority
of the outstanding voting securities of the Fund or, in the case of an amendment
to this Agreement with respect to a particular Portfolio, by a resolution of the
Board of Directors of the Fund or a vote of a majority of the outstanding voting
securities of such Portfolio.
15. Miscellaneous.
15.1. Notices. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postpaid, (i) if to the Administrator, to
Pilgrim Baxter Fund Services, 1255 Drummers Lane, Suite 300, Wayne, PA 19087,
Attention: Brian Bereznak, and (ii) if to the Fund, to The PBHG Funds, Inc.,
1255 Drummers Lane, Suite 300, Wayne, PA 19087, Attention: Michael Harrington.
15.2. Captions. The captions contained in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
15.3. Interpretation. Nothing herein contained shall be deemed to require
the Fund to take any action contrary to its Articles of Incorporation or
By-Laws, or any applicable statutory or regulatory requirement to which it is
subject or by which it is bound, or to relieve or deprive the Board of Directors
of its responsibility for and control of the conduct of the affairs of the Fund.
15.4. Definitions. Any question of interpretation of any term or provision
of this Agreement having a counterpart in or otherwise derived from a term or
provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court
by rules, regulations, or orders of the Securities and Exchange Commission
validly issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
relaxed by a rule, rule, regulation, or order of the Securities and Exchange
Commission, whether of special or of general application, such provision shall
be deemed to incorporate the effect of such rule, regulation, or order.
15.5. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule, or otherwise, the remainder of
this Agreement shall not be affected thereby.
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15.6. Governing law. Except insofar as the 1940 Act or other federal laws
and regulations may be controlling, this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: PBHG INSURANCE SERIES FUND, INC.
/s/ Lee T. Cummings By: /s/ Brian F. Bereznak
- ----------------------------- -------------------------------
Title: Vice President Title: Vice President
ATTEST: PBHG FUND SERVICES
/s/ Brian F. Bereznak By: /s/ Lee T. Cummings
- ----------------------------- -------------------------------
Title: President Title: Treasurer
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SCHEDULE A
PBHG INSURANCE SERIES FUND, INC.
The PBHG Insurance Series Fund, Inc. consists of the following Portfolios:
PBHG Growth II Portfolio
PBHG Select 20 Portfolio
PBHG Large Cap Growth Portfolio
PBHG Technology & Communications Portfolio
PBHG Large Cap Value Portfolio
PBHG Small Cap Value Portfolio
Date: April 1, 1997
Exhibit 9(c)
SUB-ADMINISTRATIVE SERVICES AGREEMENT
SUB-ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") made as of
the 1st day of April, 1997, by and among PBHG Insurance Series Fund, Inc., a
Maryland corporation (the "Fund"), PBHG Fund Services, a Pennsylvania business
trust (the "Administrator"), and SEI Fund Resources, a Delaware business trust
(the "Sub-Administrator").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as an open-end
management investment company of the series type and is registered as such under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Administrator and the Fund have entered into an
Administrative Services Agreement (the "Administrative Services Agreement")
pursuant to which the Administrator will provide administrative services to the
Fund and each of its several series (the "Portfolios"), which are identified in
Schedule A to the Administrative Services Agreement; and
WHEREAS, the Fund and the Administrator desire to retain the
Sub-Administrator to provide certain administrative services to the Fund, and
each of its series (the "Portfolios"), and the Administrator in the manner and
on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual
covenants and agreements hereinafter set forth, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Duties and Responsibilities of the Sub-Administrator.
The Sub-Administrator shall assist the Administrator in connection with
the Administrator's duties and responsibilities to the Fund specified in the
Administrative Services Agreement. In addition, the Sub-Administrator shall
perform or supervise the performance by others of all administrative services in
connection with the operations of the Portfolios, other than those
administrative services to be provided by the Administrator pursuant to the
Administrative Services Agreement. The administrative services to be provided by
the Sub-Administrator pursuant to this Agreement shall include general
administrative services, regulatory reporting services, fund accounting
services, and such services as set forth herein. The duties of the
Sub-Administrator shall be confined to those expressly set forth herein and no
implied duties are assumed by or may be asserted against the Sub-Administrator
hereunder. Without limiting the generality of the foregoing, the
Sub-Administrator shall provide the services described below:
<PAGE>
1.1. General Administrative Services.
1.1.1. Office and Other Facilities. Furnish, without cost to the Fund
or the Administrator, or provide and pay the cost of, such office facilities,
furnishings, and office equipment as are necessary for the performance of the
Sub-Administrator's duties to the Fund under this Agreement.
1.1.2. Personnel. Provide, without additional remuneration
from or other cost to the Fund or the Administrator, the services of individuals
competent to perform all of the Sub-Administrator's duties under this Agreement.
1.1.3. Books and Records. Maintain customary records, on behalf of the
Fund, in connection with the performance of the Sub-Administrator's duties under
this Agreement. In connection with this, the Sub-Administrator shall monitor and
oversee the performance of its agents and the Fund's independent auditors with
respect to all financial, accounting, corporate, and other records required to
be maintained and preserved by the Fund or on its behalf so that such records
will be maintained in accordance with the provisions of rules and regulations of
the Securities and Exchange Commission ("SEC") under Section 31(a) of the 1940
Act.
1.1.4. Reports to the Fund. Assist the Administrator in furnishing to
or placing at the disposal of the Fund such information, reports, evaluations,
analyses, and opinions relating to its duties as the Fund may at any time or
from time to time reasonably request, or as the Administrator may reasonably
deem helpful to the Fund. The Sub-Administrator also shall assist the
Administrator in the preparation of all necessary agendas and related meeting
materials for meetings of the Board of Directors.
1.1.5. Shareholder Inquiries. Respond to all inquiries from Fund
shareholders or otherwise answer communications from Fund shareholders if such
inquiries or communications are directed to the Sub-Administrator. If any such
inquiry or communication would be more properly answered by one of its agents or
those agents of the Fund listed in Section 1 above, the Sub-Administrator will
refer the inquiry to the Administrator to direct to the appropriate party for
response.
1.1.6. Automated Fund Systems. Assist in implementing and monitoring
the Fund's use of automated systems for: (i) the purchase, sale, redemption and
transfer of Fund shares; (ii) the payment of Rule 12b-1 service fees to
broker-dealers and others that provide personal services, distribution support
services, and/or account maintenance services to shareholders; and (iii) the
recording and tracking of such transactions and/or payments. The
Sub-Administrator also shall assist in developing, implementing, and monitoring
the Fund's use of automated communications systems with brokers, dealers,
custodians, and other service providers, including without limitation trade
clearance systems.
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1.2. Fund Accounting. The Sub-Administrator shall on a continuing basis
perform the fund accounting services and other functions described below.
1.2.1. Financial Statements. Maintain the Fund's general ledger,
including expense accruals and payments, and prepare the Fund's and each
Portfolio's annual and semi-annual financial statements. On a monthly basis,
with respect to each Portfolio, the Sub-Administrator shall prepare and provide
to the Administrator and the Fund monthly reports as mutually agreed to by the
parties (in U.S. dollars) which may include the following items: schedule of
investments; statement of assets and liabilities; statement of operations;
statement of changes in net assets; cash statement; and schedule of capital
gains and losses.
1.2.2. Oversight. Assist in developing, reviewing, maintaining, and
monitoring the effectiveness of Fund accounting policies and procedures, in
light of industry standards and the "Audits of Investment Companies" of the
American Institute of Certified Public Accountants and, in this regard, devote
particular attention to areas where accounting standards may change or develop.
In this capacity, the Sub-Administrator shall assist in the resolution of
recommendations made by the Fund's independent auditors to improve internal
controls and shall implement such recommendations as required by the Board.
1.2.3. Portfolio Valuation and Accounting. Conduct, or monitor and
oversee, portfolio valuation procedures, including without limitation procedures
for the calculation of expenses and the control of disbursements of each
Portfolio. The Sub-Administrator shall calculate, or monitor and oversee the
calculation of, the daily net asset value ("NAV") of each Portfolio in
accordance with the procedures described in the Fund's then-current registration
statement and such other procedures as may be established by the Fund's Board of
Directors. The Sub-Administrator, on a daily basis, shall provide by electronic
transmission or other mutually agreed upon means, such NAV information to: (i)
the investment adviser and sub-adviser for each Portfolio; (ii) the NASD for
reporting to newspapers and other news media; and (iii) all sub-transfer agents
that have entered into agreements with the Fund. In connection with this
responsibility, the Sub-Administrator shall determine or oversee the
determination of the value of each Portfolio's assets, and shall review and
monitor pricing methodologies relating to such valuation, procedures, including:
(i) oversight of any third-party pricing services used by them; (ii)
establishment and maintenance of appropriate "back up" pricing service
arrangements so that the NAV for each Portfolio will be provided to each
required party specified above; (iii) assistance in the review and verification
of daily securities price changes in excess of percentages specified by the
Sub-Administrator (and promptly reported to the Administrator); (iv) review for
"stale" prices; and (v) assistance in determining the resolution of any NAV
calculation errors. Notwithstanding the foregoing, the Sub-Administrator shall
bear no responsibility for incorrect prices provided by a third party pricing
service, provided the Sub-Administrator fulfills its obligation as described
above.
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The Sub-Administrator shall also prepare annual Fund and/or Portfolio
expense budgets and the determination of related daily accruals. In addition,
the Sub-Administrator shall: determine the Fund's and each Portfolio's net
income both in terms of U.S. dollars and, if appropriate, foreign currencies;
calculate capital gains and losses and, if appropriate, foreign exchange gains
and losses; control all disbursements from the Fund and authorize such
disbursements upon written instructions, which may be continuing instructions,
from the Administrator or such other persons authorized by the Fund's Board of
Directors; calculate various contractual expenses for budget and accrual
purposes; reconcile cash and investment balances of each Portfolio with the
Fund's custodian and provide each Portfolio's investment adviser or, if
applicable, sub-adviser with the beginning cash balance available for investment
purposes in both U.S. dollars and, if appropriate, foreign currency; and
maintain historical tax lots for each security and foreign currency. The
Sub-Administrator shall also for each Portfolio: monitor timely income
collection and tax reclaims; monitor daily expense accruals and the related
calculation of investment advisory fee waivers and/or expense reimbursements (if
any) and notify the Administrator of any proposed adjustments thereto; and
assist in developing and reviewing daily accounting reports for the Portfolios.
1.2.4. Performance Data. Calculate performance data of each Portfolio
for dissemination to information services covering the investment company
industry, including, as appropriate, each Portfolio's average annual total
return, cumulative total return, expense ratio, and portfolio turnover rate. In
connection with this function, the Sub-Administrator shall, as reasonably
requested by the Fund's Board of Directors, develop fund performance and other
databases to facilitate internal and external reporting and shall monitor the
calculation of financial information.
1.2.5. Fund Operations. Participate, as reasonably requested, in the
development of policies and procedures, including operational, accounting,
reporting, and monitoring procedures, to effectuate securities and other
transactions on behalf of the Fund and the Portfolios, including, stated
objectives as appropriate, securities lending programs, the establishment and
use of lines of credit on behalf of the Fund and/or inter-Portfolio lending
capabilities, and the establishment and use of inter-Portfolio securities
trading capabilities. In connection with the foregoing, the Sub-Administrator
shall, upon reasonable request, assist in the preparation of any application for
exemptive or no-action relief, if required.
1.2.6. Cash Balances. Participate, as reasonably requested, in the
development of policies and procedures, including operational, accounting,
reporting, and monitoring procedures, regarding the management of the
Portfolios' cash balances, including procedures regarding the use of "sweep"
transactions and repurchase agreements, the temporary reinvestment of credits to
cash balances, and the processing of dividends and other disbursements to the
Portfolios. In connection with the foregoing, the Sub-Administrator shall assist
in the preparation of any application for exemptive or no-action relief, if
required. The
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Sub-Administrator shall also provide the cash availability throughout each day,
as required by each Portfolio's investment adviser or, if applicable,
sub-adviser.
1.3. Oversight of Agents and Service Providers.
1.3.1. In General. Assist the Administrator and Fund counsel in the
preparation, negotiation, and administration of contracts on behalf of the Fund
with third-party service providers, such as the Fund's distributor, custodian,
transfer agent, sub-transfer agents, and intermediaries with respect to mutual
fund alliance programs. At the reasonable request of the Fund or the
Administrator, the Sub-Administrator shall assist in the preparation of reports
to the Fund on the performance and service quality of these service providers,
as more fully described in Section 1.3.2. below. The Sub-Administrator shall
review the performance of each Portfolio's custodian or custodians regarding the
timely recording of cash receipts and disbursements and position reconciliation
and shall periodically report to the Administrator its findings in that regard,
as mutually agreed to by the parties. The Sub-Administrator shall also monitor
and review compliance as documented and reported by each Portfolio's custodian
or custodians with Rule 17f-5 under the 1940 Act, as applicable. The
Sub-Administrator shall have no responsibility for supervising the performance
of investment adviser or sub-adviser for each Portfolio.
1.3.2. Service Quality Standards. Assist the Administrator in
establishing service quality standards and developing and implementing
procedures for monitoring and benchmarking the performance of third-party
service providers, such as those specified in Section 1.3.1. above, against
industry standards. Upon reasonable request, the Sub-Administrator shall provide
the Administrator and the Fund's Board of Directors with periodic reports
concerning the results of monitoring of the performance and service quality of
these service quality of these service providers.
1.4. Oversight of Transfer Agent and Dividend Disbursing Agent.
1.4.1. Policies and Procedures. Assist the Administrator in the
development of policies and procedures concerning the transfer agent's
processing of shareholder transactions, including policies and procedures
concerning inactive or dormant accounts and compliance with related escheatment
requirements, telephone exchanges and redemptions, effectuation of transactions
through the use of facsimile transmissions, name and address changes, and the
receipt and maintenance of appropriate legal documentation. The
Sub-Administrator also shall participate in the establishment of policies and
procedures for ensuring that shareholder redemption requests are timely honored,
even in periods of significant or unusual market activity. The Sub-Administrator
also shall assist in the development of controls over, and policies and
procedures governing, the Fund's cash remittance processing, and the processing
of dividend and distribution payments, check writing, wire redemptions and other
disbursements.
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1.4.2. Compliance with Service Quality Standards. Assist the
Administrator in establishing service quality standards and developing and
implementing procedures for monitoring and benchmarking the transfer agent's
performance against industry standards in areas such as: compliance with initial
and subsequent investment minimums; accuracy of the establishment of new
accounts, including the establishment of shareholder privileges and dividend
reinvestment options; accuracy of transaction processing, including monetary and
non-monetary transactions; timeliness of problem resolution and correspondence,
including review of shareholder complaints; compliance with document completion
and retention requirements; timeliness and accuracy of confirmations and
periodic shareholder statements; and quality of telephonic communications with
shareholders, including a review of abandon rates, response times, and average
talk time. The Sub-Administrator also shall review and participate in
determinations concerning the resolution of "as of" transactions in accordance
with the Fund's policies as approved by the Administrator and the Board of
Directors of the Fund.
1.4.3. Oversight of Shareholder Transactions. Assist the Fund, as
requested, in developing and implementing procedures with respect to omnibus
accounts, in order to ensure that such accounts are properly serviced and that
Fund expenses are allocated appropriately.
1.4.4. Transfer Agent Expenses. Assist the Administrator, as
requested, in reviewing the level and allocation of transfer agent out-of-pocket
expenses charged to the Fund with respect to whether particular expenses are
appropriately charged to the Fund and appropriately allocated among the
Portfolios.
1.5. Reports, Filings, and Communications.
1.5.1. Reports and Filings. Assist in the development, preparation,
and filing of all reports and communications by the Fund to Fund shareholders
and all reports and filings necessary to maintain the registrations and
qualifications of the Fund's shares under federal and state "Blue Sky"
securities laws, including registration statements, prospectuses, statements of
additional information, proxy statements, semi-annual reports for the Fund on
Form N-SAR, all sales reports, and all required notices pursuant to Rule 24f-2
of the 1940 Act. The Sub-Administrator also shall assist with and coordinate the
layout and printing of publicly disseminated prospectuses and the Fund's
semi-annual and annual reports to shareholders.
1.5.2. State Blue Sky Filings. Prepare all reports, applications, and
documents (including reports regarding the sale and redemption of the Fund's
shares as may be required in order to comply with state Blue Sky securities
laws) as may be necessary or desirable to: (i) register and maintain the
registration of the Fund's shares with state securities authorities; and (ii)
monitor the sale of the Fund's shares for compliance with state Blue Sky
securities laws. The Sub-Administrator shall file with the appropriate state
securities authorities all registration statements and reports for the Fund and
the Fund's shares, and all amendments thereto and other filings as may be
necessary or convenient to register the Fund and the Fund's shares and keep
6
<PAGE>
such registration effective with state security authorities so as to enable the
Fund to make a continuous offering of its shares in all 50 states and the
District of Columbia.
1.5.3. Shareholder Communications. Coordinate mailing Fund
prospectuses, notices, proxy statements, proxies and other reports to Fund
shareholders, and supervise and facilitate the solicitation of proxies solicited
by the Fund for all shareholder meetings, including tabulation process for
shareholder meetings.
1.5.4. Tax Returns. Coordinate and supervise the preparation and
filing of all required tax returns for the Fund and monitor the accuracy of all
tax reports sent to shareholders of the Fund.
1.6. Legal and Audit Services.
1.6.1. Independent Audits. Assist in the coordination of the Fund
audit process and provide, upon request, account analyses, fiscal year
summaries, and other audit-related schedules. In connection with this
responsibility, the Sub-Administrator shall take all actions to assure that
necessary information is made available to the Fund's independent auditor for
the expression of their opinion, as such may be required by the Fund from time
to time. The Sub-Administrator also shall assist and participate in the
resolution of issues raised in the audit process.
1.6.2. 1940 Act. The Sub-Administrator shall obtain and keep in
effect, at the Fund's expense, fidelity bonds and directors and officers/errors
and Fund in accordance with the requirements of Rules 17g-1 and 17d-1(d)(7)
under the 1940 Act, as such bonds and policies are approved by the Fund's Board
of Directors. The Sub-Administrator also shall develop and maintain fund manager
"handbooks" to facilitate compliance by portfolio managers with respect to
investment restrictions. In addition, the Sub-Administrator shall assist the
Fund's Administrator in monitoring the Fund's compliance with provisions of the
1940 Act and the rules and regulations thereunder as well as compliance with
each Portfolio's investment objectives, program, policies and restrictions. In
connection with this responsibility, the Sub-Administrator shall promptly advise
the Fund and the Administrator as to any compliance problems or issues detected.
1.6.3. Tax Compliance. Monitor compliance with the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), and the rules and
regulations thereunder, applicable to regulated investment companies, including:
portfolio diversification requirements and minimum distribution requirements;
review of expense allocations to individual classes to ensure compliance with
applicable IRS pronouncements regarding preferential dividends; wash sales;
short-short income; qualifying income; asset diversification; and investments in
Passive Foreign Investment Companies. In connection with this responsibility,
the Sub-Administrator
7
<PAGE>
shall monitor and advise the Fund and the Portfolios as to their status as
"regulated investment companies" under the Code.
1.6.4. Regulatory Examinations. Assist in the Fund's participation in
regulatory examinations, including examinations by the SEC, the National
Association of Securities Dealers, Inc., and/or state securities regulators. In
connection therewith, the Sub-Administrator, on behalf of the Fund, shall
provide such information as the regulator may reasonably request, and shall
assist and participate in the resolution of any issues raised in connection with
such examinations.
1.7. Disaster Recovery. Employ, monitor and oversee disaster recovery and
related back-up procedures and facilities commonly utilized by others in the
mutual fund industry. In this regard, the Sub-Administrator shall enter into and
maintain in effect with appropriate parties, at no additional expense to the
Fund, one or more agreements making appropriate and reasonable provision for
emergency use of electronic data processing equipment and other equipment and/or
facilities necessary for the performance of its duties and obligations under
this Agreement in the event of emergency conditions or equipment failures.
2. Expenses.
2.1. Expenses Paid by the Sub-Administrator.
2.1.1. In General. The Sub-Administrator shall bear all of its
expenses in connection with the performance of its duties under this Agreement,
except documented out-of-pocket expenses or expenses associated with telephone
support relating to shareholder services.
2.1.2. Waiver or Assumption and Reimbursement of Fund Expenses by the
Sub-Administrator. The waiver or assumption and reimbursement by the
Sub-Administrator of any expense of the Fund that the Sub-Administrator is not
required by this Agreement to waive, or assume or reimburse, shall not obligate
the Sub-Administrator to waive, assume, or reimburse the same or any similar
expense of the Fund on any subsequent occasion, unless so required pursuant to a
separate agreement between the Fund and the Sub-Administrator.
2.2. Expenses Paid by the Fund. The Fund shall bear all expenses of its
organization, operation, and business not specifically waived, assumed, or
agreed to be paid by the Administrator or the Sub-Administrator, as provided in
this Agreement, the Administrative Services Agreement or any other agreement
between the Fund and the Administrator or the Sub-Administrator, and as
described in the Fund's then-current Prospectuses and Statements of Additional
Information.
8
<PAGE>
3. Fees.
3.1. Compensation Rate. As compensation for all services rendered,
facilities provided, and expenses paid and any expense waived or assumed and
reimbursed by the Sub-Administrator, the Administrator shall pay the
Sub-Administrator a fee per Portfolio: (i) at the annual rate of .07% of the
average daily assets of each Portfolio with respect to $2.5 billion of the total
average daily net assets of the Fund; and (ii) at the annual rate of .025% of
the average daily net assets of each Portfolios with respect to the total
average daily net assets of the Fund in excess of $2.5 billion.
3.2. Method of Computation. The Sub-Administrator's fee shall accrue on
each calendar day and the sum of the daily fee accruals shall be paid monthly to
the Sub-Administrator by the fifth (5th) business day of the next calendar
month. The daily fee accruals shall be computed by multiplying the fraction of
one (1) over the number of calendar days in the year by the applicable annual
rates described in Section 3.1. above, and multiplying this product by the net
assets of the Portfolios, as determined in accordance with the current
Prospectuses of the Fund, as of the close of business on the last preceding
business day on which the Fund was open for business.
3.3. Proration of Fee. If this Agreement becomes effective or terminates
before the end of any month, the fee for the period from the effective date to
the end of such month or from the beginning of such month to the date of
termination, as the case may be, shall be prorated according to the proportion
which such period bears to the full month in which such effectiveness or
termination occurs.
3.4. Responsibility for Payment. The Sub-Administrator shall not be
entitled to receive any payment for the performance of its services hereunder
from the Fund and shall look solely and exclusively to the Administrator for
payment of all fees for such services.
4. Sub-Administrator's Use of the Services of Others.
The Sub-Administrator may at its own cost employ, retain, or otherwise
avail itself of the services and facilities of other persons or organizations
for the purpose of providing the Sub-Administrator, the Administrator, or the
Fund with such information or assistance as the Sub-Administrator may deem
necessary, appropriate, or convenient for the discharge of its duties hereunder
or otherwise helpful to the Administrator.
5. Ownership and Confidentiality of Records.
All records required to be maintained and preserved by the Fund, pursuant
to rules or regulations of the SEC under Section 31(a) of the 1940 Act and
maintained and preserved by the Sub-Administrator on behalf of the Fund, are the
property of the Fund and shall be surrendered
9
<PAGE>
by the Sub-Administrator promptly on request by the Fund. The Sub-Administrator
shall not disclose or use any record or information obtained pursuant to this
Agreement in any manner whatsoever except as expressly authorized by this
Agreement and applicable law. The Sub-Administrator shall keep confidential any
information obtained in connection with its duties and shall disclose such
information only if the Fund has authorized such disclosure or if such
disclosure is expressly required by applicable law or federal or state
regulatory authorities.
6. Reports to the Sub-Administrator.
The Fund and/or the Administrator shall furnish or otherwise make available
to the Sub-Administrator such Prospectuses, Statements of Additional
Information, financial statements, proxy statements, reports, and other
information relating to the business and affairs of the Fund as the
Sub-Administrator may, at any time or from time to time, require in order to
discharge its duties under this Agreement.
7. Services to Other Clients.
Nothing herein contained shall limit the freedom of the Sub-Administrator
or any affiliated person of the Sub-Administrator to render similar corporate
administrative services to other investment companies, or to engage in other
business activities.
8. Limitation of Liability of the Sub-Administrator and Indemnification by
the Fund and the Administrator.
8.1. Limitation of Liability of the Sub-Administrator.
8.1.1. Neither the Sub-Administrator nor any of its directors,
officers, employees, or agents performing services for the Fund and the
Administrator at the direction or request of the Sub-Administrator in connection
with the Sub-Administrator's discharge of its duties undertaken or assumed with
respect to this Agreement, shall be liable for any act or omission in the course
of or in connection with the Sub-Administrator's services hereunder, including
any error of judgment or mistake of law or for any loss suffered by the Fund or
the Administrator in connection with the matters to which this Agreement
relates; provided, that nothing herein contained shall be construed to protect
the Sub-Administrator or any such persons against any liability to the Fund or
its shareholders or the Administrator to which the Sub-Administrator or such
persons would otherwise be subject by reason of willful misfeasance, bad faith,
or negligence in the performance of its or their duties on behalf of the Fund or
the Administrator or for failure by the Sub-Administrator or any such persons to
exercise due care in rendering other services to the Fund or the Administrator.
The limitation and liability provisions set forth herein shall indefinitely
survive the termination of this Agreement.
10
<PAGE>
8.1.2. The Sub-Administrator may apply to the Board of Directors of
the Fund or to the Administrator at any time for instructions and may consult
counsel for the Fund or the Administrator or the Sub-Administrator's own counsel
and with accountants and other experts with respect to any matter arising in
connection with the Sub-Administrator's duties, and the Sub-Administrator shall
not be liable or accountable for any action taken or omitted by it in good faith
in accordance with such instructions or with the opinion of such counsel,
accountants, or other experts.
8.1.3. The Sub-Administrator shall at all times have the right to
mitigate or cure any and all losses, damages, costs, charges, fees,
disbursements, payments, expenses and liabilities to the Fund, its shareholders
or the Administrator.
8.2. Indemnification by the Fund and the Administrator.
8.2.1. As long as the Sub-Administrator acts in good faith and with
due diligence and without negligence, the Fund and the Administrator shall
indemnify the Sub-Administrator, its directors, officers, employees, and agents
and hold them harmless from and against any and all actions, suits, and claims,
whether groundless or otherwise, and from and against any and all losses,
damages (excluding consequential, punitive or other indirect damages), costs,
charges, reasonable counsel fees and disbursements, payments, expenses, and
liabilities (including reasonable investigation expenses) arising directly or
indirectly out of the administrative services or any other service rendered to
the Fund or the Administrator hereunder. The indemnity and defense provisions
set forth herein shall indefinitely survive the termination of this Agreement.
8.2.2. The rights hereunder shall include the right to reasonable
advances of defense expenses in the event of any pending or threatened
litigation with respect to which indemnification hereunder may ultimately be
merited. In order that the indemnification provision contained herein shall
apply, however, it is understood that if in any case the Fund or the
Administrator may be asked for indemnification under Section 8.2.1., the Board
of Directors of the Fund or the Administrator shall be fully and promptly
advised of all pertinent facts concerning the situation in question, and it is
further understood that the Sub-Administrator will use all reasonable care to
identify and notify the Board of Directors of the Fund or the Administrator
promptly concerning any situation which presents or appears likely to present
the probability of such a claim for indemnification against the Fund or the
Administrator, but failure to do so in good faith shall not affect the rights
hereunder. The rights hereunder shall be limited, during each term of this
Agreement, to no more than six (6) months of fees of the Sub-Administrator (as
computed in accordance with Section 3.1 of this Agreement) either (i) payable to
the Sub-Administrator in accordance with Section 3 hereof or (ii) if the
Agreement has been terminated, those fees paid to the Sub-Administrator for the
six (6) month period prior to termination.
11
<PAGE>
9. Indemnification by the Sub-Administrator.
9.1. The Sub-Administrator shall indemnify the Fund, the Administrator, and
their directors, officers, employees, and agents and hold them harmless from and
against any and all actions, suits, and claims, whether groundless or otherwise,
and from and against any and all losses, damages (excluding consequential,
punitive or other indirect damages), costs, charges, reasonable counsel fees and
disbursements, payments, expenses, and liabilities (including reasonable
investigation expenses) arising directly or indirectly out of the administrative
services or any other service rendered to the Fund and the Administrator
hereunder and arising or based upon the willful misfeasance or bad faith of the
Sub-Administrator, its directors, officers, employees, and agents in the
performance of its or their duties on behalf of the Fund and the Administrator.
The indemnity and defense provisions set forth herein shall indefinitely survive
the termination of this Agreement.
9.2. The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Sub-Administrator may be asked for
indemnification under Section 9.1, the Sub-Administrator shall be fully and
promptly advised of all pertinent facts concerning the situation in question,
and it is further understood that the Fund and the Administrator will use all
reasonable care to identify and notify the Sub-Administrator promptly concerning
any situation which presents or appears likely to present the probability of
such a claim for indemnification against the Sub-Administrator, but failure to
do so in good faith shall not affect the rights hereunder. The rights hereunder
shall be limited, during each term of this Agreement, to no more than six (6)
months of fees to the Sub-Administrator (as computed in accordance with Section
3.1 of this Agreement) either (i) payable to the Sub-Administrator in accordance
with Section 3 hereof or (ii) if the Agreement has been terminated, those fees
paid to the Sub-Administrator for the six (6) month period prior to termination.
10. Force Majeure.
In the event the Sub-Administrator is unable to perform its obligations or
duties under the terms of this Agreement because of any act of God, strike,
riot, act of war, equipment failure, power failure or damage or other causes
reasonably beyond its control, the Sub-Administrator shall not be liable for any
loss, damage, cost, charge, counsel fee, payment, expense or liability to any
other party (whether or not a party to this Agreement) resulting from such
failure to perform its obligations or duties under this Agreement or otherwise
from such causes. This provision, however, shall in no way excuse the
Sub-Administrator from being liable to the Administrator or the Fund for any and
all losses, damages, costs, charges, counsel fees, payments and expenses
incurred by the Administrator or the Fund due to the non-performance or delay in
performance by the Sub-Administrator of its duties and obligation
12
<PAGE>
under this Agreement if such non-performance or delay in performance could have
been reasonably been prevented by the Sub-Administrator through back-up systems
and other procedures commonly employed by other administrators and
sub-administrators in the mutual fund industry, provided that the
Sub-Administrator shall have the right, at all times, to mitigate or cure any
losses, including the making of adjustments or corrections to any current or
former shareholder accounts.
11. Term of Agreement.
The term of this Agreement shall begin on the day and year first written
above, and unless sooner terminated as hereinafter provided, shall continue in
effect for an initial period that will expire on December 31, 1998. Thereafter,
this Agreement shall continue in effect from year to year, subject to the
termination provisions and all other terms and conditions hereof. The
Sub-Administrator shall furnish to the Fund or the Administrator, promptly upon
a request by the Fund or the Administrator, such information as may be
reasonably necessary to evaluate the terms of this Agreement or any extension,
renewal, or amendment thereof.
12. Amendment and Assignment of Agreement.
Any amendment to this Agreement shall be in writing and signed by the
parties hereto; provided, that no material amendment shall be effective unless
authorized by a resolution of the Board of Directors of the Fund or by a vote of
a majority of the outstanding voting securities of the Fund or, in the case of
an amendment to this Agreement with respect to a particular Portfolio, by a
resolution of the Board of Directors of the Fund or by a vote of a majority of
the outstanding voting securities of such Portfolio.
The assignment (as that term is defined in Section 2(a)(4) of the 1940 Act
and rules thereunder) of this Agreement or any rights or obligations thereunder
shall be prohibited by either party without the written consent of the other
party. This Agreement shall inure to the benefit of and be binding upon the
parties and their respected permitted successors and assigns.
13. Termination of Agreement.
This Agreement may be terminated by any of the parties hereto, without
the payment of any penalty:
(a) for a material breach of this Agreement, upon thirty (30)
days prior written notice to the breaching party; provided
that the breaching party has not cured the material breach of
this Agreement during such thirty (30) day period.
(b) following the initial term of this Agreement, for any
reason upon ninety (90) days' prior written notice to the
other parties; provided, that in the case of
13
<PAGE>
termination by the Fund such action shall have been authorized
by resolution of the Board of Directors of the Fund or by a
vote of a majority of the outstanding voting securities of the
Fund or, in the case of termination with respect to a
particular Portfolio, by a resolution of the Board of
Directors of the Fund or by a vote of a majority of the
outstanding voting securities of such Portfolio. In the case
of termination by the Sub-Administrator, such termination
shall not be effective until the Fund and the Administrator
shall have contracted with one or more persons to serve as
successor Sub-Administrator(s) for the Fund and such person(s)
shall have assumed such position.
14. Miscellaneous.
14.1. Notices. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postpaid: (a) if to the Sub-Administrator, to
SEI Fund Resources, 680 East Swedesford Road, Wayne, PA 19087-1658, Attention:
General Counsel; (b) if to the Administrator, to Pilgrim Baxter Fund Services,
1255 Drummers Lane, Suite 300, Wayne, PA 19087-1590, Attention: Brian Bereznak;
and (c) if to the Fund, to The PBHG Funds, Inc., 1255 Drummers Lane, Suite 300,
Wayne, PA 19087-1590, Attention: Michael Harrington.
14.2. Captions. The captions contained in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
14.3. Interpretation. Nothing herein contained shall be deemed to require
the Fund to take any action contrary to its Articles of Incorporation or
By-Laws, or any applicable statutory or regulatory requirement to which it is
subject or by which it is bound, or to relieve or deprive the Board of Directors
of its responsibility for and control of the conduct of the affairs of the Fund.
14.4. Definitions. Any question of interpretation of any term or provision
of this Agreement having a counterpart in or otherwise derived from a term or
provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations, or orders of the SEC validly issued pursuant to the 1940
Act. In addition, where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is relaxed by a rule, regulation, or order of
the SEC, whether of special or of general application, such provision shall be
deemed to incorporate the effect of such rule, regulation, or order.
14.5. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule, or otherwise, the remainder of
this Agreement shall not be affected thereby.
14
<PAGE>
14.6. Governing Law. Except insofar as the 1940 Act or other federal
laws and regulations may be controlling, this Agreement shall be governed by,
and construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: PBHG INSURANCE SERIES FUND, INC.
/s/ Lee T. Cummings By: /s/ Brian F. Bereznak
- --------------------- ------------------------------
Title: Vice President Title: Vice President
ATTEST: PBHG FUND SERVICES
/s/ Brian F. Bereznak By: /s/ Lee T. Cummings
- --------------------- ------------------------------
Title: President Title: Treasurer
ATTEST: SEI FUND RESOURCES
/s/ By: /s/ Barbara A. Nugent
- --------------------- ------------------------------
Title: Vice President Title: Vice President
15
<PAGE>
SCHEDULE A
The Portfolios of the Fund that will receive services pursuant to this Agreement
are:
PBHG Growth II Portfolio
PBHG Select 20 Portfolio
PBHG Large Cap Growth Portfolio
PBHG Technology & Communications Portfolio
PBHG Large Cap Value Portfolio
PBHG Small Cap Value Portfolio
Date: April 1, 1997
16
Exhibit 9(d)
EXPENSE LIMITATION AGREEMENT
PBHG INSURANCE SERIES FUND, INC.
EXPENSE LIMITATION AGREEMENT, effective as of April 1, 1997, by and between
Pilgrim Baxter & Associates, Ltd. (the "Adviser") and PBHG Insurance Series
Fund, Inc. (the "Fund"), on behalf of each series of the Fund set forth in
Schedule A (each a "Portfolio," and collectively, the "Portfolios").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporated dated December 23, 1996 (the "Articles"), and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open
end-diversified management company of the series type, and each Portfolio is a
series of the Fund; and
WHEREAS, the Fund and the Adviser have entered into an Investment Advisory
Agreement (the "Advisory Agreement"), pursuant to which the Adviser will render
investment advisory services to each Portfolio for compensation based on the
value of the average daily net assets of each such Portfolio; and
WHEREAS, the Fund and the Adviser have determined that it is appropriate
and in the best interests of each Portfolio and its shareholders to maintain the
expenses of each Portfolio at a level below the level to which each such
Portfolio would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate expenses of
every character incurred by a Portfolio in any fiscal year, including but not
limited to investment advisory fees of the Adviser (but excluding interest,
taxes, brokerage commissions, and other expenditures which are capitalized in
accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of such Portfolio's
business) ("Portfolio Operating Expenses"), exceed the Operating Expense Limit,
as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall
be the liability of the Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year for
each Portfolio shall be as set forth in Schedule B, or such other rate as may be
agreed to in writing by the parties.
1.3 Method of Computation. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
each Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses
<PAGE>
for any month of a Portfolio exceed the Operating Expense Limit of such
Portfolio, the Adviser shall first waive or reduce its investment management fee
for such month by an amount sufficient to reduce the annualized Portfolio
Operating Expenses to an amount no higher than the Operating Expense Limit. If
the amount of the waived or reduced investment advisory fee for any such month
is insufficient to pay the Excess Amount, the Adviser may also remit to the
appropriate Portfolio or Portfolios an amount that, together with the waived or
reduced advisory fee, is sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio or
Portfolios with respect to the previous fiscal year shall equal the Excess
Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which the total assets of a
Portfolio are greater than $75 million and in which the Advisory Agreement is
still in effect, the estimated aggregate Portfolio Operating Expenses of such
Portfolio for the fiscal year are less than the Operating Expense Limit for that
year, subject to quarterly approval by the Fund's Board of Directors as provided
in Section 2.2 below, the Adviser shall be entitled to reimbursement by such
Portfolio, in whole or in part as provided below, of the advisory fees waived or
reduced and other payments remitted by the Adviser to such Portfolio pursuant to
Section 1 hereof. The total amount of reimbursement to which the Adviser may be
entitled (the "Reimbursement Amount") shall equal, at any time, the sum of all
investment advisory fees previously waived or reduced by the Adviser and all
other payments remitted by the Adviser to the Portfolio, pursuant to Section 1
hereof, during any of the previous two (2) fiscal years, less any reimbursement
previously paid by such Portfolio to the Adviser, pursuant to Sections 2.2 or
2.3 hereof, with respect to such waivers, reductions, and payments. The
Reimbursement Amount shall not include any additional charges or fees
whatsoever, including, e.g., interest accruable on the Reimbursement Amount.
2.2 Board Approval. No reimbursement shall be paid to the Adviser pursuant
to this provision in any fiscal quarter, unless the Fund's Board of Directors
has determined that the payment of such reimbursement is in the best interests
of the Portfolio or Portfolios and their shareholders. The Fund's Board of
Directors shall determine quarterly in advance whether any reimbursement may be
paid to the Adviser in such quarter.
2.3 Method of Computation. To determine each Portfolio's payments, if any,
to reimburse the Adviser for the Reimbursement Amount, each month the Portfolio
Operating Expenses of each Portfolio shall be annualized as of the last day of
the month. If the annualized Portfolio Operating Expenses of a Portfolio for any
month are less than the
2
<PAGE>
Operating Expense Limit of such Portfolio, such Portfolio, only with the prior
approval of the Board, shall pay to the Adviser an amount sufficient to increase
the annualized Portfolio Operating Expenses of that Portfolio to an amount no
greater than the Operating Expense Limit of that Portfolio, provided that such
amount paid to the Adviser will in no event exceed the total Reimbursement
Amount.
2.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the actual Portfolio Operating Expenses of a
Portfolio for the prior fiscal year (including any reimbursement payments
hereunder with respect to such fiscal year) do not exceed the Operating Expense
Limit.
3. Term and Termination of Agreement.
This Agreement shall continue in effect for a period of one year from the
date of its execution and from year to year thereafter provided such continuance
is specifically approved by a majority of the Directors of the Fund who (i) are
not "interested persons" of the Fund or any other party to this Agreement, as
defined in the Act, and (ii) have no direct or indirect financial interest in
the operation of this Agreement ("Non-Interested Directors"). Nevertheless, this
Agreement may be terminated by either party hereto, without payment of any
penalty, upon 90 days' prior written notice to the other party at its principal
place of business; provided that, in the case of termination by the Fund, such
action shall be authorized by resolution of a majority of the Non-Interested
Directors of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to require the
Fund or the Portfolio to take any action contrary to the Fund's Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Fund's Board of Directors of its responsibility for and control of the conduct
of the affairs of the Fund or the Portfolios.
4.3 Definitions. Any question of interpretation of any term or provision of
this Agreement, including but not limited to the investment advisory fee, the
computations of net asset values, and the allocation of expenses, having a
counterpart in or otherwise derived from the terms and provisions of the
Advisory Agreement or the 1940 Act, shall have the same meaning as and be
resolved by reference to such Advisory Agreement or the 1940 Act.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers "hereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: PBHG INSURANCE SERIES FUND, INC.
ON BEHALF OF EACH OF ITS SERIES
/s/ John M. Zerr By: /s/ Brian F. Bereznak
- ----------------------------- -------------------------------
Secretary Vice President
ATTEST: PILGRIM BAXTER & ASSOCIATES, LTD.
/s/ John M. Zerr By: /s/ Gary L. Pilgrim
- ----------------------------- -------------------------------
Secretary
4
<PAGE>
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
5
<PAGE>
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 Portfolio Annual: no more than 1.20% of average
daily net assets
PBHG Select 20 Portfolio Annual: no more than 1.20% of average
daily net assets
6
Exhibit 9(f)
PBHG INSURANCE SERIES FUND, INC.
ORGANIZATIONAL EXPENSE
REIMBURSEMENT AGREEMENT
This Agreement is made this 1st day of April 1997, by and between the PBHG
Insurance Series Funds, Inc. (the "Fund"), on behalf of each series of the Fund
set forth in Schedule A (each a "Portfolio," and collectively, the
"Portfolios"), and Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter").
WHEREAS, the Fund is registered as an open-end diversified management
investment company under the Investment Company Act of 1940, as amended; and
WHEREAS, there have been certain necessary organizational expenses incurred
as a part of such process, which are proper expenses of the Portfolio, that have
been and will in the future be paid by Pilgrim Baxter and affiliated companies
of Pilgrim Baxter, by reason of the fact that each Portfolio was not capitalized
when such expenses were incurred (such expenses hereinafter referred to as
"Organizational Expenses");
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed as follows:
1. Effective as of the initial public offering of shares of each
Portfolio, the Fund shall be obligated to reimburse and pay to Pilgrim
Baxter, or such affiliated companies of Pilgrim Baxter as Pilgrim
Baxter may designate, the amounts expended and to be expended by
Pilgrim Baxter and its affiliates for Organizational Expenses.
2. Such reimbursements shall be paid by the Fund promptly upon the demand
of Pilgrim Baxter. Upon demand for payment, Pilgrim Baxter shall
present copies of invoices of receipts, copies of canceled checks or
other evidence of payment of the Organizational Expenses for which it
is demanding reimbursement from the Fund.
PBHG INSURANCE SERIES FUND, INC.
By: /s/ Brian F. Bereznak
-------------------------------
Title: Vice President
PILGRIM BAXTER & ASSOCIATES, LTD.
By: /s/ Eric C. Schneider
-------------------------------
Title: Chief Financial Officer
<PAGE>
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
Exhibit 10
[LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL, LLP]
February 12, 1997
PBHG Insurance Series Fund, Inc.
825 Duportail Road
Wayne, PA 19087
Re: PBHG Insurance Series Fund, Inc.
Registration Statement on Form N-1A
-----------------------------------
Gentlemen:
We understand that PBHG Insurance Series Fund, Inc. (the "Company"), a
corporation organized under the laws of the State of Maryland, is registering
its shares of common stock with the Securities and Exchange Commission under the
Securities Act of 1933 (the "1933 Act"), and is also registering under the
Investment Company Act of 1940 ("1940 Act") as an open-end series management
investment company. We have acted as counsel to the Company in connection with
such registration.
This opinion is given in connection with the filing by the Company of its
Registration Statement on Form N-1A ("Registration Statement") under the 1933
Act and under the 1940 Act relating to the registration of an indefinite number
of shares of common stock, par value $.001 per share (the "Shares"),
representing interests in 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 PBHG
Select 20 Portfolio, each a series portfolio of the Company.
In connection with our giving this opinion, we have examined a copy of the
Charter of the Company, and originals or copies, certified or otherwise
identified to our
<PAGE>
PBHG Insurance Series Fund, Inc.
February 12, 1998
Page 2
satisfaction, of such other documents, corporate records and other instruments
as we have deemed necessary or advisable for purposes of this opinion. We have
also examined the prospectus included in the Registration Statement
substantially in the form in which it is to become effective (the "Prospectus").
As to various questions of fact material to our opinion, we have relied upon
information provided by officers of the Company.
Based on the foregoing, we are of the opinion that the Shares to be offered
for sale pursuant to the Prospectus are, to the extent of the number of Shares
authorized to be issued by the Company in its Charter, duly authorized and, when
sold, issued and paid for as described in the Prospectus, will have been legally
issued, fully paid and non-assessable.
We express no opinion concerning the laws of any jurisdiction other than
the federal law of the United States of America and the State of Maryland.
This opinion may be relied upon by you only in connection with the filing
of the Registration Statement and may not be used or relied upon by you or any
other person without in each instance our prior written consent.
This opinion is limited to the matters expressly stated herein. No implied
opinion may be inferred to extend this opinion beyond the matters expressly
stated herein. We do not undertake to advise you or anyone else of any changes
in the opinions expressed herein resulting from changes in law, changes in facts
or any other matters that hereafter might occur or be brought to our attention.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the caption "General
Information - Counsel and Independent Accountants" in the Prospectus included in
the Registration Statement.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll, LLP
Exhibit 11
[Letterhead of Coopers & Lybrand L.L.P.]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 3 to the Registration Statement under the Securities Act of 1933 on Form
N-1A (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 "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
February 13, 1998
Exhibit 16
PBHG Insurance Series Fund
This schedule is included to illustrate how yield* and total return are
calculated.
Yield = 2 ( (a-b) + 1 / 6 / -1)
-----
cd
<TABLE>
<CAPTION>
PBHG Growth II PBHG Small Cap
Portfolio Value Portfolio
-------------- ---------------
<S> <C> <C> <C>
a = Total Income $ 9,318.14 a = Total Income $ 11,004.99
b = Expenses $ 7,992.30 b = Expenses $ 5,676.43
c = Shares 791,524.667 c = Shares 583,013.125
d = NAV $ 10.60 d = NAV $ 10.40
Yield 0.19% Yield 1.06%
</TABLE>
<TABLE>
<CAPTION>
PBHG Large Cap PBHG Technology &
Value Portfolio Communications Portfolio
--------------- ------------------------
<S> <C> <C> <C>
*Funds w a = Total Income $ 2,620.73 a = Total Income $ 8,471.30
b = Expenses $ 973.90 b = Expenses $ 5,365.78
c = Shares 118,827.181 c = Shares 565,751.992
d = NAV $ 10.30 d = NAV $ 10.21
Yield 1.62% Yield 0.65%
</TABLE>
<TABLE>
<CAPTION>
PBHG Select 20 PBHG Mid-Cap
Portfolio Value Portfolio
-------------- ---------------
<S> <C> <C> <C>
a = Total Income $ 8,517.20 a = Total Income $ --
b = Expenses $ 5,187.88 b = Expenses $ --
c = Shares 558,824.648 c = Shares --
d = NAV $ 9.99 d = NAV $ --
Yield 0.72% Yield 0.00%
</TABLE>
<PAGE>
Exhibit 16
PBHG Insurance Series Fund
December 31, 1997
for period ended December 31, 1997:
Total Return: P (1+T) / n / = ERV
Since Inception:
<TABLE>
<CAPTION>
PBHG Growth II PBHG Large Cap PBHG Small Cap PBHG Large Cap PBHG Technology &
Portfolio* Growth Portfolio* Value Portfolio* Value Portfolio* Communications Portfolio*
-------------- ----------------- ---------------- ---------------- -------------------------
<S> <C> <C> <C> <C> <C>
P = 1,000 1,000 1,000 1,000 1,000
n = 1 1 1 1 1
ERV = 1,075.00 1,182.00 1,048.00 1,043.00 1,041.00
T = 7.50% 18.20% 4.80% 4.30% 4.10%
<CAPTION>
PBHG Select 20 PBHG Mid-Cap
Portfolio* Value Portfolio*
-------------- ----------------
<S> <C> <C>
P = 1,000 1,000
n = 1 1
ERV = 1,003.00 1,050.00
T = 0.30% 5.00%
</TABLE>
Exhibit 24(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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/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
</TABLE>
Exhibit 24(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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ GARY L. PILGRIM President 1/21/98
- ---------------------------
Gary L. Pilgrim
/s/ PAUL J. HONDROS Executive Vice 1/25/98
- --------------------------- President
Paul J. Hondros
/s/ BRIAN F. BEREZNAK Vice President 1/21/98
- ---------------------------
Brian F. Bereznak
/s/ LEE T. CUMMINGS Treasurer, Chief 1/21/98
- --------------------------- Financial Officer
Lee T. Cummings and Controller
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001029526
<NAME> PBHG INSURANCE SERIES
<SERIES>
<NUMBER> 010
<NAME> GROWTH II PORTFOLIO
<MULTIPLIER> 1
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<ACCUMULATED-NII-CURRENT> (2982)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (287267)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 252838
<NET-ASSETS> 10235860
<DIVIDEND-INCOME> 1820
<INTEREST-INCOME> 27273
<OTHER-INCOME> 0
<EXPENSES-NET> (32075)
<NET-INVESTMENT-INCOME> (2982)
<REALIZED-GAINS-CURRENT> (287267)
<APPREC-INCREASE-CURRENT> 252838
<NET-CHANGE-FROM-OPS> (37411)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
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<NUMBER-OF-SHARES-SOLD> 1063876
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<PER-SHARE-NAV-BEGIN> 10.00
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
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<NAME> PBHG INSURANCE SERIES
<SERIES>
<NUMBER> 020
<NAME> LARGE CAP GROWTH PORTFOLIO
<MULTIPLIER> 1
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</TABLE>
<TABLE> <S> <C>
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<NAME> PBHG INSURANCE SERIES
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</TABLE>
<TABLE> <S> <C>
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<NAME> PBHG INSURANCE SERIES
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<REALIZED-GAINS-CURRENT> 41892
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<GROSS-EXPENSE> 20268
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<PER-SHARE-NII> .01
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001029526
<NAME> PBHG INSURANCE SERIES
<SERIES>
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<MULTIPLIER> 1
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<ACCUMULATED-NET-GAINS> (12737)
<OVERDISTRIBUTION-GAINS> 0
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