As filed with the Securities and Exchange Commission
on December 20, 2000
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. 8 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 8 [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
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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 _____________________ pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(1)
|_| on __________ 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
<PAGE>
PBHG Insurance Series Fund, Inc.
Prospectus ______, 2001
o PBHG Small Cap Growth Portfolio
As with all mutual funds, the Securities and Exchange Commission has not
approved any Portfolio shares as an investment or determined whether this
prospectus is complete. Anyone who tells you otherwise is committing a crime.
<PAGE>
Introduction
An Introduction to PBHG Insurance Series Fund and this Prospectus:
PBHG Insurance Series Fund, Inc. is a mutual fund that sells shares in its
separate investment portfolios through variable annuity contracts ("VA
Contracts") and variable life insurance policies ("VLI Policies") offered by
separate accounts of certain insurance companies ("Participating Insurance
Companies"). This Prospectus offers shares of PBHG Small Cap Growth Portfolio.
The Portfolio has its own investment goal and strategies for reaching that goal.
Before investing, make sure the Portfolio's goal matches your own. In general,
the Portfolio is designed for long-term investors, such as those saving for
retirement, or investors that want a fund that seeks to outperform the market in
which it invests over the long-term. The Portfolio may not be suitable for
investors who require regular income or stability of principal, or who are
pursuing a short-term investment goal, such as investing emergency reserves.
Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter") is the investment adviser
for the Portfolio. Pilgrim Baxter invests Portfolio assets in a way that it
believes will help the Portfolio achieve its goal. However, there is no
guarantee that a Portfolio will achieve its goal.
This Prospectus contains important information you should know before investing
in the Portfolio and as a shareholder in the Portfolio. This information is
arranged into different sections for easy reading and future reference. To
obtain more information about the Portfolio, please refer to the back cover of
this Prospectus.
Portfolio Summary 2
More About the Portfolio 5
The Investment Adviser 10
Your Investment 11
Pricing Portfolio Shares
Buying and Selling Portfolio Shares
Distributions and Taxes
Potential Conflicts of Interest
Comparative Performance 13
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PBHG SMALL CAP GROWTH PORTFOLIO
Goal:
The Portfolio seeks to provide investors with capital appreciation.
Main Investment Strategies:
Under normal market conditions, the Portfolio invests at least 65% of its total
assets in growth securities, such as common stocks, of small sized companies.
These companies generally have market capitalizations or annual revenues under
$1 billion. The growth securities in the Portfolio are primarily common stocks
that Pilgrim Baxter believes have strong business momentum, earnings growth and
capital appreciation potential. Pilgrim Baxter uses its own fundamental
research, computer models and proprietary measures of growth and business
momentum in managing this Portfolio. The Portfolio may sell a security for a
variety of reasons, such as a deterioration in fundamentals or to invest in a
company with more attractive growth prospects.
Main Investment Risks:
The value of your investment in the Portfolio will go up and down, which means
you could lose money, but you also have the potential to make money.
The price of the securities in the Portfolio will fluctuate. These price
movements may occur because of changes in the financial markets, the company's
individual situation, or industry changes. These risks are greater for companies
with smaller market capitalizations because they tend to have more limited
product lines, markets and financial resources and may be dependent on a smaller
management group than larger, more established companies.
The Portfolio emphasizes small sized growth companies, so it is likely to be
more volatile than the stock market in general, as measured by the S&P 500(R)
Index. In addition, the growth securities in the Portfolio may never reach what
Pilgrim Baxter believes are their full earnings growth and capital appreciation
potential and may even go down in price.
Although the Portfolio strives to achieve its goal, it cannot offer guaranteed
results.
Your investment in the Portfolio is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency.
For more information on this Portfolio's investment strategies and associated
risks, please refer to the More About the Portfolios section beginning on page
__.
Performance Information:
Performance information for the Portfolio will be presented once the Portfolio
has completed investment operations for a full calendar year.
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Fees and Expenses:
This table summarizes the shareholder transaction fees and annual operating
expenses you would pay as an investor in the Portfolio. Shareholder transaction
fees are paid from your investment. Annual operating expenses are paid out of
the Portfolio's assets, so their effect is included in the share price. Since
the Portfolio did not commence operations [as of] [until] the date of this
Prospectus, "Other Expenses" is based on estimated amounts the Portfolio expects
to pay during the current fiscal year.
Fees and Expenses Table
Shareholder Transaction Fees
(Fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases ........................................... None
Maximum Deferred Sales Charge (Load) .................................... None
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends (and Other Distributions) ............................ None
Redemption Fee .......................................................... None
Exchange Fee ............................................................ None
Annual Fund Operating Expenses
(Expenses that are deducted from Portfolio assets)
Management Fees ......................................................... 0.85%
Distribution and/or Services (12b-1) Fees ............................... None
Other Expenses .......................................................... 0.46%
Total Annual Fund Operating Expenses .................................... 1.31%
Fee Waiver (and/or Expense Reimbursement) ............................... 0.11%
Net Expenses ............................................................ 1.20%*
* These are the expenses you should expect to pay as an investor in this
Portfolio for the fiscal year ending December 31, 2001. That's because Pilgrim
Baxter has contractually agreed to waive that portion, if any, of the annual
management fees payable by the Portfolio and to pay certain expenses of the
Portfolio to the extent necessary to ensure that the total annual fund operating
expenses do not exceed 1.20%. You should also know that in any fiscal year in
which the Portfolio's assets are greater than $75 million and its total annual
fund operating expenses are less than 1.20%, the Portfolio's Board of Directors
may elect to reimburse Pilgrim Baxter for any fees it waived or expenses it
reimbursed on the Portfolio's behalf during the previous two fiscal years.
Example:
This example translates the "Total Annual Fund Operating Expenses" shown in the
preceding table into dollar amounts. With this information, you can more easily
compare the cost of investing in the Portfolio to the cost of investing in other
mutual funds. This example makes four assumptions: 1) you invest $10,000 in the
Portfolio for the time
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periods shown; 2) you redeem all your shares at the end of those time periods;
3) you earn a 5% return on your investment each year; and 4) the Portfolio's
operating expenses remain the same for the time periods shown. The example is
hypothetical. Your actual costs and returns may be higher or lower. In addition,
this example does not reflect any additional charges or expenses that may be
imposed under the VA Contracts or VLI Policies.
Your
Cost
1 Year $122
3 Years $404
MORE ABOUT THE PORTFOLIO
Risks & Rewards:
This section takes a closer look at the investment strategies that make up the
Portfolio's risk and reward characteristics.
In addition to the main investment strategies described in the Portfolio Summary
section of this Prospectus, the Portfolio may make other types of investments
that have different risk/reward characteristics. These investments, the
Portfolios' main investment strategies and their risk/reward characteristics are
described in the table set forth below. From time to time, the Portfolio may
make investments and pursue strategies different from those described in this
Prospectus. Those non-principal investments and strategies are described in the
Statement of Additional Information. The back cover of this Prospectus explains
how you can get a copy of the Statement of Additional Information.
The Portfolio may invest 100% of its total assets in cash or U.S.
dollar-denominated high quality short-term instruments for temporary defensive
purposes, to maintain liquidity or when economic or market conditions are
unfavorable for profitable investing. These types of investments typically have
a lower yield than other longer-term investments and lack the capital
appreciation potential of equity securities, like stocks. In addition, while
these investments are generally designed to limit the Portfolio's losses, they
can prevent the Portfolio from achieving its investment goal.
The Portfolio is actively managed, which means the Portfolio's manager may
frequently buy and sell securities. Frequent trading increases the Portfolio's
turnover rate and may increase transaction costs, such as brokerage commissions.
Increased transaction costs could detract from the Portfolio's performance. In
addition, the sale of Portfolio securities may generate capital gains which,
when distributed, may be taxable to you.
Securities:
Shares representing ownership or the right to ownership in a corporation. The
Portfolio may invest in the following types of equity securities: common and
preferred stocks, convertible securities, warrants and rights.
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Potential Risks:
o Security prices fluctuate over time. Security prices may fall as a result
of factors that relate to the company, such as management decisions or
lower demand for the company's products or services.
o Security prices may fall because of factors affecting companies in a number
of industries, such as increased production costs.
o Security prices may fall because of changes in the financial markets, such
as interest rates or currency exchange rate changes.
Potential Rewards:
o Securities have generally outperformed more stable investments (such as
bonds and cash equivalents) over the long term.
Policies to Balance Risks & Rewards:
o Pilgrim Baxter maintains a long-term investment approach and focuses on
securities it believes can appreciate over an extended time frame,
regardless of interim fluctuations.
o Under normal circumstances, the Portfolio intends to remain fully invested,
with at least 65% of its total assets in securities.
o Pilgrim Baxter focuses its active management on securities selection, the
area it believes its commitment to fundamental research can most enhance
the Portfolio's performance.
Growth Securities:
Securities that Pilgrim Baxter believes have or are expected to have strong
sales and earnings growth and capital appreciation potential and will grow
faster than the economy as a whole.
Potential Risks:
o See Securities.
o Growth securities may be more sensitive to changes in business momentum and
earnings than other securities because they typically trade at higher
earnings multiples.
o The growth securities in the Portfolio may never reach what Pilgrim Baxter
believes are their full value and may even go down in price.
Potential Rewards:
o See Securities.
o Growth securities may appreciate faster than non-growth securities.
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Policies to Balance Risks & Rewards:
o See Securities.
o In managing the Portfolio, Pilgrim Baxter uses its own software and
research models which incorporate important attributes of successful
growth. A key attribute of successful growth is positive business momentum
as demonstrated by earnings or revenue and sales growth, among other
factors. Pilgrim Baxter's investment process is extremely focused on
companies which exhibit positive business momentum.
o Pilgrim Baxter considers selling a security when its anticipated
appreciation is no longer probable, alternative investments offer more
superior appreciation prospects or the risk of a decline in its market
price is too great or a deterioration in business fundamentals occurs or is
expected to occur.
Small Sized Company Securities:
Potential Risks:
o Smaller company securities involve greater risk and price volatility than
larger, more established companies because they tend to have more limited
product lines, markets and financial resources and may be dependent on a
smaller management group.
Potential Rewards:
o Smaller company securities may appreciate faster than those of larger, more
established companies for many reasons. For example, smaller companies tend
to have younger product lines whose distribution and revenues are still
maturing.
Policies to Balance Risks & Rewards:
o See Securities and Growth Securities.
o Pilgrim Baxter focuses on smaller sized companies with strong balance
sheets that it expects to exceed consensus earnings expectations.
Technology or Communications Company Securities:
Securities of companies that rely extensively on technology or communications in
their product development or operations, are expected to benefit from
technological advances and improvements.
Potential Risks:
o Technology and communications company securities are strongly affected by
worldwide scientific and technological developments and governmental laws,
regulations and policies, and, therefore, are generally more volatile than
companies not dependent upon or associated with technology or
communications issues.
<PAGE>
Potential Rewards:
o Technology and communications company securities offer investors
significant growth potential because they may be responsible for break
through products or technologies or may be positioned to take advantage of
cutting-edge, technology- related developments.
Policies to Balance Risk & Rewards:
o The Portfolio seeks to strike a balance among the industries in which it
invests so that no one industry dominates the Portfolio's investments.
OTC Securities:
Securities not listed and traded on an organized exchange, but bought and sold
through a computer network.
Potential Risks:
o OTC securities are not traded as often as securities listed on an exchange.
So, if the Portfolio were to sell an OTC security, it might have to offer
the security at a discount or sell it in smaller share lots over an
extended period of time.
Potential Rewards:
o Increases the number of potential investments for the Portfolio.
o OTC securities may appreciate faster than exchange-traded securities
because they are typically securities of younger, growing companies.
Policies to Balance Risks & Rewards:
o Pilgrim Baxter uses a highly disciplined investment process that seeks to,
among other things, identify quality investments that will enhance the
Portfolio's performance.
Foreign Equity Securities:
Securities of foreign issuers, including ADRs. ADRs are certificates issued by a
U.S. bank that represent a stated number of shares of a foreign corporation that
the bank holds in its vault. An ADR is bought and sold in the same manner as
U.S. securities. ADRs carry most of the risks of investing directly in foreign
equity securities.
Potential Risks:
o Foreign security prices may fall due to political instability, changes in
currency exchange rates, foreign economic conditions or inadequate
regulatory and accounting standards.
o The adoption of the euro as the common currency of the European Economic
and Monetary Union (the "EMU") presents some uncertainties and possible
risks, such as changes in relative strength and value of major world
currencies, adverse tax consequences, and increased price competition among
and between EMU and
<PAGE>
non-EMU countries. These uncertainties and possible risks could adversely
affect the Funds.
Potential Rewards:
o Favorable exchange rate movements could generate gains or reduce losses.
o Foreign investments, which represent a major portion of the world's
securities, offer attractive potential performance and opportunities for
diversification.
Policies to Balance Risks & Rewards:
o The Portfolio limits the amount of total assets it invests in securities of
issuers not traded in the U.S. to 15%. ADRs are not included in these
limits.
Illiquid Securities:
Securities that do not have a ready market and cannot be easily sold, if at all,
at approximately the price that the Portfolio has valued them.
Potential Risks:
o The Portfolio may have difficulty valuing these securities precisely.
o The Portfolio may be unable to sell these securities at the time or price
it desires.
Potential Rewards:
o Illiquid securities may offer more attractive yields or potential growth
than comparable widely traded securities.
Policies to Balance Risks & Rewards:
o The Portfolio may not invest more than 15% of its net assets in illiquid
securities.
<PAGE>
THE INVESTMENT ADVISER
Pilgrim Baxter & Associates, Ltd., 825 Duportail Road, Wayne, Pa 19087, is the
investment adviser for the Portfolio. Founded in 1982, Pilgrim Baxter currently
manages approximately $xx billion in assets for pension and profit-sharing
plans, charitable institutions, corporations, trusts, estates and other
investment companies.
Pilgrim Baxter believes that discipline and consistency are important to
long-term investment success. This belief is reflected in its investment
process. Pilgrim Baxter uses a quantitative and fundamental investment process
that is extremely focused on business momentum, as demonstrated by such things
as earnings or revenues and sales growth.
Pilgrim Baxter begins its investment process by creating a universe of rapidly
growing companies that possess certain growth characteristics. That universe is
continually updated. Pilgrim Baxter then ranks each company in its universe
using propriety software and research models that incorporate attributes of
successful growth like positive earnings surprises, upward earnings estimate
revisions and accelerating sales and earnings growth. Finally, using its own
fundamental research and a bottom-up approach to investing, Pilgrim Baxter
evaluates each company's business momentum, earnings quality and whether the
company can sustain its current growth trend. Pilgrim Baxter believes that
through this highly disciplined investment process, it is able to construct a
portfolio of investments with strong growth characteristics.
Pilgrim Baxter's decision to sell a security depends on many factors. Generally
speaking, however, Pilgrim Baxter considers selling a security when its
anticipated appreciation is no longer probable, alternative investments offer
more superior appreciation prospects or the risk of a decline in its market
price is too great.
As investment adviser, Pilgrim Baxter makes investment decisions for the
Portfolio. The Portfolio's Board of Directors supervises Pilgrim Baxter and
establishes policies that Pilgrim Baxter must follow as investment adviser.
[As of] [Prior to] the date of this Prospectus, the Portfolio had not commenced
investment operations. As investment adviser to the Portfolio, Pilgrim Baxter is
entitled to receive a fee, calculated daily and payable monthly, at the annual
rate of 0.85% of the Portfolio's average daily net assets.
FUND MANAGER
Peter J. Niedland [will manage][manages] the Portfolio. Mr. Neidland joined
Pilgrim Baxter's Growth Equity Investment Team in 1993. He holds a BS in
Economics and Marketing from the University of Richmond and is a Chartered
Financial Analyst.
<PAGE>
YOUR INVESTMENT
Pricing Portfolio Shares:
The price of the Portfolio's shares is based on the Portfolio's net asset value
(NAV). The Portfolio's NAV equals the value of its assets, less its liabilities,
divided by the number of its outstanding shares. Portfolio shares are priced
every day at the close of regular trading on the New York Stock Exchange.
Portfolio shares are not priced on days that the New York Stock Exchange is
closed.
The Portfolio prices its investments for which market quotations are readily
available at market value. It prices short-term investments at amortized cost,
which approximates market value. It prices all other investments at fair value
as determined in good faith by the Portfolio's Board of Directors. If the
Portfolio holds securities quoted in foreign currencies, it translates that
price into U.S. dollars at current exchange rates. Because foreign markets may
be open at different times than the New York Stock Exchange, the price of the
Portfolio's shares may change on days when its shares are not available for
purchase or sale.
Buying & Selling Portfolio Shares:
You may only buy and sell Portfolio shares through VA Contracts and VLI Policies
offered by separate accounts of Participating Insurance Companies. The
prospectus for these separate accounts explains how to purchase and redeem a VA
Contract or VLI Policy.
You may buy Portfolio shares at NAV any day the New York Stock Exchange is open.
The Participating Insurance Company must receive your completed buy order before
the close of regular trading on the New York Stock Exchange for your Portfolio
shares to be bought at that day's NAV. The Participating Insurance Company is
responsible for sending your buy order to the Portfolio. The Portfolio may
periodically close to new purchases or refuse a buy order if the Portfolio
determines that doing so would be in the best interests of the Portfolio and its
shareholders.
You may sell Portfolio shares at NAV any day the New York Stock Exchange is
open. The Participating Insurance Company must receive your sell order before
the close of regular trading on the New York Stock Exchange for you to receive
that day's NAV. The Participating Insurance Company is responsible for sending
your sell order to the Portfolio. The Portfolio generally sends payment for your
shares to the Participating Insurance Company the business day after your sell
order is received. Under unusual circumstances, the Portfolio may suspend
redemptions or postpone payment for up to seven days as permitted by federal
securities law.
Distributions and Taxes:
The Portfolio distributes its net investment income and net realized capital
gains to shareholders at least once a year. These distributions will be
reinvested in the Portfolio unless the Participating Insurance Company instructs
the Portfolio otherwise. There are no fees on reinvestments.
<PAGE>
VA Contracts and VLI Policies are currently tax-deferred investments. Therefore,
Portfolio distributions are exempt from current taxation if left to accumulate
in your VA Contract or VLI Policy. In addition, exchanges among the other
portfolios of PBHG Insurance Series Fund, Inc. are currently not taxable. The
prospectus for the Participating Insurance Company separate account discusses
the tax status of VA Contracts and VLI Policies in greater detail. The tax
status of the Portfolio's distributions for each calendar year will be detailed
in the Participating Insurance Company's annual tax statement from the
Portfolio. Because everyone's tax situation is unique, always consult your tax
professional about federal, state and local tax consequences.
Potential Conflicts of Interest:
Participating Insurance Companies may be affiliated with one another. In
addition, the interests of VA Contract and VLI Policy holders may conflict due
to differences in tax treatment and other considerations. The Portfolio's Board
of Directors monitors the Portfolio for material conflicts and determines what
action, if any, should be taken. For example, the Board may require a
Participating Insurance Company to sell its investments in the Portfolio. As a
result, the Portfolio may be forced to sell securities. In addition, the Board
may refuse to sell shares of the Portfolio to a particular VA Contract of VLI
Policy or may suspend or terminate sales of Portfolio shares if required by law
or regulatory authority or if the action is in the best interests of the
Portfolio and its shareholders.
Comparative Performance
The PBHG Small Cap Growth Portfolio is newly organized and does not have its own
performance record. However, the Portfolio has the same investment objective and
follows substantially the same investment strategies as the Variable Investors
Series Trust Small Cap Growth Portfolio (the "VIST Small Cap Growth Portfolio).
Both the PBHG Small Cap Growth Portfolio and the VIST Small Cap Growth Portfolio
are series of mutual funds available through variable annuity contracts and
variable life insurance policies offered by participating insurance companies.
In addition, the Adviser has been responsible for the day-to-day management of
the VIST Small Cap Growth Portfolio since its inception.
Set forth below is the historical performance of the VIST Small Cap Growth
Portfolio. Investors should not consider the performance data of the VIST Small
Cap Growth Portfolio as an indication of the future performance of the
Portfolio. This performance is presented to provide investors with additional
information upon which to base their investment decision. Small cap growth
performance can be volatile and should be evaluated over a multi-year period.
The performance data shown below reflects the deduction of the historical fees
and expenses paid by the VIST Small Cap Growth Portfolio and not those to be
paid by the PBHG Small Cap Growth Portfolio. After giving effect to expense
limitations described in each Portfolio's prospectus, the total annual operating
expenses of PBHG Small Cap Growth Portfolio will not exceed 1.20%,
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during the fiscal year ending December 31, 2001 whereas the total annual
operating expenses of the VIST Small Cap Growth Portfolio were ____ %. The
performance data also does not reflect the deduction of any insurance fees or
charges that are imposed by the participating insurance company in connection
with its sale of the variable annuity contracts and variable life insurance
policies. Investors should refer to the separate account prospectus describing
the variable annuity contracts and variable life insurance 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
both the PBHG Small Cap Growth Portfolio and the VIST Small Cap Growth Portfolio
(together, the "Portfolios"). Additionally, although it is anticipated that the
Portfolios will hold similar securities, their investment results are expected
to differ. In particular, differences in asset size and cash flow resulting from
purchases and redemptions of the Portfolios' shares will result in different
security selections, differences in the relative weightings of securities and
differences in the prices paid for particular portfolio holdings. In addition,
investments may have been made for the Portfolios' during varying market
conditions. The performance data shown reflects the reinvestment of dividends
and distributions and were calculated in the same manner that will be used by
the PBHG Small Cap Growth Portfolio to calculate its own performance.
Average Annualized Total Returns as 12/31/00
for VIST Small Cap Growth Portfolio
Since Inception
1 Year 5 Year (5/4/95)
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FOR MORE INFORMATION
For investors who want more information about the Portfolio, the following
document is available free upon request:
Statement of Additional Information (SAI):
Provides more information about the Portfolio and is incorporated into this
Prospectus by reference.
Copies of the SAI, along with other information about the Portfolio, may be
obtained by contacting:
PBHG Insurance Series Fund, Inc.
P.O. Box 419229
Kansas City, MO 64141-6229
Telephone:
1-800-347-9256
You may also contact the Participating Insurance Company for copies of the SAI
and other information about the Portfolio.
This Prospectus, the SAI and other information about the PBHG Insurance Series
Fund, Inc. are available on the EDGAR database on the SEC's Internet site at
http://www.sec.gov, or by visiting the SEC's Public Reference Room in
Washington, D.C. (1-202-942-8090). Copies of this information may be obtained,
for a duplicating fee, by sending your written request to the SEC's Public
Reference Section, Washington, D.C. 20549-0102, or by electronic request at
[email protected].
PBHG Insurance Series Fund, Inc.'s Investment Company Act file number is
811-08009.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DATED ________, 2001
Company:
PBHG INSURANCE SERIES FUND, INC.
Portfolio:
PBHG SMALL CAP GROWTH 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 Small Cap Growth
Portfolio, (the "Portfolio"). It should be read in conjunction with the
Prospectus dated ______, 2001. 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.......................................................15
DIRECTORS AND OFFICERS OF THE COMPANY........................................19
5% AND 25% SHAREHOLDERS......................................................22
THE ADVISER..................................................................24
THE DISTRIBUTOR..............................................................25
THE ADMINISTRATOR AND SUB-ADMINISTRATOR......................................26
PORTFOLIO TRANSACTIONS.......................................................27
DESCRIPTION OF SHARES........................................................29
PURCHASES AND REDEMPTIONS....................................................30
NET ASSET VALUE..............................................................31
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS......................................32
PERFORMANCE INFORMATION......................................................37
1
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THE COMPANY
The Company is an open-end management investment company which was incorporated
in Maryland in 1997. This Statement of Additional Information relates to the
Portfolio of the Company. The Portfolio is diversified. No investment in shares
of the Portfolio should be made without first reading the Prospectus.
Capitalized terms not defined in this Statement of Additional Information are
defined in the Prospectus. Pilgrim Baxter & Associates, Ltd. ("Adviser") serves
as the investment adviser to the Portfolio.
DESCRIPTION OF PERMITTED INVESTMENTS AND RISKS
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 the Portfolio for purposes
of its investment limitations. The repurchase agreements entered into by the
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. Under
all repurchase agreements entered into by the Portfolio, the Company's custodian
or its agent must take possession of the underlying collateral. However, if the
seller defaults, the 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, the 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.
2
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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, the Portfolio upon entering into a futures contract (and to maintain
the Portfolio's open positions in futures contracts) would be required to
deposit with its custodian in a segregated account in the name of the futures
broker an amount of cash, or other assets, known as "initial margin." The margin
required for a particular futures contract is set by the exchange on which the
contract is traded, and may be significantly modified from time to time by the
exchange during the term of the contract. Futures contracts are customarily
purchased and sold on margin that may range upward from less than 5% of the
value of the contract being traded.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
pay the excess to the Portfolio. These subsequent payments called "variation
margin," to and from the futures broker, are made on a daily basis as the price
of the underlying assets fluctuate making the long and short positions in the
futures contract more or less valuable, a process known as "marking to the
market." The Portfolio expects to earn interest income on its initial and
variation margin deposits.
The 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 the 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 the 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, the 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, the
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. The 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 the 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 the 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 Adviser, 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
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the other party to the contract to buy or sell such security at the stated price
during the option period. The types of options transactions that the Portfolio
is 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.
The 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, the 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
the Portfolio owns securities not subject to a call option, the 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.
The 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. The 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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The 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.
The 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. The 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, the Portfolio will
continue to receive interest or dividend income on the security. The Portfolio
may also purchase call options on securities to protect against substantial
increases in prices of securities that the Portfolio intends to purchase pending
its ability to invest in an orderly manner in those securities. The 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. The 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. The
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
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underlying stock index on the exercise date, multiplied by (ii) a fixed "index
multiplier."
A securities index fluctuates with changes in the market value of the securities
so included. For example, some securities index options are based on a broad
market index such as the S&P 500 or the NYSE Composite Index, or a narrower
market index such as the S&P 100. Indexes may also be based on an industry or
market segment such as the AMEX Oil and Gas Index or the Computer and Business
Equipment Index.
Over-the-Counter Options. The 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." The Portfolio has established
standards of creditworthiness for these primary dealers, although the Portfolio
may still be subject to the risk that firms participating in such transactions
will fail to meet their obligations. In instances in which a Portfolio has
entered into agreements with respect to the over-the-counter options it has
written, and such agreements would enable the Portfolio to have an absolute
right to repurchase at a pre-established formula price the over-the-counter
option written by it, the Portfolio would treat as illiquid only securities
equal in amount to the formula price described above less the amount by which
the option is "in-the-money," i.e., the amount by which the price of the option
exceeds the exercise price.
For information concerning the risks associated with utilizing options and
futures contracts, please see "Risks of Transactions in Futures Contracts and
Options" below.
Risks of Transactions in Futures Contracts and Options
Futures. The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in the market and interest
rates, which in turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
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limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the futures contract were closed out.
Thus, a purchase or sale of a futures contract may result in losses in excess of
the amount invested in the futures contract.
A decision of whether, when, and how to hedge involves skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior, market trends or interest rate trends. There are
several risks in connection with the use by the 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
Adviser 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 the Portfolio for hedging purposes is
also subject to the Adviser's ability to correctly predict movements in the
direction of the market. It is possible that, when the Portfolio has sold
futures to hedge its portfolio against a decline in the market, the index,
indices, or instruments underlying futures might advance and the value of the
underlying instruments held in the Portfolio's portfolio might decline. If this
were to occur, the Portfolio would lose money on the futures and also would
experience a decline in value in its underlying instruments.
Positions in futures contracts may be closed out only on an exchange or a board
of trade which provides the market for such futures. Although the 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
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positions can be liquidated. In such circumstances, an increase in the price of
securities, if any, may partially or completely offset losses on the futures
contracts.
Options. A closing purchase transaction for exchange-traded options may be made
only on a national securities exchange (exchange). There is no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time, and for some options, such as over-the-counter options,
no secondary market on an exchange may exist. If a Portfolio is unable to effect
a closing purchase transaction, the Portfolio will not sell the underlying
security until the option expires or the Portfolio delivers the underlying
security upon exercise.
Options traded in the over-the-counter market may not be as actively traded as
those on an exchange. Accordingly, it may be more difficult to value such
options. In addition, it may be difficult to enter into closing transactions
with respect to options traded over-the-counter. The 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 the 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 other investment companies (such as
Standard & Poor's Depository Receipts - "SPDRs"). Because such funds pay
management fees and other expenses, shareholders of the 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 the 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.
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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
Adviser determines the liquidity of the Company's investments and, through
reports from the Adviser, the Board monitors investments in illiquid
instruments. In determining the liquidity of a Portfolio's investments, the
Adviser 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 the
Portfolio's rights and obligations relating to the investment). Investments
currently considered by the 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 the 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 the 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, the 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. Moreover,
investing in Rule 144A securities (i.e., securities that qualify for resale
under Rule 144A under the Securities Act of 1933) would have the effect of
increasing the level of a Portfolio's illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities. Also, restricted securities may be difficult to value because market
quotations may not be readily available. The Portfolio limits the amount of
total assets it invests in restricted securities to 15%.
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Foreign Currency Transactions
The 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.
The 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 Portfolio.
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 Adviser expects to enter into settlement hedges in the
normal course of managing the Portfolio's foreign investments. The 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.
The 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. The Portfolio will not segregate assets to cover
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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 Adviser's skill
in analyzing and predicting currency values. Forward contracts may substantially
change the Portfolio's investment exposure to changes in currency exchange
rates, and could result in losses to the Portfolio 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 Portfolio by selling that currency in exchange
for dollars, the Portfolio would be unable to participate in the currency's
appreciation. If the Adviser hedges currency exposure through proxy hedges, the
Portfolio could realize currency losses from the hedge and the security position
at the same time if the two currencies do not move in tandem. Similarly, if the
Adviser increases the Portfolio's exposure to a foreign currency, and that
currency's value declines, the Portfolio will realize a loss. There is no
assurance that the Adviser's use of forward currency contracts will be
advantageous to the Portfolio or that it will hedge at an appropriate time.
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
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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, the
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.
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
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for the issuance of the receipts evidencing ownership and maintains the
register.
Time Deposit
A non-negotiable receipt issued by a bank in exchange for the deposit of funds.
Like a certificate of deposit, it earns a specified rate of interest over a
definite period of time; however, it cannot be traded in the secondary market.
Time deposits with a withdrawal penalty are considered to be illiquid
securities.
U.S. Government Agency Obligations
Certain Federal agencies such as the Government National Mortgage Association
("GNMA") have been established as instrumentalities of the United States
Government to supervise and finance certain types of activities. Securities
issued by these agencies, while not direct obligations of the United States
Government, are either backed by the full faith and credit of the United States
(e.g., GNMA securities) or supported by the issuing agencies' right to borrow
from the Treasury. The securities issued by other agencies are supported only by
the credit of the instrumentality (e.g., Tennessee Valley Authority securities).
U.S. Government Securities
Bills, notes and bonds issued by the U.S. Government and backed by the full
faith and credit of the United States.
U.S. Treasury Obligations
Bills, notes and bonds issued by the U.S. Treasury, and separately traded
interest and principal component parts of such obligations that are transferable
through the Federal book-entry system known as Separately Traded Registered
Interest and Principal Securities ("STRIPS"). Under the STRIPS program, the
Portfolio will be able to have its beneficial ownership of securities recorded
directly in the book-entry record-keeping system in lieu of having to hold
certificates or other evidences of ownership of the underlying U.S. Treasury
securities. When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the stripped coupons are sold separately or
grouped with other coupons with like maturity dates and sold in such bundled
form. The principal or corpus is sold at a deep discount because the buyer
receives only the right to receive a future fixed payment on the security and
does not receive any rights to periodic interest (cash) payments. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the securities that the Treasury sells itself. Other
facilities are available to facilitate the transfer of ownership of non-Treasury
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on such securities through a book-entry
record-keeping system.
14
<PAGE>
Variable and Floating Rate Instruments
Certain of the obligations purchased by the Portfolio may carry variable or
floating rates of interest, may involve a conditional or unconditional demand
feature and may include variable amount master demand notes. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index.
The interest rates on these securities may be reset daily, weekly, quarterly or
some other reset period, and may have a floor or ceiling on interest rate
changes. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates. A demand instrument with
a demand notice exceeding seven days may be considered illiquid if there is no
secondary market for such securities.
Warrants
Instruments giving holders the right, but not the obligation, to buy shares of a
company at a given price during a specified period.
When-Issued and Delayed-Delivery Securities
When-issued and delayed-delivery securities are securities subject to settlement
on a future date. For fixed income securities, the interest rate realized on
when-issued or delayed-delivery securities is fixed as of the purchase date and
no interest accrues to the Portfolio before settlement. These securities are
subject to market fluctuation due to changes in market interest rates and will
have the effect of leveraging the Portfolio's assets. The Portfolio is 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 Portfolio will maintain
liquid assets in such accounts in an amount at least equal in value to the
Portfolio's commitments to purchase when-issued securities.
INVESTMENT LIMITATIONS
Fundamental Policies
The Portfolio has adopted certain investment restrictions which 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.
15
<PAGE>
Several of these fundamental investment restrictions include the defined
term" 1940 Act Laws, Interpretations and Exemptions." This term means: the
Investment Company Act of 1940, as amended, and the rules, regulations
promulgated thereunder, as such statute, rule and regulations are amended from
time to time by the staff of the SEC and any exemptive order or similar relief
granted to the Portfolio.
1. The Portfolio may not borrow money or issue senior securities, except as
permitted by the 1940 Act Laws, Interpretations and Exemptions.
2. The Portfolio may not underwrite the securities of other issuers. This
restriction does not prevent the Fund from engaging in transactions
involving the acquisition, disposition or resale of its portfolio
securities, regardless of whether the Fund may be considered to be an
underwriter under the Securities Act of 1933.
3. The Portfolio may not purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments. This restriction
does not prevent the Fund from investing in issuers that invest, deal or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests
therein.
4. The Portfolio may not purchase or sell physical commodities unless acquired
as a result of ownership of securities or other instruments. This
restriction does not prevent the Fund from engaging in transactions
involving futures contracts and options thereon or investing in securities
that are secured by physical commodities.
5. The Portfolio may not make personal loans or loans of its assets to
persons who control or are under common control with the Fund, except to
the extent permitted by the 1940 Act Laws, Interpretations and Exemptions.
This restriction does not prevent the Fund from, among other things,
purchasing debt obligations, entering repurchase agreements, loaning its
assets to broker-dealers or institutional investors or investing in loans,
including assignments and participation interests.
6. The Portfolio may, not withstanding any other fundamental investment
policy or restriction, invest all of its assets in the securities of a
single open-end management investment company with substantially the same
fundamental investment objective, policies and restrictions as the
Portfolio.
7. The Portfolio is a "diversified company" as defined in the 1940 Act. This
means that the Portfolio will mot purchase the securities of any issuer,
if as a result, the Portfolio would fail to be a diversified company
within the meaning of the 1940 Act Laws, Interpretations and Exemptions.
This restriction does not prevent the Portfolio from purchasing the
16
<PAGE>
securities of other investment companies to the extent permitted by the
1940 Act Laws, Interpretations and Exemptions.
8. The Portfolio will not make investments that will result in the
concentration (as that term may be defined or interpreted by the 1940 Act,
Laws, Interpretations and Exemptions) of its investments in the securities
of issuers primarily engaged in the same industry. This restriction does
not limit the Portfolio" investments in (i) obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities, (ii)
tax-exempt obligations issued by governments or political subdivisions of
governments or (iii) repurchase agreements collateralized by such
obligations. In complying with this restriction, the Portfolio will not
consider a bank-issued guaranty or financial guaranty insurance as a
separate security.
Non-Fundamental Policies
In addition to the foregoing, and the policies set forth in the Portfolio's
Prospectus, the Portfolio has adopted additional investment restrictions which
may be amended by the Board of Directors without a vote of shareholders.
1. The Portfolio may not invest more than 15% of its net assets in illiquid
securities. This limitation does not include any Rule 144A restricted
security that has been determined by, or pursuant to procedures established
by, the Board of Directors, based on trading markets for such security, to
be liquid.
2. The Portfolio may not invest more than 15% of its total assets in
securities of foreign issuers not traded in the U.S.
3. In complying with the fundamental limitation regarding borrowing money and
issuing senior securities, the Portfolio may borrow in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). The Portfolio may borrow from banks,
broker-dealers or other investment companies and their series that have
Pilgrim Baxter or an affiliate of Pilgrim Baxter as an investment adviser
(a "Pilgrim Baxter Advised Fund"). The Fund may not borrow for leveraging,
but may
17
<PAGE>
borrow for temporary or emergency purposes, in anticipation of or in
response to adverse market conditions, or for cash management purposes. The
Portfolio may not purchase additional securities when any borrowings from
banks exceed 5% of the Portfolio's total assets.
4. In complying with the fundamental limitation with regard to making loans,
the Portfolio may lend up to 33 1/3% of its total assets and may lend money
to another Pilgrim Baxter Advised Fund, on such terms and conditions as the
SEC may require in an exemptive order.
5. The Portfolio may not invest more than 15% of its total assets in
restricted securities.
6. Notwithstanding the fundamental restriction with regard to investing all
assets in an open-end fund, the Portfolio may not invest all of its assets
in the securities of a single open-end management investment company with
the same fundamental investment objective, policies and restrictions as the
Portfolio.
7. In complying with the Portfolio's fundamental restriction regarding issuer
diversification, the Portfolio will not, with respect to 75% of its total
assets, purchase securities of any issuer (other than securities issued or
guaranteed by the U.S. government of any its agencies or
instrumentalities), if as a result, (i) more than 5% of the Portfolio's
total assets would be invested in the securities of that issuer, or (ii)
the Portfolio would hold more than 10% of the outstanding voting securities
of that issuer. The Portfolio may (i) purchase securities of other
investment companies as permitted by Section 12(d)(1) of the 1940 Act and
(ii) invest its assets in securities of other money market funds and lend
money to other Pilgrim Baxter Advised Funds and their series portfolios,
subject to the terms and conditions of any exemptive orders issued by the
SEC.
8. In complying with the Portfolio's fundamental investment restriction
regarding industry concentration, the Portfolio may invest up to 25% of its
total assets in the securities of issuers whose principal business
activities are in the same industry.
All the foregoing percentages will apply at the time of each purchase of a
security (except with respect to the limitation on investments in illiquid
securities).
Temporary Defensive Positions
Under normal market conditions, the Portfolio expects to be fully invested in
its primary investments. However, for temporary defensive purposes, when the
Adviser determines that
18
<PAGE>
market conditions warrant, the 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
the Portfolio's investment restrictions, shares of other investment companies
investing solely in money market securities). To the extent the Portfolio is
invested in temporary defensive instruments, it will not be pursuing its
investment objective.
Portfolio Turnover
Portfolio turnover will tend to rise during periods of market turbulence and
decline during periods of stable markets. A higher turnover rate (100% or more)
increases transaction costs (e.g., brokerage commissions) and increases realized
gains and losses. High rates of portfolio turnover necessarily result in
correspondingly greater brokerage and portfolio trading costs, which are paid by
the Portfolios. Trading in fixed-income securities does not generally involve
the payment of brokerage commissions, but does involve indirect transaction
costs. In addition, high rates of portfolio turnover may adversely affect each
Portfolio's status as a "regulated investment company" ("RIC") under Section 851
of the Internal Revenue Code of 1986, as amended ("Code").
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 have approved
agreements under which, as described above, certain companies provide essential
management services to the Company. 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 and each officer serves as an officer
in a similar capacity for The PBHG Funds, Inc., another registered investment
company managed by the Adviser.
<TABLE>
<CAPTION>
Position Held
Name , Address, and Age with the Fund Principal Occupation(s) During Past 5 Years
----------------------- ------------- -------------------------------------------
<S> <C> <C>
John R. Bartholdson, Director Chief Financial Officer and Director, the Triumph
1255 Drummers Lane, Suite 200, Group, Inc. (manufacturing) since 1992.
Wayne, PA 19087
(55)
Harold J. Baxter*, Chairman of the Chairman, Chief Executive Officer and Director, the
825 Duportail Road Board and Adviser since 1982. Trustee, the Administrator since
Wayne, PA 19087 Director May 1996. Chairman, Chief Executive Officer and
(53) Director, Value Investors, since June 1996. Trustee,
PBHG Fund Distributors since January 1998.
Director, UAM since 1996.
Jettie M. Edwards, Director Consultant, Syrus Associates since 1986. Trustee,
76 Seaview Drive, Santa Barbara, Provident Investment Counsel Trust (investment company)
California 93108, since 1992. Trustee, EQ Advisors Trust (investment
(53) company) since 1997.
Albert A. Miller, Director Principal and Treasurer, JK Equipment Exporters since
7 Jennifer Drive, Holmdel, New 1995. Senior Vice President, Cherry & Webb, CWT
Jersey 07733, Specialty Stores since 1995, Advisor and Secretary, the
(65) Underwoman Shoppes Inc. (retail clothing stores) since
1980. Merchandising Group Vice President, R.H. Macy &
Co., 1958-1995 (retired).
Gary L. Pilgrim, President President, Chief Investment Officer and Director, the
825 Duportail Road, Wayne, PA 19087, Adviser since 1982. Trustee, the Administrator since
(59) May 1996. President and Director, Value Investors
since June 1996.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Position Held
Name , Address, and Age with the Fund Principal Occupation(s) During Past 5 Years
----------------------- ------------- -------------------------------------------
<S> <C> <C>
Lee T. Cummings Treasurer, Director of Mutual Fund Operations, the Adviser since
825 Duportail Road, Wayne, PA Chief 1996. Treasurer, the Administrator since May 1996.
19087, Financial President, the Distributor since December 1998.
(36) Officer, Investment Accounting Officer, Delaware Group of Funds,
Controller 1994-1996. Vice President, Fund/Plan Services, Inc.,
1992-1994
Matthew R. DiClemente Assistant Legal Assistant, the Adviser since 1998.Fund
825 Duportail Road, Wayne, PA Secretary Accountant, the Adviser, 1996-1998. Fund Accountant,
19087, J.P. Morgan & Co., Inc., 1993-1996. .
(29)
John M. Zerr Vice-President General Counsel and Secretary, the Adviser since
825 Duportail Road, Wayne, PA and Secretary November 1996. General Counsel and Secretary, Value
19087, Investors since November 1996. General Counsel and
(37) Secretary, the Administrator since January 1998.
General Counsel and Secretary, the Distributor since
January 1998. Vice President and Assistant Secretary,
Delaware Management Company, Inc. and the Delaware
Group of Funds, 1995-1996. Associate, Ballard Spahr
Andrews & Ingersoll (law firm), 1987-1995.
Meghan M. Mahon Vice-President Counsel, the Adviser since April 1998. Assistant Vice
825 Duportail Road, Wayne, PA and Assistant President, Assistant Secretary and Counsel, Delaware
19087, Secretary Management Company Inc. and the Delaware Group of
(32) Funds, 1997-1998. Associate, Drinker Biddle & Reath,
LLP (law firm)
1994-1997. Associate,
McAleese, McGoldrick &
Susanin (law firm)
1993-1994.
James R. Foggo Vice President Vice President and Assistant Secretary of the
One Freedom Valley Road Oaks, PA and Assistant Sub-Administrator and the Distributor since 1998.
19456 Secretary Associate, Paul Weiss, Rifkind, Wharton & Garrison,
(36) 1998. Associate, Baker & McKenzie, 1995-1998.
Associate, Battle Fowler L.L.P., 1993-1995.
Lynda J. Striegel Vice President Vice President and Assistant Secretary of SEI Fund
One Freedom Valley Road Oaks, PA and Assistant Services and SEI Investments Distribution Co. since
19456 Secretary 1998. Senior Asset Management Counsel, Barnett Banks,
(50) Inc. 1997-1998. Partner, Groom and Nordberg, Chartered
1996-1997. Associate General Counsel, Riggs bank, N.A.
1991-1995.
</TABLE>
20
<PAGE>
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, 1999:
<TABLE>
<CAPTION>
Pension or
Retirement Total
Aggregate Benefits Estimated Compensation
Compensation Accrued as Part Annual from Company
Name of Person, from of Company Benefits Upon and Company Complex
Position Company Expenses Retirement Paid to Directors**
--------------------------------- -------------------- ------------------ ----------------- ----------------------
<S> <C> <C> <C> <C>
John R. Bartholdson, $27,833.35 N/A N/A $84,167
Director for services on
three boards
Harold J. Baxter, N/A N/A N/A N/A
Director*
Jettie M. Edwards, $27,833.35 N/A N/A $84,167
Director for services on
three boards
Albert A. Miller, $27,833.35 N/A N/A $84,167
Director for services on
three boards
</TABLE>
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.
** For each non-interested Director, the Total Compensation from the
Company and Company Complex included $7,333.33 for their service as
director to The PBHG Advisor Funds, Inc. from January 1, 1999 to April 5,
1999.
Codes of Ethics
The Company, the Advisor and the Distributor have each adopted a Code of Ethics
governing personal trading by persons who manage, or who have access to trading
activity by, the Portfolios. Each 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.
5% AND 25% SHAREHOLDERS
As of ___________, the following persons were the only persons who were record
owners of 5% or more of the shares of the portfolios of the Company. Any record
owner of more than 25% of the shares of a portfolio may be deemed a controlling
person of that portfolio. The percent of each portfolio's shares owned by all
officers and directors of the Company as a group is less than 1 percent of the
outstanding shares of each such portfolio. 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.
21
<PAGE>
PBHG Growth II Portfolio
Life Insurance Co. of Virginia ____%
6610 W. Broad Street
Richmond, VA 23230-1799
Empire Fidelity Investments ____%
Live Insurance Co.
200 Liberty St
One Financial Center
New York, NY 10005-3500
Fidelity Investments ____%
Life Insurance Co.
82 Devonshire Street R25B
Boston, MA 02109-3614
PBHG Large Cap Growth Portfolio
Life Insurance Co. of Virginia ____%
6610 W. Broad Street
Richmond, VA 23230-1799
Annuity Investors Life Insurance Co. ____%
250 E. Fifth Street
Cincinnati, OH 45202-4119
PBHG Small Cap Value Portfolio
Fidelity Investments ____%
Life Insurance Co.
82 Devonshire Street R25B
Boston, MA 02109-3614
PBHG Mid-Cap Value Portfolio
Pilgrim Baxter & Associates, Ltd. ____%
825 Duportail Road
Wayne, PA 19087
22
<PAGE>
PBHG Select Value Portfolio
Empire Fidelity Investments ____%
Live Insurance Co.
200 Liberty St
One Financial Center
New York, NY 10005-3500
Fidelity Investments ____%
Life Insurance Co.
82 Devonshire Street R25B
Boston, MA 02109-3614
PBHG Technology & Communications Portfolio
Empire Fidelity Investments ____%
Life Insurance Co.
200 Liberty Street
One Financial Center
New York, NY 10281-1003
Fidelity Investments ____%
Life Insurance Co.
82 Devonshire Street R25B
Boston, MA 02109-3614
PBHG Select 20 Portfolio
Empire Fidelity Investments ____%
Life Insurance Co.
200 Liberty Street
One Financial Center
New York, NY 10281-1003
Fidelity Investments ____%
Life Insurance Co.
82 Devonshire Street R25B
Boston, MA 02109-3614
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
23
<PAGE>
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 sole shareholder of the Adviser is United Asset Management Corporation
("UAM"), a New York Stock Exchange listed holding company principally engaged,
through affiliated firms, in providing institutional investment management
services and acquiring institutional investment management firms. UAM's
corporate headquarters are located at One International Place, Boston,
Massachusetts 02110. On September 26, 2000, Old Mutual plc ("Old Mutual")
acquired UAM through a tender offer and merger. As a result, Old Mutual became
the ultimate parent company of Pilgrim Baxter. Old Mutual is a United
Kingdom-based financial services group with substantial life insurance business
in South Africa and other southern African countries and an integrated,
international portfolio of activities in asset management, banking and general
insurance. PBHG Fund Services also serves as administrator to The PBHG Funds,
Inc., a management investment company also managed by the Adviser. The Adviser
currently has discretionary management authority with respect to over $xx
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 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 the Portfolio; and (3) place orders to purchase and sell
securities for the 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 continuance of the Advisory Agreement with respect to the 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 the 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 the 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 the 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
24
<PAGE>
automatically in the event of its assignment (as defined in the 1940 Act).
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of 0.85% of the Portfolio's average daily
net assets. The advisory fee paid by the Portfolio is 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.
In the interest of limiting expenses of the Portfolio, the Adviser has entered
into an expense limitation agreement through December 31, 2001 with the Company
with respect to the 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 Portfolio to the extent necessary to limit the total annual
operating expenses (expressed as a percentage of the Portfolio's average daily
net assets) to not more than: 1.20% of the average daily net assets of the
Portfolio. Such waivers and assumption of expenses by the Adviser may be
discontinued at any time after such date. If in any fiscal year in which the
Portfolio's assets are greater than $75 million of its "Total Operating
Expenses" do not exceed the limits previously noted, the Board of Directors may
elect to reimburse the Adviser for any fees it waived or expenses it reimbursed
on the Portfolio's behalf during the previous two fiscal years.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments Company ("SEI"), and the Company are parties to a
distribution agreement (the "Distribution Agreement") dated April 1, 1997,
pursuant to which the Distributor serves as principal underwriter for the
Company. The Distributor receives 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.
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
25
<PAGE>
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 the 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 continue in effect
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 Investments Mutual Fund Services (the
"Sub-Administrator") entered into an amended and restated Sub-Administrative
Services Agreement (the "Sub-Administrative Agreement") on January 1, 2001,
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, 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 Agreement, the Administrator pays the Sub-Administrator fees at an
annual rate based on the combined average daily net assets of the Company and
The PBHG Funds, Inc. calculated as follows: (i) 0.0165% of the first $10
billion, plus (ii) 0.0125% of the next $10 billion, plus (iii) 0.010% of the
excess over $20 billion. The Agreement provides that the Sub-Administrator shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Company in connection with the matters to which the 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 Agreement shall continue in effect for an initial term of four
years, subject to certain termination provisions. After the initial term, the
Agreement will renew each year unless terminated by either party upon not less
than ninety (90) days' prior written notice to the other party.
OTHER SERVICE PROVIDERS
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.
From time to time, the Company may pay amounts to third parties that provide
sub-transfer
26
<PAGE>
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.
Custodian
First Union National Bank ("Custodian"), 123 South Broad Street, Philadelphia,
Pennsylvania 19109, serves as the custodian for the Company. The Custodian holds
cash, securities and other assets of the Company as required by the 1940 Act.
Counsel and Independent Accountants
Ballard Spahr Andrews & Ingersoll, LLP serves as counsel to the Company.
PricewaterhouseCoopers LLP, formerly named Coopers & Lybrand, L.L.P., serves as
the independent accountants of the Company.
PORTFOLIO TRANSACTIONS
The Adviser is authorized to select brokers and dealers to effect securities
transactions for the Portfolio. The Adviser will seek to obtain the most
favorable net results by taking into account various factors, including price,
commission, if any, size of the transactions and difficulty of executions, the
firm's general execution and operational facilities and the firm's risk in
positioning the securities involved. While the Adviser generally seeks
reasonably competitive spreads or commissions, the Company will not necessarily
be paying the lowest spread or commission available. The Adviser seeks to select
brokers or dealers that offer the Portfolio best price and execution or other
services which are of benefit to the Portfolio. In the case of securities traded
in the over-the-counter market, the Adviser expects normally to seek to select
primary market makers.
The Adviser may, consistent with the interests of the Portfolio, select brokers
on the basis of the research services they provide to the Adviser. 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 Adviser will be in addition to and not in lieu of the services required to
be performed by the Adviser under the Advisory Agreement. If, in the judgment of
the Adviser, the Portfolio or other accounts managed by the Adviser will be
benefited by supplemental research services, the Adviser is 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
27
<PAGE>
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 Adviser 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 the Portfolio or account
generating the brokerage, and there can be no guarantee that the Adviser will
find all of such services of value in advising the Portfolio.
It is expected the Portfolio 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
Portfolio 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 Portfolio 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 Adviser 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 Portfolio's or the Company's expenses.
Because shares of the Portfolio are not marketed through intermediary
broker-dealers, it is not the Portfolio's 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 Adviser may place
orders for the purchase or sale of portfolio securities with qualified
broker-dealers who refer clients to the Portfolio. 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 Adviser 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.
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DESCRIPTION OF SHARES
The Company is authorized to issue 500,000,000 shares of the Portfolio and to
create additional portfolios of the Company. Each share of the 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. All
consideration received by the Company for shares of the Portfolio and all assets
in which such consideration is invested would belong to the Portfolio and would
be subject to the liabilities related thereto.
Voting Rights
Each share held entitles the shareholder of record to one vote. Shareholders of
the Portfolio will vote separately on matters relating solely to it, such as
approval of advisory agreements and changes in fundamental policies.
Shareholders of all portfolios of the Company will vote together in matters
affecting the Company generally, such as the election of Directors or selection
of accountants. As a Maryland corporation, the Company is not required to hold
annual meetings of shareholders but shareholder approval will be sought for
certain changes in the operation of the Company and for the election of
Directors under certain circumstances. In addition, a Director may be removed by
the remaining Directors or by shareholders at a special meeting called upon
written request of shareholders owning at least 10% of the outstanding shares of
the Company. In the event that such a meeting is requested, the Company will
provide appropriate assistance and information to the shareholders requesting
the meeting. Under current law, a Participating Insurance Company is required to
request voting instructions from VA Contract owners and VLI Policy owners and
must vote all shares held in the separate account in proportion to the voting
instructions received. For a more complete discussion of voting rights, refer to
the Participating Insurance Company separate account prospectus.
PURCHASES AND REDEMPTIONS
Individual investors may not purchase or redeem shares of the Portfolio
directly; shares may be purchased or redeemed only through VA Contracts and VLI
Policies offered by separate accounts of Participating Insurance Companies.
Please refer to the prospectus of the sponsoring Participating Insurance Company
separate account for instructions on purchasing a VA Contract or VLI Policy.
Shares of the Portfolio are offered on a continuous basis.
Purchases. All investments in the Portfolio 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 the 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
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to the close of regular trading on the New York Stock Exchange Inc. (the "NYSE")
(currently 4:00 p.m., Eastern time) on that Business Day are aggregated, and the
Participating Insurance Company places a net purchase or redemption order for
shares of the Portfolios during the morning of the next Business Day. These
orders are executed at the net asset value (described below under "Net Asset
Value") next computed after receipt of such order by the Participating Insurance
Company.
The Portfolio reserves 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. The Portfolio may discontinue
sales of its shares if management believes that a substantial further increase
in assets may adversely effect the Portfolio's ability to achieve its investment
objective. In such event, however, it is anticipated that existing VA Contract
owners or VLI Policy owners would be permitted to continue to authorize
investments in the Portfolio.
Redemptions. Shares of the Portfolio may be redeemed on any Business Day.
Redemption orders which are received by a Participating Insurance Company prior
to the close of regular trading on the NYSE on any Business Day and transmitted
to the Company or its specified agent during the morning of the next Business
Day will be processed at the next net asset value computed after receipt of such
order by the Participating Insurance Company. Redemption proceeds will normally
be wired to the Participating Insurance Company on the Business Day following
receipt of the redemption order by the Participating Insurance Company, but in
no event later than seven days after receipt of such order.
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 the 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 the Portfolio for
any period during which the New York Stock Exchange, the Adviser, the
Administrator, the Transfer Agent and/or the Custodian are not open for
business.
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 New York Stock Exchange: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
DETERMINATION OF NET ASSET VALUE
The securities of the Portfolio are valued by the Sub-Administrator. The
Sub-Administrator
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will use an independent pricing service to obtain valuations of securities. The
pricing service relies primarily on prices of actual market transactions as well
as trade quotations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Company under the general supervision of the
Board of Directors.
The Portfolio calculates the net asset value of a share by dividing the total
value of its assets, less liabilities, by the number of shares outstanding.
Shares are valued as of the close of trading on the NYSE (currently 4:00 p.m.,
Eastern time). Portfolio securities listed on an exchange or quoted on a
national market system are valued at the last sales price. Other securities are
quoted at the most recent bid price. 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.
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TAX STATUS, DIVIDENDS AND DISTRIBUTIONS
Taxes
For a discussion of the tax status of a VA Contract or VLI Policy, refer to the
Participating Insurance Company separate account prospectus. 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.
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.
The 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, the Portfolio will not be subject to federal income tax on its net
ordinary income and net realized capital gains to the extent such income and
gains are distributed to the separate accounts of Participating Insurance
Companies which hold its shares. Because shares of the Portfolio may be
purchased only through VA Contracts and VLI Policies, it is anticipated that any
income, dividends or capital gain distributions from the Portfolio are taxable,
if at all, to the Participating Insurance Companies and will be exempt from
current taxation of the VA Contract owner or VLI Policy owner if left to
accumulate within the VA Contract or VLI Policy.
In order to qualify for treatment as a RIC under the Code, the 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,
the Portfolio must meet several other requirements. Among these requirements are
the following: (i) the Portfolio must derive at least 90% of its gross income in
each taxable year from dividends, interest, certain payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities or foreign currencies and other income (including but not limited to
gains from options, futures or forward contracts derived with respect to the
Portfolio's business of investing in such stock, securities or currencies) (the
"Income Requirement"); (ii) at the close of each quarter of the Portfolio's
taxable year, at least 50% of the value of its total assets must be represented
by cash and cash items, U.S. Government 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
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the outstanding voting securities of such issuer; and (iii) no more than 25% of
the value of a Portfolio's total assets may be invested in the securities of any
one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which the Portfolio
controls and which are engaged in the same or similar trades or businesses (the
"Asset Diversification Test"). For purposes of the Asset Diversification Test,
it is unclear under present law who should be treated as the issuer of forward
foreign currency exchange contracts, of options on foreign currencies, or of
foreign currency futures and related options. It has been suggested that the
issuer in each case may be the foreign central bank or foreign government
backing the particular currency. Consequently, the 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 the 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.
From time to time, legislation has been proposed that 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 Portfolio that are issued and outstanding as of
the date of enactment.
Portfolio Distributions. Notwithstanding the Distribution Requirement described
above, which requires only that the Portfolio distribute at least 90% of its
annual investment company taxable income and does not require any minimum
distribution of net capital gain (the excess of net long-term capital gain over
net short-term capital loss), the Portfolio will be subject to a nondeductible
4% federal excise tax to the extent it fails to distribute by the end of any
calendar year 98% of its ordinary income for that year and 98% of its capital
gain net income (the excess of short- and long-term capital gains over short-
and long-term capital losses) for the one-year period ending on October 31 of
that calendar year, plus certain other amounts.
Treasury regulations permit a RIC in determining its investment company taxable
income and undistributed net capital gain for any taxable year to elect to treat
all or part of any net capital loss, any net long-term capital loss, or any net
foreign currency loss incurred after October 31 as if it had been incurred in
the succeeding year.
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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.
Internal Revenue Service Requirements. The Portfolio intends 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.
Dividends and Distributions
The Portfolio 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 the Portfolio unless an election is made on behalf of a separate
account of a Participating Insurance Company to receive distributions in cash.
Participating Insurance Companies will be informed at least annually about the
amount and character of distributions from the Company for federal income tax
purposes.
Withholding. In certain cases, the 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.
Investment in Foreign Financial Instruments. Under Code Section 988, gains or
losses from certain foreign currency forward contracts or fluctuations in
currency exchange rates will generally be treated as ordinary income or loss.
Such Code Section 988 gains or losses will increase or decrease the amount of
the 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 Portfolio 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
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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 Portfolio 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
Portfolio. In addition, losses realized by the Portfolio 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 Portfolio of hedging transactions are not entirely
clear. The hedging transactions may increase the amount of short-term capital
gain realized by the Portfolio (and, if they are conversion transactions, the
amount of ordinary income) which is taxed as ordinary income when distributed to
shareholders.
The Portfolio may make one or more of the elections available under the Code
which are applicable to straddles. If the Portfolio makes any of the elections,
the amount, character, and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Transactions that may be engaged in by certain of the Portfolio (such as short
sales "against the box") may be subject to special tax treatment as
"constructive sales" under section 1259 of the Code if the 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, the 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).
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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 the Portfolio's tax status as a RIC may limit the
extent to which a Portfolio will be able to engage in transactions in options
and futures contracts.
State Taxes
Distributions by the Portfolio to shareholders and the ownership of shares may
be subject to state and local taxes.
Miscellaneous Considerations
The foregoing general discussion of federal income tax consequences is based on
the Code and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. Future legislative or administrative
changes or court decisions may significantly change the conclusions expressed
herein, and any such changes or decisions may have a retroactive effect with
respect to the transactions contemplated herein.
Prospective shareholders are encouraged to consult their tax advisors as to the
consequences of these and other U.S., state, local, and foreign tax rules
affecting investments in the Portfolio.
Section 817 Diversification Requirements
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of segregated asset accounts that fund contracts such as the
VA Contracts and VLI Policies (that is, the assets of the Portfolio), which are
in addition to the diversification requirements imposed on the Portfolio 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 Portfolio 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
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diversification requirements of section 817 will be applied on a look-through
basis to the assets held by the Portfolio, and the interests in the Portfolio
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. If the Portfolio holds Treasury securities it may be able to
avail itself of an alternative diversification test provided under the Treasury
Regulations.
The 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 the Portfolio.
PERFORMANCE INFORMATION
From time to time, the Portfolio may advertise yield and/or total return. Such
performance data for the Portfolio should be distinguished from the rate of
return of a corresponding division of a Participating Insurance Company's
separate account, which rate will reflect the deduction of additional insurance
charges, including mortality and expense risk charges, and will therefore be
lower. VA Contract owners and VLI Policy owners should consult their contract
and policy prospectuses, respectively, for further information. The Portfolio's
results also should be considered relative to the risks associated with its
investment objectives and policies.
The Portfolio's results 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.
Computation of Yield
From time to time, the Portfolio may advertise yield. These figures are based on
historical earnings and are not intended to indicate future performance. The
yield of the Portfolio refers to the annualized income generated by an
investment in the Portfolio over a specified 30-day
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period. The yield is calculated by assuming that the same amount of income
generated by the investment during that period is generated in each 30-day
period over one year and is shown as a percentage of the investment. In
particular, yield is calculated according to the following formula:
Yield = 2((a-b/cd + 1)(6) - 1) where a = dividends and interest earned
during the period; b = expenses accrued for the period (net of reimbursement); c
= the average 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, the Portfolio may advertise total return. The total return of
the Portfolio refers to the average compounded rate of return to a hypothetical
investment for designated time periods (including but not limited to, the period
from which the Portfolio commenced operations through the specified date),
assuming that the entire investment is redeemed at the end of each period. In
particular, total return is calculated according to the following formula: P (1
+ T)n = ERV, where P = a hypothetical initial payment of $1,000; T = average
annual total return; n = number of years; and ERV = ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the designated time period
as of the end of such period.
Total returns quoted for the Portfolio include the effect of deducting the
Portfolio's expenses, but may not include charges and expenses attributable to
any particular Variable Contract. Accordingly, the prospectus of the sponsoring
Participating Insurance Company separate account should be carefully reviewed
for information on relevant charges and expenses. Excluding these charges and
expenses from quotations of the Portfolio's performance has the effect of
increasing the performance quoted, and the effect of these charges should be
considered when comparing the Portfolio's performance to that of other mutual
funds.
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.
The 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. The 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.
The Portfolio may use long-term performance of these capital markets to
demonstrate general long-term risk versus reward scenarios and could
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include the value of a hypothetical investment in any of the capital markets.
The Portfolio may also quote financial and business publications and periodicals
as they relate to fund management, investment philosophy, and investment
techniques.
The Portfolio may quote various measures of volatility and benchmark correlation
in advertising and may compare these measures to those of other funds. Measures
of volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
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FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP ("PWC"), located at 2 Commerce Square, Philadelphia,
Pennsylvania, serves as the independent accountants for the Company. PWC
provides audit services, tax return preparation and assistance and consultation
in connection with review of SEC filings.
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PART C: OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Articles of Incorporation incorporated herein by reference to
Registrant's Registration Statement on Form N-1A (File No. 333-19497)
as filed electronically on January 10, 1997 ("Registration Statement)
Articles Supplementary of Registrant incorporated herein by reference
to Post-Effective Amendment No. 3 to the Registration Statement as
filed electronically on February 13, 1998 ("PEA No. 3)
Certificate of Correction incorporated herein by reference to
Post-Effective Amendment No. 4 to the Registration Statement as filed
electronically on April 30, 1998 ("PEA No. 4")
Articles of Amendment.
(b) Amended and Restated Bylaws incorporated by reference to PEA No. 4.
(c) Articles of Incorporation and Certificate of Correction filed as (a)
(d) Interim Investment Advisory Agreement dated September 21, 2000, by and
between the Registrant, on behalf of each portfolio of the Registrant,
and Pilgrim Baxter & Associates, Ltd.
Interim Investment Sub-Advisory Agreement dated September 21, 2000, by
and between the Registrant, on behalf of the PBHG Select Value,
Mid-Cap Value, and Small Cap Value Portfolios, Pilgrim Baxter &
Associates, Ltd. and Pilgrim Baxter Value Investors, Inc.
Escrow Agreement dated September 21, 2000, by and between the
Registrant, on behalf of each portfolio of the Registrant, Pilgrim
Baxter & Associates, Ltd. and First Union National Bank
(e) Distribution Agreement dated April 1, 1997 by and between the
Registrant and SEI Investments Distribution Company (formerly, SEI
Financial Services Company) incorporated herein by reference to PEA
No. 3.
Schedule A dated February 20, 1998 to Distribution Agreement dated
April 1, 1997 by and between the Registrant and SEI Investments
Distribution Company (formerly, SEI Financial Services Company)
incorporated herein by reference to PEA No. 4.
(f) Not Applicable
(g) Custodian Agreement dated April 1, 1997, by and between the Registrant
and First Union National Bank (successor to CoreStates Bank, N.A.)
incorporated herein by reference to PEA No. 4.
Schedule A dated January 31, 2000 to Custodian Agreement dated April
1, 1997 by and between the Registrant and First Union National Bank.
(h) Transfer Agency Agreement dated April 1, 1997, by and between the
Registrant and DST Systems, Inc. incorporated by reference to PEA No.
3.
Schedule A dated January 31, 2000 to Transfer Agency Agreement dated
April 1, 1997, by and
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between the Registrant and DST systems, Inc.
Addendum dated September 1, 2000 to Transfer Agency Agreement dated
April 1, 1997, by and between the Registrant and DST Systems, Inc.
Administrative Services Agreement dated April 1, 1997 by and between
the Registrant and PBHG Fund Services incorporated herein by reference
to PEA No. 3.
Schedule A dated January 31, 2000 to Administrative Services Agreement
dated April 1, 1997 by and between the Registrant and PBHG Fund
Services
Sub-Administrative Services Agreement dated April 1, 1997, by and
among the Registrant, PBHG Fund Services and SEI Investments Mutual
Fund Services (formerly, SEI Fund Resources) incorporated herein by
reference to PEA No. 4.
Amendment dated May 1, 1998 to Sub-Administrative Services Agreement
dated April 1, 1997, by and among the Registrant, PBHG Fund Services
and SEI Investments Mutual Fund Services (formerly, SEI Fund
Resources) incorporated herein by reference to PEA No. 4.
Schedule A dated January 31, 2000 to Sub-Administrative Services
Agreement dated April 1, 1997, by and among the Registrant, PBHG Fund
Services and SEI Investments Mutual Fund Services
Expense Limitation Agreement dated April 1, 1997 between the
Registrant and Pilgrim Baxter & Associates, Ltd. incorporated herein
by reference to PEA No. 3.
Schedule A dated February 20, 1998 to Expense Limitation Agreement
dated April 1, 1997 between the Registrant and Pilgrim Baxter &
Associates, Ltd. incorporated herein by reference to PEA No. 4.
Schedule B dated February 20, 1998 to Expense Limitation Agreement
dated April 1, 1997 between the Registrant and Pilgrim Baxter &
Associates, Ltd. incorporated herein by reference to PEA No. 4.
Schedule A dated January 31, 2000 to Expense Limitation Agreement
dated April 1, 1997 between the Registrant and Pilgrim Baxter &
Associates, Ltd.Form of Fund Participation Agreement incorporated
herein by reference to Pre-Effective Amendment No. 1 to the
Registration Statement
Organizational Expense Reimbursement Agreement dated April 1, 1997
between the Registrant and Pilgrim Baxter & Associates, Ltd.
incorporated herein by reference to PEA No. 3.
Shareholder Services Agreement dated January 1, 1998 by and between
Registrant and PBHG Fund Services incorporated herein by reference to
PEA No. 5.
(i) Consent of Counsel [to be filed by subsequent amendment]
(j) Consent of Independent Accountants [to be filed by subsequent
amendment]
(k) Not Applicable
(l) Stock Subscription Agreement dated March 6, 1997 incorporated herein
by reference to PEA No.5
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<PAGE>
(m) Not Applicable
(n) Not Applicable
(o) Not Applicable
(p) Code of Ethics of Registrant. Incorporated herein by reference to PEA
No. 7.
Code of Ethics of Pilgrim Baxter & Associates, Ltd. Incorporated
herein by reference to PEA No. 7.
Code of Ethics of Pilgrim Baxter Value Investors, Inc. Incorporated
herein by reference to PEA No. 7.
Code of Ethics of SEI Investments Distribution Company. Incorporated
herein by reference to PEA No. 7.
24 (a) Directors' Power of Attorney incorporated herein by reference to
PEA No. 1.
(b) Officers' Power of Attorney incorporated herein by reference to
PEA No. 1.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
There are no persons that are controlled by or under common control with the
Registrant.
ITEM 25. INDEMNIFICATION
The Articles of Incorporation of the Registrant include the following:
ARTICLE VII
7.4 Indemnification. The Corporation, including its successors and assigns,
shall indemnify its directors and officers and make advance payment of related
expenses to the fullest extent permitted, and in accordance with the procedures
required, by the General Laws of the State of Maryland and the 1940 Act. The
By-Laws may provide that the Corporation shall indemnify its employees and/or
agents in any manner and within such limits as permitted by applicable law. Such
indemnification shall be in addition to any other right or claim to which any
director, officer, employee or agent may otherwise be entitled. The Corporation
may purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise or employee benefit plan, against any
liability (including, with respect to employee benefit plans, excise taxes)
asserted against and incurred by such person in any such capacity or arising out
of such person's position, whether or not the Corporation would have had the
power to indemnify against such liability. The rights provided to any person by
this Article 7.4 shall be enforceable against the Corporation by such person who
shall be presumed to have relied upon such rights in serving or continuing to
serve in the capacities indicated herein. No amendment of these Articles of
Incorporation shall impair the rights of any person arising at any time with
respect to events occurring prior to such amendment.
The Bylaws of the Registrant include the following:
ARTICLE IX
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<PAGE>
Indemnification of Directors and Officers. The Corporation shall indemnify its
directors to the fullest extent that indemnification of directors is permitted
by the Maryland General Corporation Law. The Corporation shall indemnify its
officers to the same extent as its directors and to such further extent as is
consistent with law. The Corporation shall indemnify its directors and officers
who, while serving as directors or officers, also serve at the request of the
Corporation as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, real estate
investment trust, trust, other enterprise or employee benefit plan to the
fullest extent consistent with law. The indemnification and other rights
provided for by this Article shall continue as to a person who has ceased to be
a director or officer, and shall inure to the benefit of the heirs, executors
and administrators of such a person. This Article shall not protect any such
person against any liability to the Corporation or any stockholder thereof to
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of such person's office ("disabling conduct").
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suite or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
To the extent that the Articles of Incorporation, By-Laws or any other
instrument pursuant to which the Registrant is organized or administered
indemnify any director or officer of the Registrant, or that any contract or
agreement indemnifies any person who undertakes to act as investment adviser or
principal underwriter to the Registrant, any such provision protecting or
purporting to protect such persons against any liability to the Registrant or
its security holders to which he would otherwise by subject by reason of willful
misfeasance, bad faith, or gross negligence, in the performance of his duties,
or by reason of his contract or agreement, will be interpreted and enforced in a
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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
The list required by this Item 26 of officers and directors of Pilgrim Baxter &
Associates, Ltd. and Pilgrim Baxter Value Investors, Inc., together with
information as to any other business, profession, vocation or employment of a
substantial nature engaged in by such officers and directors during the past two
years, is incorporated by reference to Schedule A of the respective Forms ADV,
filed by Pilgrim Baxter & Associates, Ltd. and Pilgrim Baxter Value Investors,
Inc. pursuant to the Investment Advisers Act of 1940, as amended ("Advisers
Act"), (SEC File Nos. 801-48872 and 801-33560 respectively).
ITEM 27. PRINCIPAL UNDERWRITERS
(a) 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
C-4
<PAGE>
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI Institutional 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
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
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
Huntington Funds January 11, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
The PBHG Funds, Inc. June 1, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
Highmark Funds February 15, 1997
Armada Funds March 8, 1997
Expedition Funds June 9, 1997
TIP Institutional Funds January 1, 1998
Oak Associates Funds February 27, 1998
The Nevis Fund, Inc. June 29, 1998
The Parkstone Group of Funds September 14, 1998
Amerindo Funds July 13, 1999
CNI Charter Funds April 1, 1999
Parkstone Advantage Funds April 1, 1999
Huntington VA Funds October 15, 1999
Friends Ivory Funds December 16, 1999
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").
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 -
Of Board of Directors
Mark J. Held President & Chief Operating Officer -
Robert M. Silvestri Chief Financial Officer & Treasurer -
Carmen V. Romeo Director & Executive Vice President -
Gilbert L. Beebower Executive Vice President -
Dennis J. McGonigle Executive Vice President -
Richard B. Lieb Executive Vice President, President - -
C-5
<PAGE>
Investment Services Division
Leo J. Dolan, Jr. Senior Vice President -
Carl A. Guarino Senior Vice President -
Jack May Senior Vice President -
Hartland J. McKeown Senior Vice President
Kevin P. Robins 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
Paul Lonergan Vice President & Managing Director
John D. Anderson Vice President & Managing Director
Scott W. Dellorfano Vice President & Managing Director
Steven A. Gardner Vice President & Managing Director
Wayne M. Withrow Senior Vice President & Managing Director -
Robert Aller Vice President -
Todd Cipperman Senior Vice President & General Counsel
Barbara Doyne Vice President -
Jeff Drennen Vice President -
Kathy Heilig Vice President -
Jeff Jacobs Vice President -
Samuel King Vice President -
Joanne Nelson Vice President -
Mark Nagle Vice President -
Cynthia M. Parrish Vice President & Secretary -
Rob Redican Vice President -
Maria Reinehart Vice President -
Steve Smith Vice President -
Daniel Spaventa Vice President -
Ellen Marquis Vice President
Kathryn L. Stanton Vice President
S. Courtney Collier Vice President & Assistant Secretary -
Lydia A. Gavalis Vice President & Assistant Secretary -
Greg Gettinger Vice President & Assistant Secretary -
Timothy Barto Vice President & Assistant Secretary Vice President &
Assistant Secretary
Richard Deak Vice President & Assistant Secretary
James Foggo Vice President & Assistant Secretary Vice President &
Assistant Secretary
Christine McCullough Vice President & Assistant Secretary
Lori White Vice President & Assistant Secretary -
</TABLE>
c. None.
ITEM 28. 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
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<PAGE>
records are maintained at the offices of Registrant's Custodian:
First Union National Bank (successor to CoreStates Bank, N.A.)
123 South Broad Street
Philadelphia, PA 19109
(b) With respect to Rules 31a-1(a); 31a-1(b)(1),(4); (2)(C) and (D); (4); (5);
(6); (8); (9); (10); (11) and 31a-1(f), the required books and records are
currently maintained at the offices of Registrant's Sub-Administrator:
SEI Fund Resources
One Freedom Valley Road
Oaks, PA 19456
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the
required books and records are maintained at the principal offices of the
Registrant's Adviser or Sub-Adviser:
Pilgrim Baxter & Associates, Ltd.
825 Duportail Road
Wayne, PA 19087
Pilgrim Baxter Value Investors, Inc.
825 Duportail Road
Wayne, PA 19087
ITEM 29. MANAGEMENT SERVICES:
None
ITEM 30. UNDERTAKINGS
Not Applicable.
C-7
<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. 8 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
20th day of December, 2000.
PBHG INSURANCE SERIES FUND, INC.
Registrant
By: /s/ Harold J. Baxter
-------------------------------
Harold J. Baxter
Chairman and Director
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 8 to the Registration Statement has been signed below by the
following persons on the 20th day of December, 2000 in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE AND TITLE DATE
------------------- ----
<S> <C> <C>
/s/ Harold J. Baxter Chairman and Director December 20, 2000
-------------------- ------------------
Harold J. Baxter
* Director December 20, 2000
--------------------------- ------------------
John R. Bartholdson
* Director December 20, 2000
--------------------------- ------------------
Jettie M. Edwards
* Director December 20, 2000
--------------------------- ------------------
Albert A. Miller
/s/ Gary L. Pilgrim President December 20, 2000
-------------------- ------------------
Gary L. Pilgrim
/s/ Lee T. Cummings Treasurer, Chief Financial Officer December 20, 2000
------------------- ------------------
Lee T. Cummings and Controller
</TABLE>
*By: /s/ John M. Zerr
----------------------
John M. Zerr
Attorney-in-Fact
<PAGE>
EXHIBIT LIST
Exhibit
Number Description
EX- 99.B(a) Articles of Amendment
EX-99.B(d) Interim Investment Advisory Agreement dated September 21,
2000, by and between the Registrant, on behalf of each
portfolio of the Registrant, and Pilgrim Baxter & Associates,
Ltd.
Interim Investment Sub-Advisory Agreement dated September 21,
2000, by and between the Registrant, on behalf of the PBHG
Select Value, Mid-Cap Value, and Small Cap Value Portfolios,
Pilgrim Baxter & Associates, Ltd. and Pilgrim Baxter Value
Investors, Inc.
Escrow Agreement dated September 21, 2000, by and between the
Registrant, on behalf of each portfolio of the Registrant,
Pilgrim Baxter & Associates, Ltd. and First Union National
Bank
EX-99.B(h) Addendum dated September 1, 2000 to Transfer Agency Agreement
dated April 1, 1997, by and between the Registrant and DST
Systems, Inc.
