As filed with the Securities and Exchange Commission
on February 28, 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. 7 [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
<PAGE>
Approximate Date of
Proposed Public Offering:
As soon as practicable after the effective date of this Filing.
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on _____________________ pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/X/ on May 1, 2000 pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Title of Securities Being Offered: Common Stock
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
CROSS REFERENCE SHEET
(as required by Rule 495 (a))
<TABLE>
<CAPTION>
PART A
N-1A
- ----
Item No. Location
- -------- --------
PART A
<S> <C> <C>
1. Front and Back Cover Pages Front and Back Cover Pages
2. Risk/Return Summary: Investments,
Risks, and Performance Portfolio Summaries
3. Risk/Return Summary: Fee Table Portfolio Summaries
4. Investment Objectives, Principal
Investment Strategies and Related Risks More About the Portfolios
5. Management's Discussion of Fund
Performance Not Applicable
6. Management, Organization, and
Capital Structure The Investment Adviser and Sub-Adviser
7. Shareholder Information Pricing Portfolio Shares; Buying and Selling
Portfolio Shares; Distribution and Taxes;
Potential Conflicts of Interest
8. Distribution Arrangements Distributions and Taxes
9. Financial Highlights Financial Highlights
PART B
10. Cover Page and Table of Contents Cover Page and Table of Contents
11. Fund History The Company
12. Description of the Fund and its Description of Permitted Investments and
Investments Risks Risks; Investment Limitations; Description
of Shares
13. Management of the Fund Directors and Officers of the Company; The
Administrator and Sub-Administrator
14. Control Persons and Principal Holders Directors and Officers of the Company
of Securities
</TABLE>
<PAGE>
<TABLE>
<S> <C>
15. Investment Advisory and Other The Adviser; The Sub-Adviser; The
Services Distributor; The Administrator and
Sub-Administrator; Other Service Providers
16. Brokerage Allocation and Other Portfolio Transactions
Practices
17. Capital Stock and Other Securities Description of Shares
18. Purchase, Redemption and Pricing of Purchase and Redemption of
Securities Shares; Determination of Net Asset Value
19. Taxation of the Fund Taxes Status, Dividends and Distributions
20. Underwriters The Distributor
21. Calculation of Performance Data Performance Information
22. Financial Statements Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C of the Registration Statement.
<PAGE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C of the Registration Statement.
<PAGE>
PBHG Insurance Series Fund, Inc.
Prospectus May 1, 2000
o PBHG Growth II Portfolio
o PBHG Large Cap Growth Portfolio
o PBHG Select Value Portfolio
o PBHG Mid-Cap Value Portfolio
o PBHG Small Cap Value Portfolio
o PBHG Technology & Communications Portfolio
o PBHG Select 20 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").
Each 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, these Portfolios are 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. These Portfolios 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 each Portfolio. Pilgrim Baxter Value Investors, Inc. ("Value Investors"), a
wholly-owned subsidiary of Pilgrim Baxter, is the sub-adviser for the Small Cap
Value, Mid-Cap Value and Select Value Portfolios. Pilgrim Baxter and Value
Investors invest Portfolio assets in a way that they believe will help a
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 any Portfolio and as a shareholder in a Portfolio. This information is
arranged into different sections for easy reading and future reference. To
obtain more information about the Portfolios, please refer to the back cover of
this Prospectus.
Portfolio Summaries 2
PBHG Growth II Portfolio
PBHG Large Cap Growth Portfolio
PBHG Select Value Portfolio
PBHG Mid-Cap Value Portfolio
PBHG Small Cap Value Portfolio
PBHG Technology & Communications Portfolio
PBHG Select 20 Portfolio
More About the Portfolios 16
The Investment Adviser and Sub-Adviser 22
Your Investment 24
Pricing Portfolio Shares
Buying and Selling Portfolio Shares
Distributions and Taxes
Potential Conflicts of Interest
Financial Highlights 26
1
<PAGE>
GROWTH II 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 and medium sized
companies. These companies generally have market capitalizations or annual
revenues between $500 million and $10 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.
The Portfolio may use options and futures contracts for hedging and risk
management.
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 and medium 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.
The Portfolio's use of options and futures contracts may reduce returns or
increase volatility.
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.
PERFORMANCE INFORMATION:
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Portfolio. The bar chart shows you how the
Portfolio's performance has varied from year to year. The performance table
compares the Portfolio's performance over time to that of the Russell MidCap
Growth Index, a widely recognized,
2
<PAGE>
unmanaged index that tracks the performance of the 800 smallest stocks in the
Russell 1000 Index with greater-than-average growth orientation. Both the chart
and the table assume reinvestment of dividends and distributions. Of course, the
Portfolio's past performance does not indicate how it will perform in the
future.
CHART
Best Quarter
------------------------------------------
4th Quarter 1999 49.97%
Worst Quarter
------------------------------------------
3rd Quarter 1998 -21.28%
Average Annual Total Return as of 12/31/99
Past Since Inception
1 Year (1/30/97)
------ ---------------
Growth II Portfolio 98.19% 36.70%
Russell MidCap Growth Index 51.30% 34.71%
[ICON] For more information on this Portfolio's investment strategies and
associated risks, please refer to the More About the Portfolios section
beginning on page 16.
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. The
expenses listed below are based on the Portfolio's last 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
3
<PAGE>
Other Expenses ........................................................ 0.35%
Total Annual Fund Operating Expenses .................................. 1.20%
You should know that 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. In 1999, the Board elected to reimburse $31,616 in
waived fees, which are included in the calculation of "Other Expenses" above.
At the time of the election, the Portfolio had total assets in excess of $128
million.
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 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 $ 381
5 Years $ 660
10 Years $1,455
PBHG LARGE CAP GROWTH PORTFOLIO
GOAL:
The Portfolio seeks to provide investors with long-term growth of capital.
4
<PAGE>
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 large capitalization
companies. These companies generally have market capitalizations over $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.
The Portfolio also may use options and futures contracts for hedging and risk
management.
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 financial markets, the company's
individual situation or industry changes.
While 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, the Portfolio's emphasis on large company securities
may limit some of the risk associated with growth investing because large
company securities tend to be less volatile than smaller company securities.
The Portfolio's use of options and futures contracts may reduce returns or
increase volatility.
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.
PERFORMANCE INFORMATION:
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Portfolio. The bar chart shows you how the
Portfolio's performance has varied from year to year. The performance table
compares the Portfolio's performance over time to that of the S&P 500(R) Index,
a widely recognized, unmanaged index that measures the performance of large cap
stocks across all major industries. Both the chart and the table assume
reinvestment of dividends and distributions. Of course, the Portfolio's past
performance does not indicate how it will perform in the future.
5
<PAGE>
CHART
Best Quarter
------------------------------------------
4th Quarter 1999 55.36%
Worst Quarter
------------------------------------------
3rd Quarter 1998 -11.20%
Average Annual Total Return as of 12/31/99
Past Since Inception
1 Year (4/30/97)
------ ---------------
Large Cap Growth Portfolio 65.22% 41.99%
S&P 500(R)Index 21.04% 27.40%
[ICON] For more information on this Portfolio's investment strategies and
associated risks, please refer to the More About the Portfolios section
beginning on page 16.
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. The
expenses listed below are based on the Portfolio's last 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 ................................ 0.75%
Distribution and/or Services (12b-1) Fees ............................... None
Other Expenses .......................................................... 0.42%
Total Annual Fund Operating Expenses .................................... 1.17%
Less: Fee Waiver (and/or Expense Reimbursement) ......................... 0.07%
Net Expenses ............................................................ 1.10%*
* This is the actual total fund operating expense you would have paid as an
investor in this Portfolio for the fiscal year ended December 31, 1999. That's
because Pilgrim Baxter has contractually agreed to waive that portion, if any,
of the annual management fees
6
<PAGE>
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 1.10%. You should 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 1.10%, 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. To date, the Board has
made no reimbursement election.
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 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 $ 112
3 Years $ 365
5 Years $ 637
10 Years $1,414
* The costs assume the 1.10% expense cap is in place only for 1 year. If the
Portfolio's expenses were capped at 1.10% for all years, your cost would be:
1 Year $ 112
3 Years $ 350
5 Years $ 606
10 Years $1,340
PBHG SELECT VALUE PORTFOLIO
GOAL:
The Portfolio seeks to provide investors long-term growth of capital and income.
Current income is a secondary objective.
7
<PAGE>
MAIN INVESTMENT STRATEGIES:
Under normal market conditions, the Portfolio invests at least 65% of its total
assets in value securities, such as common stocks, of no more than 30 companies
with large market capitalizations. These companies generally have market
capitalizations greater than $1 billion. The securities in the Portfolio are
primarily common stocks that Pilgrim Baxter and Value Investors believe are
currently underpriced using certain financial measurements, such as their
price-to-earnings ratios. Pilgrim Baxter and Value Investors use their own
fundamental research, computer models and proprietary measures of value in
managing this Portfolio. The Portfolio may sell a security for a variety of
reasons, such as when it becomes overvalued or shows deteriorating fundamentals.
The Portfolio may use options and futures contracts for hedging and risk
management.
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 Portfolio invests in a limited number of stocks in order to achieve a
potentially greater investment return than a more widely diversified fund. As a
result, the price change of a single security, positive or negative, has a
greater impact on the Portfolio's net asset value and will cause its shares to
fluctuate more than it would in a more widely diversified fund.
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.
While the value securities in the Portfolio may never reach what Pilgrim Baxter
and Value Investors believe are their full worth and may even go down in price,
the Portfolio's emphasis on large company securities may limit some of the risk
associated with value investing because large company securities tend to be less
volatile than smaller company securities.
The Portfolio's use of options and futures contracts may reduce returns or
increase volatility.
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.
PERFORMANCE INFORMATION:
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Portfolio. The bar chart shows you how the
Portfolio's performance has varied from year to year. The performance table
compares the Portfolio's performance over time to that of the S&P 500(R) Index,
a widely recognized, unmanaged
8
<PAGE>
index that measures the performance of large cap stocks across all major
industries. Both the chart and the table assume reinvestment of dividends and
distributions. Of course, the Portfolio's past performance does not indicate how
it will perform in the future.
CHART
Best Quarter
------------------------------------------
4th Quarter 1998 29.59%
Worst Quarter
------------------------------------------
3rd Quarter 1998 -7.54%
Average Annual Total Return as of 12/31/99
Past Since Inception
1 Year (10/28/97)
------ ---------------
Select
Value Portfolio 8.89% 22.93%
S&P 500(R) Index 21.04% 26.23%
Prior to May 1, 2000, the Portfolio was named the PBHG Large Cap Value Portfolio
and was not limited in the number of stocks it could hold. Therefore, the
Portfolio's performance prior to May 1, 2000 may not be indicative of how it
will perform in the future.
[ICON] For more information on this Portfolio's investment strategies and
associated risks, please refer to the More About the Portfolios section
beginning on page 16.
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. The
expenses listed below are based on the Portfolio's last 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
9
<PAGE>
Annual Fund Operating Expenses
(Expenses that are deducted from portfolio assets)
Management Fees ......................................................... 0.65%
Distribution and/or Services (12b-1) Fees ............................... None
Other Expenses .......................................................... 0.30%
Total Annual Fund Operating Expenses .................................... 0.95%
You should know thatPilgrim 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 1.00%. 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 1.00%, 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. To date, the Board has made no reimbursement
election.
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 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 $ 97
3 Years $ 303
5 Years $ 525
10 Years $1,166
PBHG MID-CAP VALUE PORTFOLIO
GOAL:
The Portfolio seeks to provide investors with above-average total return over a
3 to 5 year market cycle, consistent with reasonable risk.
10
<PAGE>
MAIN INVESTMENT STRATEGIES:
Under normal market conditions, the Portfolio invests at least 65% of its total
assets in value securities, such as common stocks, issued by companies with
market capitalizations within the range of the S&P MidCap(R) 400 Index.
Currently, the companies in the S&P MidCap 400 Index have market
capitalizations between $165 million and $30 billion. The securities in the
Portfolio are primarily common stocks that Pilgrim Baxter and Value Investors
believe are currently underpriced using certain financial measurements, such as
their price-to-earnings ratios. Pilgrim Baxter and Value Investors use their own
fundamental research, computer models and proprietary measures of value in
managing this Portfolio. The Portfolio may sell a security for a variety of
reasons, such as when it becomes overvalued or shows deteriorating fundamentals.
The Portfolio's sector weightings are generally within 10% of the S&P 400's
sector weightings. In addition, the Portfolio generally has a lower
price-to-earnings ratio than the S&P 400.
The Portfolio may use options and futures contracts for hedging and risk
management.
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 value securities of medium sized companies, so it is
likely to be more volatile than the stock market in general, as measured by the
S&P 500 Index. In addition, the value securities in the Portfolio may never
reach what Pilgrim Baxter and Value Investors believe are their full worth and
may even go down in price.
The Portfolio's use of options and futures contracts may reduce returns or
increase volatility.
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.
PERFORMANCE INFORMATION:
The bar chart and performance table below illustrate the risks and volatility of
an investment in the Portfolio. The bar chart shows you how the Portfolio's
performance has varied from year to year. The performance table compares the
Portfolio's performance over time to that of its benchmark, the S&P MidCap(R)
400 Index, a widely recognized, unmanaged index that tracks the performance of
400 mid-cap stocks, and the S&P Barra Midcap Value Index, a widely recognized,
unmanaged index that tracks the performance of those S&P MidCap 400 companies
with lower price-to-book ratios and forecasted growth rates. Both the chart and
the table assume reinvestment of dividends
11
<PAGE>
and distributions. Of course, the Portfolio's past performance does not indicate
how it will perform in the future.
[CHART]
Best Quarter
------------------------------------------
4th Quarter 1999 16.07%
Worst Quarter
------------------------------------------
3rd Quarter 1999 -6.41%
Average Annual Total Return as of 12/31/99
Since Inception
Past 1 Year (11/30/98)
----------- ---------------
Mid-Cap Value Portfolio 25.66% 35.90%
S&P MidCap(R)400 Index 14.77% 26.12%
S&P Barra Midcap Value Index 2.3% 6.34%
[ICON] For more information on this Portfolio's investment strategies and
associated risks, please refer to the More About the Portfolios section
beginning on page 16.
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. The
expenses listed below are based on the Portfolio's last 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 ........................................................ 5.04%
Total Annual Fund Operating Expenses .................................. 5.89%
Less: Fee Waiver (and/or Expense Reimbursement) ....................... 4.69%
Net Expenses .......................................................... 1.20%*
12
<PAGE>
* This is the actual total fund operating expense you would have paid as an
investor in this Portfolio for the current fiscal year ending December 31, 1999.
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 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. To date, the Board has made no reimbursement election.
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 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 $1,334
5 Years $2,525
10 Years $5,409
* The costs assume the 1.20% expense cap is in place only for 1 year. If the
Portfolio's expenses were capped at 1.20% for all years, your cost would be:
1 Year $ 122
3 Years $ 381
5 Years $ 660
10 Years $1,455
13
<PAGE>
PBHG SMALL CAP VALUE PORTFOLIO
GOAL:
The Portfolio seeks to provide investors with above-average total return over a
3 to 5 year market cycle, consistent with reasonable risk.
MAIN INVESTMENT STRATEGIES:
Under normal market conditions, the Portfolio invests at least 65% of its total
assets in value securities, such as common stocks, issued by companies with
market capitalizations within the range of the Russell 2000 Index. Currently,
the companies in the Russell 2000 have market capitalizations between $30
million and $12.6 billion. The value securities in the Portfolio are primarily
common stocks that Pilgrim Baxter and Value Investors believe are currently
underpriced using certain financial measurements, such as their
price-to-earnings ratios. Pilgrim Baxter and Value Investors use their own
fundamental research, computer models and proprietary measures of value in
managing this Portfolio. The Portfolio may sell a security for a variety of
reasons, such as when it becomes overvalued or shows deteriorating fundamentals.
The Portfolio's sector weightings are generally within 10% of the Russell 2000's
sector weightings. In addition, the Portfolio generally has lower
price-to-earnings and price-to-book value ratios than the Russell 2000.
The Portfolio also may use options and futures contracts for hedging and risk
management.
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, a 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 value securities of smaller sized 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
14
<PAGE>
addition, the value securities in the Portfolio may never reach what Pilgrim
Baxter and Value Investors believe are their full worth and may even go down in
price.
The Portfolio's use of options and futures contracts may reduce returns or
increase volatility.
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.
PERFORMANCE INFORMATION:
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Portfolio. The bar chart shows you how the
Portfolio's performance has varied from year to year. The performance table
compares the Portfolio's performance over time to that of its benchmark, the
Russell 2000 Index, a widely recognized, unmanaged index that tracks the
performance of 2000 small cap stocks, and the Russell 2000 Value Index, a
widely-recognized, unmanaged index that tracks the performance of those Russell
2000 companies with lower price-to-book ratios and forecasted growth values.
Both the chart and the table assume reinvestment of dividends and distributions.
Of course, the Portfolio's past performance does not indicate how it will
perform in the future.
CHART
Best Quarter
-----------------------------------------
4th Quarter 1998 25.92%
Worst Quarter
-----------------------------------------
3rd Quarter 1998 -19.85%
Average Annual Total Return as of 12/31/99
Past Since Inception
1 Year (10/28/97)
------ ---------------
Small Cap Value Portfolio 15.93% 14.71%
Russell 2000 Index 21.26% 8.55%
Russell 2000 Value Index -1.5% -4.30%
[ICON] For more information on this Portfolio's investment strategies and
associated risks, please refer to the More About the Portfolios section
beginning on page 16.
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
15
<PAGE>
their effect is included in the share price. The expenses listed below are based
on the Portfolio's last 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
Maximum Account Fee . . . . . . . . . . . . . . . . . . . . . . . . . . None
Annual Fund Operating Expenses
(Expenses that are deducted from Portfolio assets)
Management Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.00%
Distribution and/or Services (12b-1) Fees . . . . . . . . . . . None
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.29%
Total Annual Fund Operating Expenses . . . . . . . . . . . . . . . . . . 1.29%
Less: Fee Waiver (and/or Expense Reimbursement) . . . . . . . . . . . . . 0.09%
Net Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.20%*
* This is the actual total fund operating expense you would have paid as an
investor in this Portfolio for the fiscal year ended December 31, 1999. 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 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. To date, the Board has made no reimbursement election.
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 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.
16
<PAGE>
Your
Cost*
------
1 Year $ 122
3 Years $ 400
5 Years $ 699
10 Years $1,549
* The costs assume the 1.20% expense cap is in place only for 1 year. If the
Portfolio's expenses were capped at 1.20% for all years, your cost would be:
1 Year $ 122
3 Years $ 381
5 Years $ 660
10 Years $1,455
PBHG TECHNOLOGY & COMMUNICATIONS PORTFOLIO
GOAL:
The Portfolio seeks to provide investors with long-term growth of capital.
Current income is incidental to the Portfolio's goal.
MAIN INVESTMENT STRATEGIES:
Under normal market conditions, the Portfolio, a non-diversified fund, will
invest at least 65% of its total assets in common stocks of companies doing
business in the technology and communications sectors of the market. In
addition, the Portfolio is concentrated which means it will invest 25% or more
of its total assets in one or more of the industries within these sectors. These
industries may include computer software and hardware, network and cable
broadcasting, semiconductors, defense and data storage and retrieval, and
biotechnology. The Portfolio offers investors significant growth potential
because it invests in companies that may be responsible for breakthrough
products or technologies or positioned to take advantage of cutting-edge
developments. The Portfolio's holdings may range from smaller companies
developing new technologies or pursuing scientific breakthroughs to large, blue
chip firms with established track records in developing, using or marketing
scientific advances. 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. The Portfolio may use options and futures contracts
for hedging and risk management.
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 Portfolio is non-diversified which means, as compared to a diversified fund,
it invests a higher percentage of its assets in a limited number of stocks in
order to achieve a potentially greater investment return than a more diversified
fund. As a result, the price change of a single security, positive or negative,
has a greater impact on the Portfolio's
17
<PAGE>
net asset value and will cause its shares to fluctuate in value more than it
would in a more widely diversified fund.
The Portfolio is concentrated which means, compared to a non-concentrated fund,
it invests a higher percentage of its assets in specific industries within the
technology and communications sectors of the market in order to achieve a
potentially greater investment return. As a result, the economic, political and
regulatory developments in a particular industry, positive or negative, have a
greater impact on the Portfolio's net asset value and will cause its shares to
fluctuate more that if the Portfolio did not concentrate its investments.
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.
Securities of technology companies are strongly affected by worldwide scientific
and technological developments and governmental policies and, therefore, are
generally more volatile than securities of companies not dependent upon or
associated with technology issues.
The Portfolio's use of options and futures contracts may reduce returns or
increase volatility.
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.
PERFORMANCE INFORMATION:
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Portfolio. The bar chart shows you how the
Portfolio's performance has varied from year to year. The performance table
compares the Portfolio's performance over time to that of the Soundview
Technology Index, a widely recognized, unmanaged index that measures the
performance of 100 major technology stocks, as chosen by Soundview Financial
Group. Both the chart and the table assume reinvestment of dividends and
distributions. Of course, the Portfolio's past performance does not indicate how
it will perform in the future.
CHART
Best Quarter
------------------------------------------
4th Quarter 1999 108.57%
Worst Quarter
------------------------------------------
3rd Quarter 1998 -8.97%
18
<PAGE>
Average Annual Total Return as of 12/31/99
Past Since Inception
1 Year (4/30/97)
------ ---------------
Technology & Communications Portfolio 234.38% 77.08%
Soundview Technology Index 129.79% 63.44%
[ICON] For more information on this Portfolio's investment strategies and
associated risks, please refer to the More About the Portfolios section
beginning on page 16.
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. The
expenses listed below are based on the Portfolio's last 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 ......................................................... 0.24%
Total Annual Fund Operating Expenses ................................... 1.09%
You should know that 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
19
<PAGE>
during the previous two fiscal years. In 1999, the Board elected to reimburse
$93,603 in waived fees, which are included in the calculation of "Other
Expenses" above. At the time of the election, the Portfolio had total assets in
excess of $204 million.
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 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 $ 111
3 Years $ 347
5 Years $ 601
10 Years $1,329
PBHG SELECT 20 PORTFOLIO
GOAL:
The Portfolio, a non-diversified fund, seeks to provide investors with long-term
growth of capital.
MAIN INVESTMENT STRATEGIES:
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in growth securities, such as common stocks, of no more than 20
large capitalization companies. These companies generally have market
capitalizations over $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.
The Portfolio may use options and futures contracts for hedging and risk
management.
MAIN INVESTMENT RISKS:
The Portfolio is non-diversified which means, as compared to a diversified fund,
it invests a higher percentage of its assets in a limited number of stocks in
order to achieve a potentially greater investment return. As a result, the price
change of a single security, positive or negative, has a greater impact on the
Portfolio's net asset value than it would in a diversified fund.
20
<PAGE>
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 financial markets, the company's
individual situation, or industry changes.
While 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, the Portfolio's emphasis on large company securities
may limit some of the risks associated with growth investing because large
company securities tend to be less volatile than smaller company securities.
The Portfolio's use of options and futures contracts may reduce returns or
increase volatility.
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.
PERFORMANCE INFORMATION:
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Portfolio. The bar chart shows you how the
Portfolio's performance has varied from year to year. The performance table
compares the Portfolio's performance over time to that of the S&P 500(R) Index,
a widely recognized, unmanaged index that measures the performance of large cap
stocks across all major industries. Both the chart and the table assume
reinvestment of dividends and distributions. Of course, the Portfolio's past
performance does not indicate how it will perform in the future.
CHART
Best Quarter
------------------------------------------
4th Quarter 1999 74.31%
Worst Quarter
------------------------------------------
3rd Quarter 1998 -4.18%
Average Annual Total Return as of 12/31/99
Past Since Inception
1 Year (9/25/97)
------- ---------------
Select 20 Portfolio 100.61% 68.69%
S&P 500(R) Index 21.04% 23.27%
21
<PAGE>
[ICON] For more information on this Portfolio's investment strategies and
associated risks, please refer to the More About the Portfolios section
beginning on page 16.
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. The
expenses listed below are based on the Portfolio's last 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 ....................................................... 0.20%
Total Annual Fund Operating Expenses ................................. 1.05%
You should know that 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. In 1999, the Board elected to reimburse $27,776 in
waived fees, which are included in the calculation of "Other Expenses" above. At
the time of the election the Portfolio had total assets in excess of $394
million.
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 periods shown; 2) you redeem all your shares at the end
of those time periods; 3) you
22
<PAGE>
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 $ 107
3 Years $ 334
5 Years $ 579
10 Years $1,283
MORE ABOUT THE PORTFOLIOS
RISKS & REWARDS:
This section takes a closer look at the investment strategies that make up each
Portfolio's risk and reward characteristics.
In addition to the main investment strategies described in the Portfolio
Summaries section of this Prospectus, each 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, a Portfolio may
make investments and pursue strategies different from those described in this
Prospectus. Those 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.
SECURITIES:
Shares representing ownership in a corporation. Each Portfolio may invest in the
following types of equity securities: common and preferred stocks, convertible
securities, warrants and rights.
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 and Value Investors maintain a long-term investment approach
and focus on securities they believe can appreciate over an extended time
frame, regardless of interim fluctuations.
o Under normal circumstances, each Portfolio intends to remain fully
invested, with at least 65% of its total assets in securities.
23
<PAGE>
o Pilgrim Baxter and Value Investors focus their active management on
securities selection, the area they believe their commitment to fundamental
research can most enhance a 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.
POLICIES TO BALANCE RISKS & REWARDS:
o See securities.
o In managing a Portfolio, Pilgrim Baxter uses its own software and research
models which incorporate important attributes of successful growth. Pilgrim
Baxter believes 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.
24
<PAGE>
VALUE SECURITIES:
Securities that Value Investors believes are currently underpriced using certain
financial measurements, such as their price-to-earnings ratio, earnings power,
dividend income potential, and competitive advantages.
POTENTIAL RISKS:
o See securities.
o Value companies may have experienced adverse business developments or may
be subject to special risks that have caused their securities to be out of
favor.
o The value securities in the Portfolio may never reach what Value Investors
believes are their full value and may even go down in price.
POTENTIAL REWARDS:
o See securities.
o Value securities may produce significant capital appreciation as the market
recognizes their full value.
POLICIES TO BALANCE RISKS & REWARDS:
o See securities.
o In managing a Portfolio, Value Investors uses its own research, computer
models and measures of value.
o Value Investors considers selling a security when it becomes overvalued
relative to the market, shows deteriorating fundamentals or falls short of
Value Investors' expectations.
SMALL & MEDIUM 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.
25
<PAGE>
POLICIES TO BALANCE RISKS & REWARDS:
o Pilgrim Baxter and Value Investors focus on smaller companies with strong
balance sheets that they expect to exceed consensus earnings expectations.
TECHNOLOGY COMPANY SECURITIES:
Securities of companies that rely extensively on technology in their product
development or operations, are expected to benefit from technological advances
and improvements, or may be experiencing exceptional growth in sales and
earnings driven by technology or communications related products and services.
POTENTIAL RISKS:
o Technology company securities are strongly affected by worldwide scientific
and technological developments and governmental policies, and, therefore,
are generally more volatile than companies not dependent upon or associated
with technology issues.
POTENTIAL REWARDS:
o Technology 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 With the exception of the Technology & Communications Portfolio, each
Portfolio seeks to strike a balance among the industries in which it
invests so that no one industry dominates the Portfolio's investments.
o The Technology & Communications Portfolio seeks to diversify within sectors
of the industries in which it concentrates.
FUTURES & OPTIONS:
A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash payment
based on changes in the value of a securities index. An option contract is the
right to buy or sell a set quantity of an underlying instrument at a
pre-determined price.
POTENTIAL RISKS:
o A futures or option contract used to hedge the Portfolio or specific
securities may not fully offset the underlying position.
o A futures or option contract used for risk management may not have the
intended effects and may result in losses or missed investment
opportunities.
o The counterparty to a futures or option contract could default.
POTENTIAL REWARDS:
o A futures or option contract that correlates well with the underlying
position can reduce or eliminate losses at low cost.
26
<PAGE>
o A Portfolio could make money and protect against losses if Pilgrim Baxter's
or Value Investors' analysis proves correct.
POLICIES TO BALANCE RISKS & REWARDS:
o Each Portfolio may use futures and options contracts for hedging and risk
management, i.e., to establish or adjust exposure to particular securities,
markets or currencies; to manage a Portfolio's exposure relative to its
benchmark; or to equitize cash.
o Each Portfolio only establishes hedges that it expects will be highly
correlated with underlying securities positions.
o No Portfolio considers using futures or options contracts unless it would
be cost- effective.
o Each Portfolio maintains assets sufficient to meet its obligations under
the contract in a segregated margin account with a custodian bank.
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 a 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 and Value Investors use a highly disciplined investment
process that seeks to, among other things, identify quality investments
that will enhance a Portfolio's performance.
FOREIGN SECURITIES:
Equity 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.
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.
27
<PAGE>
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 Each Portfolio limits the amount of total assets it invests in foreign
securities as follows: Large Cap Growth/Technology & Communications/Select
20: 10% and Growth II/Small Cap Value/ Mid-Cap Value/Select Value: 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 A Portfolio may have difficulty valuing these securities precisely.
o A 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 Each Portfolio may not invest more than 15% of its net assets in illiquid
securities.
RESTRICTED SECURITIES:
Privately placed securities whose resale is restricted under securities law.
POTENTIAL RISKS:
o Restricted securities may be difficult to value because market quotations
may not be readily available.
o Because of the restrictions in resale of these securities, a Portfolio may
not be able to find a qualified buyer or may not be able to sell these
securities at the time or price it desires.
POTENTIAL REWARDS:
o Restricted securities may offer more future growth potential than publicly
traded securities.
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<PAGE>
POLICIES TO BALANCE RISKS & REWARDS:
o Each Portfolio limits the amount of total assets it invests in restricted
securities as follows: Large Cap Growth/Technology & Communications/Select
20: 10% and Small Cap Value/Mid-Cap Value/Select Value: 15%. The Growth II
Portfolio is not currently permitted to invest in restricted securities.
WHEN ISSUED AND DELAYED-DELIVERY SECURITIES:
Securities subject to settlement on a future date.
POTENTIAL RISKS:
o When a Portfolio buys these securities, it could be exposed to leverage
risk if it does not use segregated accounts.
POTENTIAL REWARDS:
o A Portfolio can take advantage of attractive investment opportunities.
POLICIES TO BALANCE RISKS & REWARDS:
o Only the Small Cap Value, Mid-Cap Value and Select Value Portfolios are
permitted to invest in these securities. These Portfolios use segregated
accounts to offset leverage risk.
Each 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 a Portfolio's losses, they can
prevent a Portfolio from achieving its investment goal.
Each Portfolio is actively managed, which means a Portfolio's manager may
frequently buy and sell securities. Frequent trading increases a Portfolio's
turnover rate and may increase transaction costs, such as brokerage commissions.
Increased transaction costs could detract from a Portfolio's performance. In
addition, the sale of Portfolio securities may generate capital gains which,
when distributed, may be taxable to you.
29
<PAGE>
THE INVESTMENT ADVISER AND SUB-ADVISER
The Investment Adviser
Pilgrim Baxter & Associates, Ltd., 825 Duportail Road, Wayne, Pa 19087, is the
investment adviser for each Portfolio. Founded in 1982, Pilgrim Baxter currently
manages approximately $23 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, the risk of a decline in its market price
is too great or deterioration in business fundamentals occurs or is expected to
occur.
As investment adviser, Pilgrim Baxter makes investment decisions for the Growth
II, Large Cap Growth, Technology & Communications and Select 20 Portfolios and
oversees the investment decisions made by Value Investors as sub-adviser for the
Small Cap Value, Mid-Cap Value and Select Value Portfolios. The Portfolios'
Board of Directors supervises Pilgrim Baxter and Value Investors and establishes
policies that Pilgrim Baxter and Value Investors must follow as investment
adviser and sub-adviser.
The Sub-Adviser
Pilgrim Baxter Value Investors, Inc., 825 Duportail Road, Wayne, PA 19087, is a
wholly-owned subsidiary of Pilgrim Baxter. Founded in 1940, Value Investors
currently manages $165 million for pension and profit sharing plans, charitable
institutions, trusts, estates and other investment companies.
Value Investors' investment process, like that of Pilgrim Baxter, is both
quantitative and fundamental. In seeking to identify attractive investment
opportunities for the Small Cap Value, Mid-Cap Value and Select Value
Portfolios, Value Investors first creates a universe of more than 8,000
companies whose current share price seems lower than its
30
<PAGE>
current or future worth. Then, using its own computer models and measures of
value, Value Investors creates a sub-universe of statistically attractive value
companies. Value Investors considers factors like a company's earnings power vs.
its current stock price, its dividend income potential, its price-to-earnings
ratio vs. similar companies, its competitive advantages, like brand or trade
name or market niche, its management team and its current and future business
prospects. Lastly, using its own fundamental research and a bottom-up approach
to investing, Value Investors identifies those companies which are currently out
of market favor but have the potential to achieve significant appreciation as
the marketplace recognizes their fundamental value.
Value Investors' decision to sell a security depends on many factors. Generally
speaking, however, Value Investors considers selling a security when it becomes
overvalued relative to the market, shows deteriorating fundamentals or falls
short of Value Investors' expectations.
For the fiscal year ended December 31, 1998, Pilgrim Baxter waived a portion of
its fee so that the effective management fee paid by each Portfolio was as
follows:
Growth II Portfolio 0.85%
Large Cap Growth Portfolio 0.75%
Select Value Portfolio 0.65%
Mid-Cap Value Portfolio 0.00%
Small Cap Value Portfolio 0.91%
Technology & Communications Portfolio 0.85%
Select 20 Portfolio 0.85%
As sub-adviser to the Small Cap Value, Mid-Cap Value and Select Value
Portfolios, Value Investors is entitled to receive a fee from Pilgrim Baxter
equal to a percentage of the daily net assets of each of these Portfolios.
LARGE CAP GROWTH PORTFOLIO/SELECT 20 PORTFOLIO:
Michael S. Sutton, CFA, has managed the PBHG Large Cap Growth and Select 20
Portfolios since November, 1999. Mr. Sutton joined Pilgrim Baxter in October
1999, from Loomis, Sayles & Co., where he worked for seven years as a portfolio
manager of mid-to-large cap growth portfolios. Prior to that, Mr. Sutton was a
large cap growth portfolio manager with Stein, Roe & Farnham.
LARGE CAP VALUE PORTFOLIO:
Raymond J. McCaffrey, CFA, has managed the PBHG Large Cap Value Portfolio since
June, 1999. He joined Value Investors as a portfolio manager and analyst in
1997. Prior to joining Value Investors, Mr. McCaffrey worked for two years as a
portfolio manager and analyst at Pitcairn Trust Company. His ten years of
investment experience also include positions at Cypress Capital Management,
Independence Capital Management and Fidelity Bank.
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<PAGE>
SMALL CAP VALUE PORTFOLIO/MID-CAP VALUE PORTFOLIO:
Jerome J. Heppelmann, CFA, has managed the PBHG Small Cap Value and Mid-Cap
Value Portfolios since June, 1999. He joined Pilgrim Baxter in 1994 as a Vice
President of Marketing/Client Service and since 1997 has been a member of Value
Investors Equity team. Prior to joining Pilgrim Baxter, Mr. Heppelmann worked in
the Investment Advisory Group for SEI Investments.
GROWTH II PORTFOLIO/TECHNOLOGY & COMMUNICATIONS PORTFOLIO:
Jeffrey Wrona, CFA, has managed the Growth II Portfolio since January, 1998. He
has managed the Technology & Communications Portfolio since May, 1998. Mr. Wrona
joined Pilgrim Baxter in 1997 after seven years as a senior portfolio manager
with Munder Capital Management and today manages several other funds at Pilgrim
Baxter.
32
<PAGE>
YOUR INVESTMENT
PRICING PORTFOLIO SHARES:
The price of a Portfolio's shares is based on that Portfolio's net asset value
(NAV). A 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.
A 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 Portfolios' Board of Directors. If a
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 a
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. A 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:
Each 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.
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<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 Portfolios
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 a Portfolio's distributions for
each calendar year will be detailed in the Participating Insurance Company's
annual tax statement from that 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 Contact and VLI Policy holders may conflict due to
differences in tax treatment and other considerations. The Portfolios' Board of
Directors monitors each 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 a Portfolio. As a
result, the Portfolio may be forced to sell securities. In addition, the Board
may refuse to sell shares of a 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.
34
<PAGE>
FINANCIAL HIGHLIGHTS
A Portfolio's financial highlights help you understand its recent financial
performance. The total returns represent the rate that you would have earned or
lost on an investment in the Portfolio, assuming you reinvested all Portfolio
distributions. PricewaterhouseCoopers LLP has audited the information
contained in these financial highlights. Its report and the Portfolio's
financial statements are included in the Portfolio's Annual Report to
Shareholders, which is available, free of charge, upon request.
[LOGO] PBHG Insurance Series Fund, Inc.
-------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the period ended December 31, 1999
For a Share Outstanding Throughout each Fiscal Year or Period
<TABLE>
<CAPTION>
Net Net
Asset Realized and Distributions Distributions Asset
Value Net Unrealized from Net from Value
Beginning Investment Gains or Losses Investment Capital End Total
of Period Income (Loss) on Securities Income Gains of Period Return
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------
PBHG Growth II Portfolio
- ------------------------
1999................. $11.63 $(0.04) $11.46 -- -- $23.05 98.19%
1998................. 10.75 (0.06) 0.94 -- -- 11.63 8.19%
1997(1).............. 10.00 -- 0.75 -- -- 10.75 7.50%**
- -------------------------------
PBHG Large Cap Growth Portfolio
- -------------------------------
1999................. $15.44 $ (0.05) $10.12 -- -- $25.51 65.22%
1998................. 11.82 (0.02) 3.64 -- -- 15.44 30.63%
1997(1).............. 10.00 -- 1.82 -- -- 11.82 18.20%**
- ----------------------------
PBHG Select Value Portfolio+
- ----------------------------
1999................. $14.27 $ 0.13 $ 1.13 -- $(0.34) $15.19 8.89%
1998................. 10.43 (0.02) 3.98 $(0.04) (0.08) 14.27 37.96%
1997(3).............. 10.00 0.02 0.41 -- -- 10.03 4.30%**
- ----------------------------
PBHG Mid-Cap Value Portfolio
- ----------------------------
1999................. $11.10 $0.02 $2.75 -- $(1.95) $11.92 25.66%
1998(4).............. 10.00 -- 1.10 -- -- 11.10 11.00%**
- ------------------------------
PBHG Small Cap Value Portfolio
- ------------------------------
1999................. $11.61 $(0.03) $ 1.88 -- -- $13.46 15.93%
1998................. 10.48 (0.02) 1.16 -- $(0.01) 11.61 10.94%
1997(3).............. 10.00 0.01 0.47 -- -- 10.48 4.80%**
- ------------------------------------------
PBHG Technology & Communications Portfolio
- ------------------------------------------
1999................. $13.76 $(0.13) $32.38 -- -- $46.01 234.38%
1998................. 10.41 (0.04) 3.39 -- -- 13.76 32.20%
1997(1).............. 10.00 -- 0.41 -- -- 10.41 4.10%**
- ------------------------
PBHG Select 20 Portfolio
- ------------------------
1999................. $16.30 $(0.08) $16.48 -- -- $32.70 100.61%
1998................. 10.03 (0.01) 6.28 -- -- 16.30 62.52%
1997(2).............. 10.00 -- 0.03 -- -- 10.03 0.30%**
<PAGE>
<CAPTION>
Ratio Ratio of Net
Net of Expenses Income (Loss)
Assets Ratio Ratio of Net to Average to Average
End of Expenses Income (Loss) Net Assets Net Assets Portfolio
of Period to Average to Average (Excluding (Excluding Turnover
(000) Net Assets Net Assets Waivers) Waivers) Rate
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------
PBHG Growth II Portfolio
- ------------------------
1999................. $ 178,602 1.20% (0.38)% 1.20% (0.38)% 236.82%
1998................. 18,321 1.20% (0.64)% 1.54% (0.98)% 228.09%
1997(1).............. 10,236 1.20%* (0.11)%* 4.38%* (3.29)%* 44.57%**
- -------------------------------
PBHG Large Cap Growth Portfolio
- -------------------------------
1999................. $27,295 1.10% (0.41)% 1.17% (0.48)% 157.04%
1998................. 12,598 1.10% (0.19)% 1.53% (0.62)% 41.51%
1997(1).............. 4,916 1.10%* 0.00%* 5.21%* (4.11)%* 37.42%**
- ---------------------------
PBHG Select Value Portfolio
- ---------------------------
1999................. $39,972 0.95% 0.84% 0.95% 0.84% 927.02%
1998................. 22,286 1.00% 0.67% 1.47% 0.20% 635.10%
1997(3).............. 1,560 1.00%* 1.91%* 8.04% (5.13)%* 68.93%**
- ----------------------------
PBHG Mid-Cap Value Portfolio
- ----------------------------
1999................. $ 697 1.20% 0.15% 5.89% (4.54)% 906.69%
1998(4).............. 555 1.20%* 0.26%* 4.13%* (2.67)%* 72.32%**
- ------------------------------
PBHG Small Cap Value Portfolio
- ------------------------------
1999................. $ 43,484 1.20% (0.20)% 1.29% (0.29)% 277.95%
1998................. 44,040 1.20% (0.15)% 1.46% (0.41)% 293.90%
1997(3).............. 9,321 1.20%* 1.40 %* 3.63%* (1.03)%* 41.14%**
- ------------------------------------------
PBHG Technology & Communications Portfolio
- ------------------------------------------
1999................. $1,635,448 1.09% (0.64)% 1.09% (0.64)% 273.76%
1998................. 32,493 1.20% (0.55)% 1.56% (0.91)% 264.58%
1997(1).............. 9,117 1.20%* 0.37%* 5.09%* (3.52)%* 69.34%**
- ------------------------
PBHG Select 20 Portfolio
- ------------------------
1999................. $ 753,572 1.05% (0.46)% 1.05% (0.46)% 139.05%
1998................. 317,926 1.20% (0.18)% 1.21% (0.19)% 48.79%
1997(2).............. 7,617 1.20%* 0.51 %* 3.36%* (1.65)%* 18.53%**
</TABLE>
- ----------
* Annualized.
** Total return and Portfolio Turnover Rate have been annualized.
+ Prior to May 1, 2000, the PBHG Select Value Portfolio was named the PBHG
Large Cap Value Portfolio.
(1) The PBHG Growth II, Large Cap Growth and PBHG Technology & Communication
Portfolios commenced operations on May 1, 1997.
(2) The PBHG Select 20 Portfolio commenced operations on September 28, 1997.
(3) The PBHG Select Value and PBHG Small Cap Value Portfolios commenced
operations on October 29, 1997.
(4) The PBHG Mid-Cap Value Portfolio commenced operations on December 1, 1998.
(5) Amounts designated as "--" are either $0 or have been rounded to $0.
35
<PAGE>
FOR MORE INFORMATION
For investors who want more information about the Portfolios, the following
documents are available free upon request:
Statement of Additional Information (SAI):
Provides more information about the Portfolios and is incorporated into this
Prospectus by reference.
Annual/Semi-annual Reports: Provides financial and performance information about
the Portfolios and their investments and a discussion of the market conditions
and investment strategies that significantly affected the Portfolios'
performance during the last fiscal year or half-year.
Copies of the current versions of these documents, along with other information
about the Portfolios, 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 these
documents.
These reports 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.
36
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 2000
Company:
PBHG INSURANCE SERIES FUND, INC.
Portfolios:
PBHG GROWTH II PORTFOLIO
PBHG LARGE CAP GROWTH PORTFOLIO
PBHG SMALL CAP VALUE PORTFOLIO
PBHG MID-CAP VALUE PORTFOLIO
PBHG SELECT VALUE PORTFOLIO
PBHG TECHNOLOGY & COMMUNICATIONS PORTFOLIO
PBHG SELECT 20 PORTFOLIO
Investment Adviser:
PILGRIM BAXTER & ASSOCIATES, LTD.
This Statement of Additional Information is not a prospectus. It is intended to
provide additional information regarding the activities and operations of PBHG
Insurance Series Fund, Inc. (the "Company") and the PBHG Growth II Portfolio,
PBHG Large Cap Growth Portfolio, PBHG Small Cap Value Portfolio, PBHG Mid-Cap
Value Portfolio, PBHG Select Value Portfolio, PBHG Technology & Communications
Portfolio and the PBHG Select 20 Portfolio (the "Portfolios"). It should be read
in conjunction with the Prospectus dated May 1, 2000. The Prospectus may be
obtained without charge by calling 1-800-347-9256.
The Annual Report for each Portfolio, except for pages 1 through 2 thereof, is
incorporated herein by reference and made a part of this document. The Annual
Report may be obtained without charge by calling 1-800-347-9256.
TABLE OF CONTENTS
THE COMPANY...................................................................2
DESCRIPTION OF PERMITTED INVESTMENTS AND RISKS................................2
INVESTMENT LIMITATIONS.......................................................15
DIRECTORS AND OFFICERS OF THE COMPANY........................................19
5% AND 25% SHAREHOLDERS......................................................22
THE ADVISER..................................................................24
THE SUB-ADVISER..............................................................26
THE DISTRIBUTOR..............................................................27
THE ADMINISTRATOR AND SUB-ADMINISTRATOR......................................28
OTHER SERVICE PROVIDERS......................................................29
PORTFOLIO TRANSACTIONS.......................................................30
DESCRIPTION OF SHARES........................................................33
PURCHASE AND REDEMPTION OF SHARES............................................34
DETERMINATION OF NET ASSET VALUE.............................................35
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS......................................36
PERFORMANCE INFORMATION......................................................42
FINANCIAL STATEMENTS.........................................................45
1
<PAGE>
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 all
Portfolios of the Company. Each Portfolio is diversified except for the Select
20 Portfolio and the Technology & Communications Portfolio, which are
non-diversified. No investment in shares of a 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 each Portfolio.
Pilgrim Baxter Value Investors, Inc. ("Sub-Adviser") serves as the investment
sub-adviser to the Small Cap Value, Mid-Cap Value, and Select Value Portfolios.
The Adviser and the Sub-Adviser are collectively referred to herein as the
"Advisers."
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 a Portfolio for purposes of
its investment limitations. The repurchase agreements entered into by a
Portfolio will provide that the underlying security at all times shall have a
value at least equal to 102% of the resale price stated in the agreement (the
Adviser monitors compliance with this requirement). Under all repurchase
agreements entered into by a Portfolio, the Company's custodian or its agent
must take possession of the underlying collateral. However, if the seller
defaults, a Portfolio could realize a loss on the sale of the underlying
security to the extent that the proceeds of the sale, including accrued
interest, are less than the resale price provided in the agreement including
interest. In addition, even though the Bankruptcy Code provides protection for
most repurchase agreements, if the seller should be involved in bankruptcy or
insolvency proceedings, a Portfolio may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the
Portfolio is treated as an unsecured creditor of the seller and is required to
return the underlying security to the seller's estate.
2
<PAGE>
FUTURES CONTRACTS
FUTURES TRANSACTIONS. A futures contract is a bilateral agreement to buy or sell
a security (or deliver a cash settlement price, in the case of a contract
relating to an index or otherwise not calling for physical delivery at the end
of trading in the contracts) for a set price in the future. Futures contracts
are designated by boards of trade which have been designated "contracts markets"
by the Commodity Futures Trading Commission ("CFTC").
No purchase price is paid or received when the contract is entered into.
Instead, a Portfolio upon entering into a futures contract (and to maintain the
Portfolio's open positions in futures contracts) would be required to deposit
with its custodian in a segregated account in the name of the futures broker an
amount of cash, or other assets, known as "initial margin." The margin required
for a particular futures contract is set by the exchange on which the contract
is traded, and may be significantly modified from time to time by the exchange
during the term of the contract. Futures contracts are customarily purchased and
sold on margin that may range upward from less than 5% of the value of the
contract being traded.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
pay the excess to the Portfolio. These subsequent payments called "variation
margin," to and from the futures broker, are made on a daily basis as the price
of the underlying assets fluctuate making the long and short positions in the
futures contract more or less valuable, a process known as "marking to the
market." A Portfolio expects to earn interest income on its initial and
variation margin deposits.
A Portfolio will incur brokerage fees when it purchases and sells futures
contracts. Positions taken in the futures markets are not normally held until
delivery or cash settlement is required, but are instead liquidated through
offsetting transactions which may result in a gain or a loss.
While futures positions taken by a Portfolio will usually be liquidated in this
manner, a Portfolio may instead make or take delivery of underlying securities
whenever it appears economically advantageous to the Portfolio to do so. A
clearing organization associated with the exchange on which futures are traded
assumes responsibility for closing out transactions and guarantees that as
between the clearing members of an exchange, the sale and purchase obligations
will be performed with regard to all positions that remain open at the
termination of the contract.
3
<PAGE>
SECURITIES INDEX FUTURES CONTRACTS. Purchases or sales of securities index
futures contracts may be used in an attempt to protect a Portfolio's current or
intended investments from broad fluctuations in securities prices. A securities
index futures contract does not require the physical delivery of securities, but
merely provides for profits and losses resulting from changes in the market
value of the contract to be credited or debited at the close of each trading day
to the respective accounts of the parties to the contract. On the contract's
expiration date a final cash settlement occurs and the futures positions are
simply closed out. Changes in the market value of a particular index futures
contract reflect changes in the specified index of securities on which the
future is based.
By establishing an appropriate "short" position in index futures, the Portfolio
may also seek to protect the value of its portfolio against an overall decline
in the market for such securities. Alternatively, in anticipation of a generally
rising market, a Portfolio can seek to avoid losing the benefit of apparently
low current prices by establishing a "long" position in securities index futures
and later liquidating that position as particular securities are in fact
acquired. To the extent that these hedging strategies are successful, a
Portfolio will be affected to a lesser degree by adverse overall market price
movements than would otherwise be the case.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS. A Portfolio will not
purchase or sell futures contracts unless either (1) futures contracts are
purchased for "bona fide hedging" purposes (as that term is defined under the
CFTC regulations) or (2) if purchased for other purposes, the sum of the amounts
of initial margin deposits on the Portfolio's existing futures contracts and
premiums required to establish non-hedging positions would not exceed 5% of the
liquidation value of the Portfolio's total assets. In instances involving the
purchase of futures contracts by a Portfolio, an amount of cash or other liquid
assets, equal to the cost of such futures contracts (less any related margin
deposits), will be deposited in a segregated account with its custodian, thereby
insuring that the use of such futures contracts is unleveraged. In instances
involving the sale of futures contracts by a Portfolio, the securities
underlying such futures contracts or options will at all times be maintained by
the Portfolio or, in the case of index futures contracts, the Portfolio will own
securities the price changes of which are, in the opinion of its Advisers
expected to replicate substantially the movement of the index upon which the
futures contract is based.
For information concerning the risks associated with utilizing futures
contracts, please see "Risks of Transactions in Futures Contracts and Options"
below.
OPTIONS
Options are contracts that give one of the parties to the contract the right to
buy or sell the security that is subject to the option at a stated price during
the option period, and obligates the other party to the contract to buy or sell
such security at the stated price during the option period. The types of options
transactions that the Portfolios are permitted to utilize are discussed below.
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WRITING CALL OPTIONS. A call option is a contract which gives the purchaser of
the option (in return for a premium paid) the right to buy, and the writer of
the option (in return for a premium received) the obligation to sell, the
underlying security at the exercise price at any time prior to the expiration of
the option, regardless of the market price of the security during the option
period. A call option on a security is covered, for example, when the writer of
the call option owns the security on which the option is written (or on a
security convertible into such a security without additional consideration)
throughout the option period.
A Portfolio will write covered call options both to reduce the risks associated
with certain of its investments and to increase total investment return through
the receipt of premiums. In return for the premium income, the Portfolio will
give up the opportunity to profit from an increase in the market price of the
underlying security above the exercise price so long as its obligations under
the contract continue, except insofar as the premium represents a profit.
Moreover, in writing the call option, a Portfolio will retain the risk of loss
should the price of the security decline. The premium is intended to offset that
loss in whole or in part. Unlike the situation in which a Portfolio owns
securities not subject to a call option, a Portfolio, in writing call options,
must assume that the call may be exercised at any time prior to the expiration
of its obligation as a writer, and that in such circumstances the net proceeds
realized from the sale of the underlying securities pursuant to the call may be
substantially below the prevailing market price.
A Portfolio may terminate its obligation under an option it has written by
buying an identical option. Such a transaction is called a "closing purchase
transaction." The Portfolio will realize a gain or loss from a closing purchase
transaction if the amount paid to purchase a call option is less or more than
the amount received from the sale of the corresponding call option. Also,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the exercise or closing out of a call option is likely to be offset in
whole or part by unrealized appreciation of the underlying security owned by the
Portfolio. When an underlying security is sold from the Portfolio's securities
portfolio, the Portfolio will effect a closing purchase transaction so as to
close out any existing covered call option on that underlying security.
WRITING PUT OPTIONS. The writer of a put option becomes obligated to purchase
the underlying security at a specified price during the option period if the
buyer elects to exercise the option before its expiration date. A Portfolio when
it writes a put option will be required to "cover" it, for example, by
depositing and maintaining in a segregated account with its custodian cash, or
other liquid obligations having a value equal to or greater than the exercise
price of the option.
A Portfolio may write put options either to earn additional income in the form
of option premiums (anticipating that the price of the underlying security will
remain stable or rise during the option period and the option will therefore not
be exercised) or to acquire the underlying security at a net cost below the
current value (e.g., the option is exercised because of a decline in the price
of the underlying security, but the amount paid by the Portfolio, offset by the
option
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premium, is less than the current price). The risk of either strategy is that
the price of the underlying security may decline by an amount greater than the
premium received. The premium which the Portfolio receives from writing a put
option will reflect, among other things, the current market price of the
underlying security, the relationship of the exercise price to that market
price, the historical price volatility of the underlying security, the option
period, supply and demand and interest rates.
A Portfolio may effect a closing purchase transaction to realize a profit on an
outstanding put option or to prevent an outstanding put option from being
exercised.
PURCHASING PUT AND CALL OPTIONS. A Portfolio may purchase put options on
securities to protect its holdings against a substantial decline in market
value. The purchase of put options on securities will enable the Portfolio to
preserve, at least partially, unrealized gains in an appreciated security in its
portfolio without actually selling the security. In addition, a Portfolio will
continue to receive interest or dividend income on the security. A Portfolio may
also purchase call options on securities to protect against substantial
increases in prices of securities that the Portfolio intends to purchase pending
its ability to invest in an orderly manner in those securities. A Portfolio may
sell put or call options it has previously purchased, which could result in a
net gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction cost paid on the put or call option
which was bought.
SECURITIES INDEX OPTIONS. A Portfolio may write covered put and call options and
purchase call and put options on securities indexes for the purpose of hedging
against the risk of unfavorable price movements adversely affecting the value of
the Portfolio's securities or securities it intends to purchase. A Portfolio
will only write "covered" options. A call option on a securities index is
considered covered, for example, if, so long as the Portfolio is obligated as
the writer of the call, it holds securities the price changes of which are, in
the opinion of the Adviser, expected to replicate substantially the movement of
the index or indexes upon which the options written by the Portfolio are based.
A put on a securities index written by the Portfolio will be considered covered
if, so long as it is obligated as the writer of the put, the Portfolio
segregates with its custodian cash or other liquid obligations having a value
equal to or greater than the exercise price of the option. Unlike a stock
option, which gives the holder the right to purchase or sell a specified stock
at a specified price, an option on a securities index gives the holder the right
to receive a cash "exercise settlement amount" equal to (i) the difference
between the exercise price of the option and the value of the underlying stock
index on the exercise date, multiplied by (ii) a fixed "index multiplier."
A securities index fluctuates with changes in the market value of the securities
so included. For example, some securities index options are based on a broad
market index such as the S&P 500 or the NYSE Composite Index, or a narrower
market index such as the S&P 100. Indexes may also be based on an industry or
market segment such as the AMEX Oil and Gas Index or the Computer and Business
Equipment Index.
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OVER-THE-COUNTER OPTIONS. A Portfolio may enter into contracts with primary
dealers with whom it may write over-the-counter options. Such contracts will
provide that the Portfolio has the absolute right to repurchase an option it
writes at any time at a repurchase price which represents the fair market value,
as determined in good faith through negotiation between the parties, but which
in no event will exceed a price determined pursuant to a formula contained in
the contract. Although the specific details of the formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by the Portfolio for writing the option, plus
the amount, if any, of the option's intrinsic value (i.e., the amount the option
is "in-the-money"). The formula will also include a factor to account for the
difference between the price of the security and the strike price of the option
if the option is written "out-of-the-money." A Portfolio has established
standards of creditworthiness for these primary dealers, although the Portfolio
may still be subject to the risk that firms participating in such transactions
will fail to meet their obligations. In instances in which a Portfolio has
entered into agreements with respect to the over-the-counter options it has
written, and such agreements would enable the Portfolio to have an absolute
right to repurchase at a pre-established formula price the over-the-counter
option written by it, the Portfolio would treat as illiquid only securities
equal in amount to the formula price described above less the amount by which
the option is "in-the-money," i.e., the amount by which the price of the option
exceeds the exercise price.
For information concerning the risks associated with utilizing options and
futures contracts, please see "Risks of Transactions in Futures Contracts and
Options" below.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS
FUTURES. The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in the market and interest
rates, which in turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
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
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purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, if the futures contract were
closed out. Thus, a purchase or sale of a futures contract may result in losses
in excess of the amount invested in the futures contract.
A decision of whether, when, and how to hedge involves skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior, market trends or interest rate trends. There are
several risks in connection with the use by a Portfolio of futures contracts as
a hedging device. One risk arises because of the imperfect correlation between
movements in the prices of the futures contracts and movements in the prices of
the underlying instruments which are the subject of the hedge. The Advisers
will, however, attempt to reduce this risk by entering into futures contracts
whose movements, in its judgment, will have a significant correlation with
movements in the prices of the Portfolio's underlying instruments sought to be
hedged.
Successful use of futures contracts by a Portfolio for hedging purposes is also
subject to the Adviser's ability to correctly predict movements in the direction
of the market. It is possible that, when the Portfolio has sold futures to hedge
its portfolio against a decline in the market, the index, indices, or
instruments underlying futures might advance and the value of the underlying
instruments held in the Portfolio's portfolio might decline. If this were to
occur, the Portfolio would lose money on the futures and also would experience a
decline in value in its underlying instruments.
Positions in futures contracts may be closed out only on an exchange or a board
of trade which provides the market for such futures. Although each Portfolio
intends to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active market, there is no guarantee that such will exist
for any particular contract or at any particular time. If there is not a liquid
market at a particular time, it may not be possible to close a futures position
at such time, and, in the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin.
However, in the event futures positions are used to hedge portfolio securities,
the securities will not be sold until the futures positions can be liquidated.
In such circumstances, an increase in the price of securities, if any, may
partially or completely offset losses on the futures contracts.
OPTIONS. A closing purchase transaction for exchange-traded options may be made
only on a national securities exchange (exchange). There is no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time, and for some 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.
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Options traded in the over-the-counter market may not be as actively traded as
those on an exchange. Accordingly, it may be more difficult to value such
options. In addition, it may be difficult to enter into closing transactions
with respect to options traded over-the-counter. A Portfolio will engage in such
transactions only with firms of sufficient credit so as to minimize these risks.
Such options and the securities used as "cover" for such options may be
considered illiquid securities.
The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the selected
securities index. Perfect correlation is not possible because the securities
held or to be acquired by the Portfolio will not exactly match the composition
of the securities indexes on which options are written. In the purchase of
securities index options the principal risk is that the premium and transaction
costs paid by a Portfolio in purchasing an option will be lost if the changes
(increase in the case of a call, decrease in the case of a put) in the level of
the index do not exceed the cost of the option.
INVESTMENT COMPANY SHARES
The Portfolios may invest in shares of other investment companies (such as
Standard & Poor's Depository Receipts - "SPDRs"). Because such funds pay
management fees and other expenses, shareholders of a Portfolio would indirectly
pay both the Portfolio's expenses and the expenses of underlying funds with
respect to the Portfolio's assets invested therein. Applicable regulations
prohibit a Portfolio from acquiring the securities of other investment companies
that are "not part of the same group of investment companies" if, as a result of
such acquisition, the Portfolio owns more than 3% of the total voting stock of
the company; more than 5% of the Portfolio's total assets are invested in
securities of any one investment company; or more than 10% of the total assets
of the Portfolio are invested in securities (other than treasury stock) issued
by all investment companies.
ILLIQUID INVESTMENTS
Illiquid investments are investments that cannot be sold or disposed of in the
ordinary course of business within seven (7) days at approximately the prices at
which they are valued. Under the supervision of the Board of Directors, the
Advisers determine the liquidity of the Company's investments and, through
reports from the Advisers, the Board monitors investments in illiquid
instruments. In determining the liquidity of a Portfolio's investments, the
Advisers may consider various factors including (1) the frequency of trades and
quotations, (2) the number of dealers and prospective purchasers in the
marketplace, (3) dealer undertakings to make a market, (4) the nature of the
security (including any demand or tender features), and (5) the nature of the
market place for trades (including the ability to assign or offset a Portfolio's
rights and obligations relating to the investment). Investments currently
considered by a Portfolio to be illiquid include repurchase agreements not
entitling the holder to payment of principal and interest within seven (7) days,
over the-counter options, and non-government stripped fixed-rate mortgage backed
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securities. Also, the Advisers may determine some government-stripped fixed-rate
mortgage backed securities, loans and other direct debt instruments, and swap
agreements to be illiquid. However, with respect to over-the-counter options a
Portfolio writes, all or a portion of the value of the underlying instrument may
be illiquid depending on the assets held to cover the option and the nature and
terms of any agreement a Portfolio may have to close out the option before
expiration. In the absence of market quotations, illiquid investments are priced
at fair value as determined in good faith by a committee appointed by the Board
of Directors. If, through a change in values, net assets or other circumstances,
a Portfolio was in a position where more than 15% of its net assets were
invested in illiquid securities, it would seek to take appropriate steps to
protect liquidity.
RESTRICTED SECURITIES
Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is required,
a Portfolio may be obligated to pay all or part of the registration expense and
a considerable period may elapse between the time it decides to seek
registration and the time a Portfolio may be permitted to sell a security under
an effective registration statement. If, during such a period, adverse market
conditions were to develop, a Portfolio might obtain a less favorable price than
prevailed when it decided to seek registration of the security.
FOREIGN CURRENCY TRANSACTIONS
A Portfolio may hold foreign currency deposits from time to time, and may
convert dollars and foreign currencies in the foreign exchange markets. Currency
conversion involves dealer spreads and other costs, although commissions usually
are not charged. Currencies may be exchanged on a spot (i.e., cash) basis, or by
entering into forward contracts to purchase or sell foreign currencies at a
future date and price. Forward contracts generally are traded in an interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. The parties to a forward contract may agree to
offset or terminate the contract before maturity, or may hold the contract to
maturity and complete the contemplated currency exchange.
A Portfolio may use currency forward contracts to manage currency risks and to
facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by the Portfolios.
In connection with purchases and sales of securities denominated in foreign
currencies, a Portfolio may enter into currency forward contracts to fix a
definite price for the purchase or sale in advance of the trade's settlement
date. This technique is sometimes referred to as a "settlement hedge" or
"transaction hedge." The Advisers expect to enter into settlement hedges in the
normal course of managing the Portfolio's foreign investments. A Portfolio could
also enter into forward contracts to purchase or sell a foreign currency in
anticipation of future purchases or sales of securities denominated in foreign
currency, even if the specific investments have not yet been
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selected by the Advisers.
A Portfolio may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example, if a
Portfolio owned securities denominated in pounds sterling, it could enter into a
forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge, sometimes referred
to as a "position hedge," would tend to offset both positive and negative
currency fluctuations, but would not offset changes in security values caused by
other factors. A Portfolio could also hedge the position by selling another
currency expected to perform similarly to the pound sterling - for example, by
entering into a forward contract to sell Deutschemarks or European Currency
Units in return for U.S. dollars. This type of hedge, sometimes referred to as a
"proxy hedge," could offer advantages in terms of cost, yield, or efficiency,
but generally would not hedge currency exposure as effectively as a simple hedge
into U.S. dollars. Proxy hedges may result in losses if the currency used to
hedge does not perform similarly to the currency in which the hedged securities
are denominated.
Under certain conditions, SEC guidelines require mutual funds to set aside
appropriate liquid assets in a segregated custodial account to cover currency
forward contracts. As required by SEC guidelines, each Portfolio will segregate
assets to cover currency forward contracts, if any, whose purpose is essentially
speculative. A Portfolio will not segregate assets to cover forward contracts
entered into for hedging purposes, including settlement hedges, position hedges,
and proxy hedges.
Successful use of forward currency contracts will depend on the Advisers' skill
in analyzing and predicting currency values. Forward contracts may substantially
change a Portfolio's investment exposure to changes in currency exchange rates,
and could result in losses to a Portfolio if currencies do not perform as the
Advisers anticipate. For example, if a currency's value rose at a time when the
Advisers had hedged a Portfolio by selling that currency in exchange for
dollars, a Portfolio would be unable to participate in the currency's
appreciation. If the Advisers hedge currency exposure through proxy hedges, a
Portfolio could realize currency losses from the hedge and the security position
at the same time if the two currencies do not move in tandem. Similarly, if the
Advisers increase a Portfolio's exposure to a foreign currency, and that
currency's value declines, a Portfolio will realize a loss. There is no
assurance that the Advisers' use of forward currency contracts will be
advantageous to a Portfolio or that it will hedge at an appropriate time.
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"
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facilities. A sponsored facility is established jointly by the issuer of the
security underlying the receipt and a depositary, whereas an unsponsored
facility may be established by a depositary without participation by the issuer
of the receipt's underlying security. Holders of an unsponsored depositary
receipt generally bear all the costs of the unsponsored facility. The depositary
of an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security or
to pass through to the holders of the receipts voting rights with respect to the
deposited securities.
BANKERS' ACCEPTANCE
A bill of exchange or time draft drawn on and accepted by a commercial bank. It
is used by corporations to finance the shipment and storage of goods and to
furnish dollar exchange. Maturities are generally six months or less.
CERTIFICATE OF DEPOSIT
A negotiable interest bearing instrument with a specific maturity. Certificates
of deposit are issued by banks and savings and loan institutions in exchange for
the deposit of funds and normally can be traded in the secondary market prior to
maturity. Certificates of deposit generally carry penalties for early
withdrawal.
COMMERCIAL PAPER
The term used to designate unsecured short-term promissory notes issued by
corporations and other entities. Maturities on these issues typically vary from
a few days to nine months.
CONVERTIBLE SECURITIES
Securities such as rights, bonds, notes and preferred stocks which are
convertible into or exchangeable for common stocks. Convertible securities have
characteristics similar to both fixed income and equity securities. Because of
the conversion feature, the market value of convertible securities tends to move
together with the market value of the underlying common stock. As a result, a
Portfolio's selection of convertible securities is based, to a great extent, on
the potential for capital appreciation that may exist in the underlying stock.
The value of convertible securities is also affected by prevailing interest
rates, the credit quality of the issuer, and any call provisions.
DEMAND INSTRUMENTS
Certain instruments may involve a conditional or unconditional demand feature
which permits the holder to demand payment of the principal amount of the
instrument. Demand instruments may include variable amount master demand notes.
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MORTGAGE-BACKED SECURITIES
Securities that include interests in pools of lower-rated debt securities, or
consumer loans or mortgages, or complex instruments such as collateralized
mortgage obligations and stripped mortgage-backed securities. The value of these
securities may be significantly affected by changes in interest rates, the
market's perception of the issuers, and the creditworthiness of the parties
involved. Some securities may have a structure that makes their reaction to
interest rates and other factors difficult to predict, making their value highly
volatile. These securities may also be subject to prepayment risk.
RECEIPTS
Separately traded interest and principal component parts of U.S. Treasury
obligations that are issued by banks or brokerage firms and are created by
depositing U.S. Treasury obligations into a special account at a custodian bank.
The custodian bank holds the interest and principal payments for the benefit of
the registered owners of the receipts. The custodian bank arranges for the
issuance of the receipts evidencing ownership and maintains the register.
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
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component parts of such obligations that are transferable through the Federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ("STRIPS"). Under the STRIPS program, a Portfolio will be able to
have its beneficial ownership of securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidences
of ownership of the underlying U.S. Treasury securities. When U.S. Treasury
obligations have been stripped of their unmatured interest coupons by the
holder, the stripped coupons are sold separately or grouped with other coupons
with like maturity dates and sold in such bundled form. The principal or corpus
is sold at a deep discount because the buyer receives only the right to receive
a future fixed payment on the security and does not receive any rights to
periodic interest (cash) payments. Purchasers of stripped obligations acquire,
in effect, discount obligations that are economically identical to the
securities that the Treasury sells itself. Other facilities are available to
facilitate the transfer of ownership of non-Treasury securities by accounting
separately for the beneficial ownership of particular interest coupon and corpus
payments on such securities through a book-entry record-keeping system.
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain of the obligations purchased by a Portfolio may carry variable or
floating rates of interest, may involve a conditional or unconditional demand
feature and may include variable amount master demand notes. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index.
The interest rates on these securities may be reset daily, weekly, quarterly or
some other reset period, and may have a floor or ceiling on interest rate
changes. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates. A demand instrument with
a demand notice exceeding seven days may be considered illiquid if there is no
secondary market for such securities.
WARRANTS
Instruments giving holders the right, but not the obligation, to buy shares of a
company at a given price during a specified period.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
When-issued and delayed-delivery securities are securities subject to settlement
on a future date. For fixed income securities, the interest rate realized on
when-issued or delayed-delivery securities is fixed as of the purchase date and
no interest accrues to a Portfolio before settlement. These securities are
subject to market fluctuation due to changes in market interest rates and will
have the effect of leveraging a Portfolio's assets. The Portfolios are permitted
to invest in forward commitments or when-issued securities where such purchases
are for investment and not for leveraging purposes. One or more segregated
accounts will be established with the Custodian, and the Portfolios will
maintain liquid assets in such accounts in an amount at least
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equal in value to each Portfolio's commitments to purchase when-issued
securities.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
Each 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.
No Portfolio may:
1. Make loans, except that each Portfolio, in accordance with that Portfolio's
investment objectives and policies, may (i) purchase debt instruments, and (ii)
enter into repurchase agreements. In addition, the PBHG Mid-Cap Value Portfolio
may lend its portfolio securities in an amount not exceeding one-third the value
of its total assets.
2. Act as an underwriter of securities of other issuers, except as it may be
deemed an underwriter under the 1933 Act in connection with the purchase and
sale of portfolio securities.
3. Purchase or sell commodities or commodity contracts, except that a Portfolio,
in accordance with its investment objective and policies may: (i) invest in
readily marketable securities of issuers which invest or engage in such
activities; and (ii) enter into forward contracts, futures contracts and options
thereon.
4. Purchase or sell real estate, or real estate partnership interests, except
that this limitation shall not prevent a Portfolio from investing directly or
indirectly in readily marketable securities of issuers which can invest in real
estate, institutions that issue mortgages, or real estate investment trusts
which deal with real estate or interests therein.
5. Issue senior securities (as defined in the 1940 Act), except as permitted in
connection with the Portfolio's policies on borrowing and pledging, or as
permitted by rule, regulation or order of the SEC.
6. Purchase more than 10% of the voting securities of any one issuer or purchase
securities of any one issuer if, at the time of purchase, more than 5% of its
total assets will be invested in that issuer, except with respect to each
Portfolio, up to 25% of its assets may be invested without regard to these
limits.
This limitation does not apply to the Select 20 Portfolio or the Technology &
Communications
15
<PAGE>
Portfolio. In addition, for purposes of this investment limitation, the term
"issuer" does not include obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and repurchase agreements
collateralized by such obligations.
7. Invest 25% or more of its total assets at the time of purchase in securities
of one or more issuers (other than obligations issued or guaranteed by the U.S.
Government or its agencies and instrumentalities and repurchase agreements
collateralized by such obligations) whose principal business activities are in
the same industry. For purposes of this limitation, supranational organizations
are deemed to be issuers conducting their principal business activities in the
same industry; state and municipal governments and their agencies and
authorities are not deemed to be industries, utility companies will be divided
according to their services (e.g., gas, gas transmission, electric, electric and
gas and telephone) and financial service companies will be classified according
to the end use of their service (e.g., automobile finance, bank finance and
diversified finance).
This limitation does not apply to the Technology & Communications Portfolio.
8. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of the Portfolio's total assets (except
not exceeding 33 1/3% of the value of total assets with respect to the Growth
II, Mid-Cap Value, and Small Cap Value Portfolios). This borrowing provision is
intended to facilitate the orderly sale of portfolio securities to accommodate
substantial redemption requests if they should occur, and is not for investment
purposes. All borrowings in excess of 5% of the Portfolio's total assets will be
repaid before making investments.
9. Invest in companies for the purpose of exercising control.
10. Pledge, mortgage or hypothecate assets, except (i) to secure temporary
borrowings permitted by each Portfolio's limitation on permitted borrowings, or
(ii) in connection with permitted transactions regarding options and futures
contracts.
11. Make short sales of securities, maintain a short position or purchase
securities on margin, except that each Portfolio may (i) obtain short-term
credits as necessary for the clearance of security transactions and (ii)
establish margin accounts as may be necessary in connection with the Portfolio's
use of options and futures contracts.
12. Purchase securities of other investment companies except as permitted by the
1940 Act and the rules and regulations thereunder.
13. Invest in interests in oil, gas or other mineral exploration or development
programs.
The foregoing percentages will apply at the time of the purchase of a security.
16
<PAGE>
NON-FUNDAMENTAL POLICIES
In addition to the foregoing, each Portfolio has adopted additional investment
restrictions which may be amended by the Board of Directors without a vote of
shareholders.
Each Portfolio may not:
1. Invest in illiquid securities in an amount exceeding, in the aggregate, 15%
of its net assets. This limitation does not include any Rule 144A restricted
security that has been determined by, or pursuant to procedures established by,
the Board, based on trading markets for such security, to be liquid.
2. Purchase or sell puts, calls, straddles, spreads, and any combination
thereof, if by reason thereof, the value of its aggregate investment in such
classes of securities will exceed 5% of its total assets.
TEMPORARY DEFENSIVE POSITIONS
Under normal market conditions, each Portfolio expects to be fully invested in
its primary investments. However, for temporary defensive purposes, when the
Adviser or Sub-Adviser, as appropriate, determines that market conditions
warrant, each Portfolio may invest up to 100% of its assets in cash and money
market instruments (consisting of securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; certificates of deposit, time
deposits and bankers' acceptances issued by banks or savings and loan
associations having net assets of at least $500 million as stated on their most
recently published financial statements; commercial paper rated in one of the
two highest rating categories by at least one NRSRO; repurchase agreements
involving such securities; and, to the extent permitted by applicable law and
each Portfolio's investment restrictions, shares of other investment companies
investing solely in money market securities). To the extent a Portfolio is
invested in temporary defensive instruments, it will not be pursuing its
investment objective.
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.
17
<PAGE>
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.
The Large Cap Growth, Select Value, Mid-Cap Value and Select 20 Portfolios
experienced significantly higher turnover rates in 1999 as compared to 1998.
This increase in turnover occurred primarily for two reasons: (1) each
Portfolio experienced a portfolio manager change which caused a re-evaluation
and re-balancing of the Portfolios, and (2) dynamic market conditions coupled
with increased cash flows led to increased buying opportunities, especially in
the technology sector. If such dynamic market conditions continue in 2000, the
turnover rates for each Portfolio may remain high.
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 Group, Inc. (manufacturing) since 1992.
200, Wayne, PA 19087
(55)
- -------------------------------------------------------------------------------------------------------------------
Harold J. Baxter*, Chairman of the Chairman, Chief Executive Officer and Director, the
825 Duportail Road, Wayne, PA Board and Adviser since 1982. Trustee, the Administrator since
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 Provident Investment Counsel Trust (investment company)
Barbara, California 93108, since 1992. Trustee, EQ Advisors Trust (investment
(53) company) since 1997.
</TABLE>
18
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Albert A. Miller, Director Principal and Treasurer, JK Equipment Exporters since
7 Jennifer Drive, Holmdel, 1995. Senior Vice President, Cherry & Webb, CWT
New 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 Adviser since 1982. Trustee, the Administrator since
19087, May 1996. President and Director, Value Investors
(59) 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, Chief Director of Mutual Fund Operations, the Adviser since
825 Duportail Road, Wayne, PA Financial 1996. Treasurer, the Administrator since May 1996.
19087, Officer, President, the Distributor since December 1998.
(36) Controller Investment Accounting Officer, Delaware Group of Funds,
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, the Sub-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.
21
<PAGE>
5% AND 25% SHAREHOLDERS
As of December 31, 1999, the following persons were the only persons who were
record owners of 5% or more of the shares of the Portfolios. 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.
PBHG Growth II Portfolio
Life Insurance Co. of Virginia 18.67%
6610 W. Broad Street
Richmond, VA 23230-1799
Empire Fidelity Investments 7.03%
Live Insurance Co.
200 Liberty St
One Financial Center
New York, NY 10005-3500
Fidelity Investments 70.00%
Life Insurance Co.
82 Devonshire Street R25B
Boston, MA 02109-3614
PBHG Large Cap Growth Portfolio
Life Insurance Co. of Virginia 87.19%
6610 W. Broad Street
Richmond, VA 23230-1799
Annuity Investors Life Insurance Co. 12.42%
250 E. Fifth Street
Cincinnati, OH 45202-4119
22
<PAGE>
PBHG Small Cap Value Portfolio
Fidelity Investments 95.16%
Life Insurance Co.
82 Devonshire Street R25B
Boston, MA 02109-3614
PBHG Mid-Cap Value Portfolio
Pilgrim Baxter & Associates, Ltd. 99.98%
825 Duportail Road
Wayne, PA 19087
PBHG Select Value Portfolio
Empire Fidelity Investments 9.07%
Live Insurance Co.
200 Liberty St
One Financial Center
New York, NY 10005-3500
Fidelity Investments 90.86%
Life Insurance Co.
82 Devonshire Street R25B
Boston, MA 02109-3614
PBHG Technology & Communications Portfolio
Empire Fidelity Investments 9.53%
Life Insurance Co.
200 Liberty Street
One Financial Center
New York, NY 10281-1003
Fidelity Investments 87.38%
Life Insurance Co.
82 Devonshire Street R25B
Boston, MA 02109-3614
PBHG Select 20 Portfolio
Empire Fidelity Investments 9.49%
Life Insurance Co.
200 Liberty Street
One Financial Center
New York, NY 10281-1003
23
<PAGE>
Fidelity Investments 89.93%
Life Insurance Co.
82 Devonshire Street R25B
Boston, MA 02109-3614
24
<PAGE>
THE ADVISER
The Company and Pilgrim Baxter & Associates, Ltd. (the "Adviser") have entered
into an advisory agreement (the "Advisory Agreement"). The Advisory Agreement
provides certain limitations on the Adviser's liability, but also provides that
the Adviser shall not be protected against any liability to the Company or each
of its Portfolios or its shareholders by reason of willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard of its obligations or duties thereunder.
The 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. PBHG Fund Services, the Company's Administrator, is a
wholly owned subsidiary of the Adviser (See "The Administrator" for more detail
on PBHG Fund Services). 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 $23 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 each Portfolio; and (3) place orders to purchase and sell
securities for each Portfolio, subject to the supervision of the Board of
Directors. The Advisory Agreement requires the Adviser to pay its overhead and
employee costs and the compensation and expenses of all its partners, officers
and employees who serve as officers and executive employees of the 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 each Portfolio after
the first two years must be specifically approved at least annually (i) by the
Company's Board of Directors or by vote of a majority of the outstanding voting
securities of such Portfolio and (ii) by the affirmative vote of a majority of
the Directors who are not parties to the agreement or interested persons of any
such party by votes cast in person at a meeting called for such purpose. The
Advisory Agreement with respect to each Portfolio may be terminated (i) at any
time without penalty by the Company upon the vote of a majority of the Directors
or by vote of the majority of the outstanding voting securities of such
Portfolio upon sixty (60) days' written notice to the Adviser or (ii) by the
Adviser at any time without penalty upon sixty (60) days' written notice to the
Company. The Advisory Agreement will also terminate automatically in the event
of its
25
<PAGE>
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 1.00% of the Small Cap Value Portfolio's
average daily net assets, 0.85% of each of the Growth II, Technology &
Communications, Mid-Cap Value, and Select 20 Portfolios' average daily net
assets, 0.75% of the Large Cap Growth Portfolio's average daily net assets, and
0.65% of the Select Value Portfolio's average daily net assets. The advisory
fees paid by each Portfolio are higher than those paid by most investment
companies, although the Adviser believes the fees to be comparable to those paid
by investment companies with similar investment objectives and policies.
In the interest of limiting expenses of the Portfolios, the Adviser has entered
into an expense limitation agreement through December 31, 2000 with the Company
with respect to each Portfolio (the "Expense Limitation Agreement"), pursuant to
which the Adviser has agreed to waive or limit its fees and to assume other
expenses of the Portfolios to the extent necessary to limit the total annual
operating expenses (expressed as a percentage of each Portfolio's average daily
net assets) to not more than: 1.20% of the average daily net assets of the
Growth II, Small Cap Value, Mid-Cap Value, Technology & Communications and
Select 20 Portfolios; 1.10% of the average daily net assets of the Large Cap
Growth Portfolio; and 1.00% of the average daily net assets of the Select Value
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 a
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 that Portfolio's behalf during the previous two fiscal years. For fiscal year
end 1999, the Board elected to reimburse three funds for previously waived fees
and reimbursed expenses. The PBHG Growth II Portfolio was reimbursed $31,616,
the PBHG Technology & Communications Portfolio was reimbursed $96,603, and the
Select 20 Portfolio was reimbursed $27,776.
For the fiscal years ended December 31, 1997, 1998 and 1999, the Portfolios paid
and the Adviser waived the following advisory fees:
26
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================
Fees Paid Fees Waived
Portfolio
----------------------------------------------------------------------------------
1997 1998 1999 1997 1998 1999
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth II Portfolio(1) $22,720 $123,820 $420,736 $84,484 $50,092 $0
- --------------------------------------------------------------------------------------------------------------
Large Cap Growth
Portfolio(1) $9,625 $62,267 $114,971 $52,349 $35,647 $10,085
- --------------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio(2) $5,577 $303,666 $415,589 $13,575 $78,573 $38,777
- --------------------------------------------------------------------------------------------------------------
*
Mid-Cap Value Portfolio(4) $362 $5,102 * $362 $27,773**
- --------------------------------------------------------------------------------------------------------------
Select Value Portfolio(2) $972 $51,341 $256,577 $10,521 $36,853 $0
- --------------------------------------------------------------------------------------------------------------
Technology &
Communications Portfolio(1) $6,824 $147,084 $3,374,963 $31,235 $62,368 $0
- --------------------------------------------------------------------------------------------------------------
Select 20 Portfolio(3) $5,406 $972,158 $3,673,475 $13,964 $13,812 $0
==============================================================================================================
</TABLE>
Not in operation during the period.
** Includes $5,102 in waived fees and $22,671 in reimbursed expenses.
(1) The period 1997 is calculated from May 1, 1997 (commencement of operations)
through December 31, 1997.
(2) The period 1997 is calculated from October 29, 1997 (commencement of
operations) through December 31, 1997.
(3) The period 1997 is calculated from September 26, 1997 (commencement of
operations) through December 31, 1997.
(4) The 1998 period is calculated from November 30, 1998 (commencement of
operations) through December 31, 1998.
THE SUB-ADVISER
The Company, on behalf of the Small Cap Value, Mid-Cap Value, and Select Value
Portfolios, and the Adviser have entered into a sub-advisory agreement (the
"Sub-Advisory Agreement") with Pilgrim Baxter Value Investors, Inc. (the
"Sub-Adviser"). The Sub-Advisory Agreement provides certain limitations on the
Sub-Adviser's liability, but also provides that the Sub-Adviser shall not be
protected against any liability to the Fund or its shareholders by reason of
willful
27
<PAGE>
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard of its obligations or duties thereunder.
The Sub-Advisory Agreement obligates the Sub-Adviser to: (1) manage the
investment operations of the Small Cap Value, Mid-Cap Value, and Select Value
Portfolios and the composition of these Portfolios' investment portfolios,
including the purchase, retention and disposition thereof in accordance with
these Portfolios' investment objectives, policies and limitations; (2) provide
supervision of the Small Cap Value, Mid-Cap Value, and Select Value Portfolios'
investments and to determine from time to time what investments and securities
will be purchased, retained or sold by these Portfolios and what portion of the
assets will be invested or held uninvested in cash; and (3) determine the
securities to be purchased or sold by the Small Cap Value, Mid-Cap Value, and
Select Value Portfolios and place orders with or through such persons, brokers
or dealers to carry out the policy with respect to brokerage set forth in the
Prospectus or as the Board of Directors or the Adviser may direct from time to
time, in conformity with federal securities laws.
The continuance of the Sub-Advisory Agreement with respect to the Small Cap
Value, Mid-Cap Value, and Select Value Portfolios, respectively, after the first
two years must be specifically approved at least annually (i) by the Company's
Board of Directors or by vote of a majority of the outstanding voting securities
of such Portfolios and (ii) by the affirmative vote of a majority of the
Directors who are not parties to the agreement or interested persons of any such
party by votes cast in person at a meeting called for such purpose. The
Sub-Advisory Agreement with respect to the Small Cap Value, Mid-Cap Value, and
Select Value Portfolios may be terminated (i) by the Company, without the
payment of any penalty, by the vote of a majority of the Directors of the
Company or by the vote of a majority of the outstanding voting securities of a
Portfolio, (ii) by the Adviser at any time, without the payment of any penalty,
on not more than sixty (60) days' nor less than thirty (30) days' written notice
to the other parties, or (iii) by the Sub-Adviser at any time, without the
payment of any penalty, on ninety (90) days' written notice to the other
parties. The Sub-Advisory Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act).
For the services provided and expenses incurred pursuant to the Sub-Advisory
Agreement, the Sub-Adviser is entitled to receive from the Adviser a fee,
computed daily and paid monthly, at an annual rate equal to .65% of the Small
Cap Value Portfolio's average daily net assets, .50% of the Mid-Cap Value
Portfolio's average daily net assets, and .40% of the Select Value Portfolio's
average daily net assets.
28
<PAGE>
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 Pennsylvania
business trust and has its principal place of business at 825 Duportail Road,
Wayne, Pennsylvania 19087. Under the Administrative Agreement, the Administrator
is entitled to a fee from the Company, which is calculated daily and paid
monthly, at an annual rate of 0.15% of the average daily net assets of each
Portfolio of the Company. The Administrative Agreement provides that the
Administrator shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Company in connection with the matters to which the
Administrative Agreement relates, except a loss resulting from willful
misfeasance, bad faith or negligence on the part of the Administrator in the
performance of its duties. The Administrative Agreement shall 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 a Sub-Administrative Services Agreement (the
"Sub-Administrative Agreement") on April 1, 1997, as amended effective May 1,
1998, pursuant to which the Sub-Administrator assists the Administrator in
connection with the administration of the business and affairs of the Company.
SEI Investments Management Corporation ("SEI Investments"), which is a
wholly-owned subsidiary of SEI, owns all beneficial interest in the
Sub-Administrator. The Sub-Administrator was organized as a Delaware business
trust, and has its principal business offices at One Freedom Valley Road, Oaks,
Pennsylvania 19456. Under the Sub-Administrative Agreement, the Administrator
pays the Sub-Administrator fees at an annual rate based on the combined average
daily net assets of the Company and The PBHG Funds, Inc. calculated as follows:
(i) 0.040% of the first $2.5 billion, plus (ii) 0.025% of the next $7.5 billion,
plus (iii) 0.020% of the excess over $10 billion. The Sub-Administrative
Agreement provides that the Sub-Administrator shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Company in
connection with the matters to which the Sub-Administrative Agreement relates,
except a loss resulting from willful misfeasance, bad faith or negligence on
29
<PAGE>
the part of the Sub-Administrator in the performance of its duties. The
Sub-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.
For the fiscal years ended December 31, 1997, 1998 and 1999, the Portfolios paid
and the Administrator waived the following administration fees:
30
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Fees Paid Fees Waived
Portfolio
------------------------------------------------------------------------------------
1997 1998 1999 1997 1998 1999
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth II Portfolio(1) $4,009 $21,851 $68,668 $0 $0 $0
- ---------------------------------------------------------------------------------------------------------------------------
Large Cap Growth Portfolio(1) $1,925 $12,453 $22,994 $0 $0 $0
- ---------------------------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio(2) $837 $45,550 $62,338 $0 $0 $0
- ---------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Portfolio(4) * $64 $900 * $0 $391
- ---------------------------------------------------------------------------------------------------------------------------
Select Value Portfolio(2) $224 $11,848 $59,210 $0 $0 $0
- ---------------------------------------------------------------------------------------------------------------------------
Technology & Communications
Portfolio(1) $1,204 $25,956 $579,064 $0 $0 $0
- ---------------------------------------------------------------------------------------------------------------------------
Select 20 Portfolio(3) $954 $171,557 $643,359 $0 $0 $0
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not in operation during the period.
(1) The period 1997 is calculated from May 1, 1997 (commencement of operations)
through December 31, 1997.
(2) The period 1997 is calculated from October 29, 1997 (commencement of
operations) through December 31, 1997.
(3) The period 1997 is calculated from September 26, 1997 (commencement of
operations) through December 31, 1997.
(4) The 1998 period is calculated from November 30, 1998 (commencement of
operations) through December 31, 1998.
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. UAM Shareholder Service Center, Inc.
("UAM SSC"), an affiliate of the Adviser, provides services to the Company
pursuant to a sub-shareholder servicing agreement between PBHG Fund Services and
UAM SSC.
From time to time, the Company may pay amounts to third parties that provide
sub-transfer agency and other administrative services relating to the Company to
persons who beneficially own interests in the Company, such as participants in
Qualified Plans. These services may include, among other things, sub-accounting
services, answering inquiries relating to the Company, delivering, on behalf of
the Company, proxy statements, annual reports, updated
31
<PAGE>
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 (or Sub-Adviser, if applicable) is authorized to select brokers and
dealers to effect securities transactions for each Portfolio. The Adviser (or
Sub-Adviser, if applicable) 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 (or Sub-Adviser, if applicable) generally
seeks reasonably competitive spreads or commissions, the Company will not
necessarily be paying the lowest spread or commission available. The Adviser (or
Sub-Adviser, if applicable) seeks to select brokers or dealers that offer the
Portfolios best price and execution or other services which are of benefit to
the Portfolios. In the case of securities traded in the over-the-counter market,
the Adviser (or Sub-Adviser, if applicable) expects normally to seek to select
primary market makers.
The Adviser (or Sub-Adviser, if applicable) may, consistent with the interests
of the Portfolios, select brokers on the basis of the research services they
provide to the Adviser (or Sub-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 (or
Sub-Adviser, if applicable) will be in addition to and not in lieu of the
services required to be performed by the Adviser (or Sub-Adviser, if applicable)
under the Advisory Agreement and Sub-Advisory Agreement. If, in the judgment of
the Adviser (or Sub-Adviser, if applicable), the Portfolios or other accounts
managed by the Adviser (or Sub-Adviser, if applicable) will be benefited by
supplemental research services, the Advisers are authorized to pay brokerage
commissions to a broker furnishing such services which are in excess of
commissions which another broker may have charged for effecting the same
transaction. These research services include advice, either directly or through
publications or writings, as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing of analyses and
reports concerning issuers,
32
<PAGE>
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 (or Sub-Adviser, if applicable)
will not necessarily be reduced as a result of the receipt of such supplemental
information, and such services may not be used exclusively, or at all, with
respect to each Portfolio or account generating the brokerage, and there can be
no guarantee that the Adviser (or Sub-Adviser, if applicable) will find all of
such services of value in advising the Portfolios.
It is expected the Portfolios may execute brokerage or other agency transactions
through the Distributor, which is a registered broker-dealer, for a commission
in conformity with the 1940 Act, the Securities Exchange Act of 1934 and rules
promulgated by the SEC. Under these provisions, the Distributor is permitted to
receive and retain compensation for effecting portfolio transactions for the
Portfolios on an exchange if a written contract is in effect between the
Distributor and the Portfolio expressly permitting the Distributor to receive
and retain such compensation. These rules further require that commissions paid
to the Distributor by the Portfolios for exchange transactions not exceed "usual
and customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts which are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time." In addition, the Adviser (or Sub-Adviser, if applicable) may direct
commission business to one or more designated broker-dealers, including the
Distributor, in connection with such broker-dealer's payment of certain of the
Portfolios' or the Company's expenses. Because shares of the Portfolios are not
marketed through intermediary broker-dealers, it is not the Portfolios' practice
to allocate brokerage or effect principal transactions with broker-dealers on
the basis of sales of shares that may be made through such firms. However, the
Adviser (or Sub-Adviser, if applicable) may place orders for the purchase or
sale of portfolio securities with qualified broker-dealers who refer clients to
the Portfolios. The Directors, including those who are not "interested persons"
of the Company, have adopted procedures for evaluating the reasonableness of
commissions paid to the Distributor and will review these procedures
periodically.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc. and subject to seeking best execution and such other policies as
the Board of Directors may determine, the Adviser (or Sub-Adviser, if
applicable) 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.
During 1999, the PBHG Select Value, Mid-Cap Value, Large Cap Growth, Technology
& Communications and Select 20 Portfolios each bought and sold securities of
their regular broker-dealers. As of December 31, 1999, none of the
aforementioned Portfolios held any positions in such broker dealers.
For the fiscal years ended December 31, 1997, 1998 and 1999, the Portfolios paid
brokerage fees as follows:
<TABLE>
<CAPTION>
=========================================================================================================
Total Amount of Total Amount of Total Amount of
Brokerage Brokerage Brokerage
Commissions Paid Commissions Paid in Commissions Paid
in 1997 1998 in 1999**
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth II Portfolio(1) $5,282 $44,358 $149,806
---------------------------------------------------------------------------------------------------------
Large Cap Growth Portfolio(1) $5,204 $9,233 $30,973
---------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio(2) $10,608 $279,584 $344,448
---------------------------------------------------------------------------------------------------------
Mid-Cap Value Portfolio(4) * $1,203 $13,117
---------------------------------------------------------------------------------------------------------
Select Value Portfolio(2) $2,778 $123,126 $782,818
---------------------------------------------------------------------------------------------------------
Technology & Communications Portfolio(1) $2,630 $43,420 $807,508
---------------------------------------------------------------------------------------------------------
Select 20 Portfolio(3) $4,599 $201,009 $553,865
=========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=======================================================================================
Percent of aggregate
amount of
Percent of Total transactions
Amount of Brokerage involving payment of
Commissions Paid to commissions to the
the Distributor in Distributor in
1999 1999(5)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Growth II Portfolio(1) 2 63
- ---------------------------------------------------------------------------------------
Large Cap Growth Portfolio(1) 3 75
- ---------------------------------------------------------------------------------------
Small Cap Value Portfolio(2) 0 56
- ---------------------------------------------------------------------------------------
Mid-Cap Value Portfolio(4) 0 67
- ---------------------------------------------------------------------------------------
Select Value Portfolio(2) 0 87
- ---------------------------------------------------------------------------------------
Technology & Communications Portfolio(1) 2 45
- ---------------------------------------------------------------------------------------
Select 20 Portfolio(3) 4 38
=======================================================================================
</TABLE>
Not in operation during the period.
** Each of the Portfolios paid higher brokerage commissions in 1999 than in
prior periods. The increase was due primarily to a significant increase in
the asset levels of certain Portfolios as well as increased portfolio
turnover as described in the Portfolio Turnover section of this SAI.
(1) The period 1997 is calculated from May 1, 1997 (commencement of operations)
through December 31, 1997.
(2) The period 1997 is calculated from October 29, 1997 (commencement of
operations) through December 31, 1997.
34
<PAGE>
(3) The period 1997 is calculated from September 26, 1997 (commencement of
operations) through December 31, 1997.
(4) The 1998 period is calculated from November 30, 1998 (commencement of
operations) through December 31, 1998.
(5) Each day, the Distributor acts as the Portfolios' agent in effecting
repurchase agreement transactions using the Portfolios' uninvested short
term cash. The Distributor receives a fee for this service.
DESCRIPTION OF SHARES
The Company is authorized to issue 500,000,000 shares of each Portfolio and to
create additional portfolios of the Company. Each share of a Portfolio
represents an equal proportionate interest in that Portfolio with each other
share. Shares are entitled upon liquidation to a pro rata share in the net
assets of the Portfolio available for distribution to shareholders. All
consideration received by the Company for shares of any Portfolio and all assets
in which such consideration is invested would belong to that Portfolio and would
be subject to the liabilities related thereto.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote. Shareholders of
each Portfolio will vote separately on matters relating solely to it, such as
approval of advisory agreements and changes in fundamental policies, and matters
affecting some but not all Portfolios of the Company will be voted on only by
shareholders of the affected Portfolios. Shareholders of all Portfolios of the
Company will vote together in matters affecting the Company generally, such as
the election of Directors or selection of accountants. As a Maryland
corporation, the Company is not required to hold annual meetings of shareholders
but shareholder approval will be sought for certain changes in the operation of
the Company and for the election of Directors under certain circumstances. In
addition, a Director may be removed by the remaining Directors or by
shareholders at a special meeting called upon written request of shareholders
owning at least 10% of the outstanding shares of the Company. In the event that
such a meeting is requested, the Company will provide appropriate assistance and
information to the shareholders requesting the meeting. Under current law, a
Participating Insurance Company is required to request voting instructions from
VA Contract owners and VLI Policy owners and must vote all shares held in the
separate account in proportion to the voting instructions received. For a more
complete discussion of voting rights, refer to the Participating Insurance
Company separate account prospectus.
PURCHASES AND REDEMPTIONS
Individual investors may not purchase or redeem shares of the Portfolios
directly; shares may be purchased or redeemed only through VA Contracts and VLI
Policies offered by separate accounts
35
<PAGE>
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 each Portfolio are offered on
a continuous basis.
PURCHASES. All investments in the Portfolios are credited to a Participating
Insurance Company's separate account immediately upon acceptance of the
investments by the Portfolios. Each Participating Insurance Company receives
orders from its contract owners to purchase or redeem shares of each Portfolio
on each day that the Portfolio calculates its net asset value (a "Business
Day"). That night, all orders received by the Participating Insurance Company
prior to the close of regular trading on the New York Stock Exchange Inc. (the
"NYSE") (currently 4:00 p.m., Eastern time) on that Business Day are aggregated,
and the Participating Insurance Company places a net purchase or redemption
order for shares of the Portfolios during the morning of the next Business Day.
These orders are executed at the net asset value (described below under "Net
Asset Value") next computed after receipt of such order by the Participating
Insurance Company.
The Portfolios reserve the right to reject any specific purchase order. Purchase
orders may be refused if, in the Adviser's opinion, they are of a size that
would disrupt the management of the Portfolio. A Portfolio may discontinue sales
of its shares if management believes that a substantial further increase in
assets may adversely effect the Portfolio's ability to achieve its investment
objective. In such event, however, it is anticipated that existing VA Contract
owners or VLI Policy owners would be permitted to continue to authorize
investments in the Portfolios.
REDEMPTIONS. Shares of a Portfolio may be redeemed on any Business Day.
Redemption orders which are received by a Participating Insurance Company prior
to the close of regular trading on the NYSE on any Business Day and transmitted
to the Company or its specified agent during the morning of the next Business
Day will be processed at the next net asset value computed after receipt of such
order by the Participating Insurance Company. Redemption proceeds will normally
be wired to the Participating Insurance Company on the Business Day following
receipt of the redemption order by the Participating Insurance Company, but in
no event later than seven days after receipt of such order.
The Company reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of each Portfolio's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Company also reserves the right to suspend sales of shares of a Portfolio for
any period during which the New York Stock Exchange, the Adviser, the
Sub-Adviser, the Administrator, the Transfer Agent and/or the Custodian are not
open for business.
Purchases and redemptions may be made on any day on which the New York Stock
Exchange is
36
<PAGE>
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 each Portfolio are valued by the Sub-Administrator. The
Sub-Administrator will use an independent pricing service to obtain valuations
of securities. The pricing service relies primarily on prices of actual market
transactions as well as trade quotations. The procedures of the pricing service
and its valuations are reviewed by the officers of the Company under the general
supervision of the Board of Directors.
Each Portfolio calculates the net asset value of a share by dividing the total
value of its assets, less liabilities, by the number of shares outstanding.
Shares are valued as of the close of trading on the NYSE (currently 4:00 p.m.,
Eastern time). Portfolio securities listed on an exchange or quoted on a
national market system are valued at the last sales price. Other securities are
quoted at the most recent bid price. 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.
An example showing how to calculate the net asset value per share is included in
each Portfolio's financial statements which are incorporated by reference into
this Statement of Additional Information.
37
<PAGE>
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.
Each Portfolio intends to qualify and elect to be treated as a regulated
investment company that is taxed under the rules of Subchapter M of the Code. As
such, a Portfolio will not be subject to federal income tax on its net ordinary
income and net realized capital gains to the extent such income and gains are
distributed to the separate accounts of Participating Insurance Companies which
hold its shares. Because shares of the Portfolios may be purchased only through
VA Contracts and VLI Policies, it is anticipated that any income, dividends or
capital gain distributions from the Portfolios are taxable, if at all, to the
Participating Insurance Companies and will be exempt from current taxation of
the VA Contract owner or VLI Policy owner if left to accumulate within the VA
Contract or VLI Policy.
In order to qualify for treatment as a RIC under the Code, each Portfolio must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement"). In addition to the Distribution Requirement,
each Portfolio must meet several other requirements. Among these requirements
are the following: (i) each Portfolio must derive at least 90% of its gross
income in each taxable year from dividends, interest, certain payments with
respect to securities loans, gains from the sale or other disposition of stock
or securities or foreign currencies and other income (including but not limited
to gains from options, futures or forward contracts derived with respect to the
Portfolio's business of investing in such stock, securities or currencies) (the
"Income Requirement"); (ii) at the close of each quarter of the Portfolio's
taxable year, at least 50% of the value of its total assets must be represented
by cash and cash items, U.S. Government securities, securities of other RICs and
securities of other issuers, with such securities of other issuers limited, in
respect to any one issuer, to an amount that does not exceed 5% of the value of
the Portfolio's assets and that does not represent more than 10% of the
outstanding voting securities
38
<PAGE>
of such issuer; and (iii) no more than 25% of the value of a Portfolio's total
assets may be invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment companies),
or in two or more issuers which the Portfolio controls and which are engaged in
the same or similar trades or businesses (the "Asset Diversification Test"). For
purposes of the Asset Diversification Test, it is unclear under present law who
should be treated as the issuer of forward foreign currency exchange contracts,
of options on foreign currencies, or of foreign currency futures and related
options. It has been suggested that the issuer in each case may be the foreign
central bank or foreign government backing the particular currency.
Consequently, a Portfolio may find it necessary to seek a ruling from the
Internal Revenue Service on this issue or to curtail its trading in forward
foreign currency exchange contracts in order to stay within the limits of the
Asset Diversification Test.
For purposes of the Income Requirement, foreign currency gains (including gains
from options, futures or forward contracts on foreign currencies) that are not
"directly related" to a Portfolio's principal business may, under regulations
not yet issued, be excluded from qualifying income.
If a Portfolio fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates on its net investment income and net capital
gain without any deductions for amounts distributed to shareholders.
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 Portfolios that are issued and outstanding as of
the date of enactment.
PORTFOLIO DISTRIBUTIONS. Notwithstanding the Distribution Requirement described
above, which requires only that a Portfolio distribute at least 90% of its
annual investment company taxable income and does not require any minimum
distribution of net capital gain (the excess of net long-term capital gain over
net short-term capital loss), the Portfolio will be subject to a nondeductible
4% federal excise tax to the extent it fails to distribute by the end of any
calendar year 98% of its ordinary income for that year and 98% of its capital
gain net income (the excess of short- and long-term capital gains over short-
and long-term capital losses) for the one-year period ending on October 31 of
that calendar year, plus certain other amounts.
Treasury regulations permit a RIC in determining its investment company taxable
income and undistributed net capital gain for any taxable year to elect to treat
all or part of any net capital loss, any net long-term capital loss, or any net
foreign currency loss incurred after October 31
39
<PAGE>
as if it had been incurred in the succeeding year.
INTERNAL REVENUE SERVICE REQUIREMENTS
The Portfolios intend to comply with the diversification requirements currently
imposed by the Internal Revenue Service on separate accounts of insurance
companies as a condition of maintaining the tax deferred status of VA contracts
and VLI policies.
DIVIDENDS AND DISTRIBUTIONS
Each of the Portfolios will declare and distribute dividends from net ordinary
income at least annually and will distribute its net realized capital gains, if
any, at least annually. Distributions of ordinary income and capital gains will
be made in shares of such Portfolios unless an election is made on behalf of a
separate account of a Participating Insurance Company to receive distributions
in cash. Participating Insurance Companies 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, a Portfolio will be required to withhold, and
remit to the U.S. Treasury, 31% of any distributions paid to a shareholder who
(i) has failed to provide a correct taxpayer identification number, (ii) is
subject to backup withholding by the Internal Revenue Service, or (iii) has not
certified to the Portfolio that such shareholder is not subject to backup
withholding.
40
<PAGE>
INVESTMENT IN FOREIGN FINANCIAL INSTRUMENTS. Under Code Section 988, gains or
losses from certain foreign currency forward contracts or fluctuations in
currency exchange rates will generally be treated as ordinary income or loss.
Such Code Section 988 gains or losses will increase or decrease the amount of a
Portfolio's investment company taxable income available to be distributed to
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Portfolio's net capital gains. Additionally, if Code Section 988 losses
exceed other investment company taxable income during a taxable year, the
Portfolio would not be able to pay any ordinary income dividends, and any such
dividends paid before the losses were realized, but in the same taxable year,
would be recharacterized as a return of capital to shareholders, thereby
reducing the tax basis of Portfolio shares.
HEDGING TRANSACTIONS. Some of the forward foreign currency exchange contracts,
options and futures contracts that the Portfolios may enter into will be subject
to special tax treatment as "Section 1256 contracts." Section 1256 contracts are
treated as if they are sold for their fair market value on the last business day
of the taxable year, regardless of whether a taxpayer's obligations (or rights)
under such contracts have terminated (by delivery, exercise, entering into a
closing transaction or otherwise) as of such date. Any gain or loss recognized
as a consequence of the year-end deemed disposition of Section 1256 contracts is
combined with any other gain or loss that was previously recognized upon the
termination of Section 1256 contracts during that taxable year. The net amount
of such gain or loss for the entire taxable year (including gain or loss arising
as a consequence of the year-end deemed sale of such contracts) is deemed to be
60% long-term and 40% short-term gain or loss. However, in the case of Section
1256 contracts that are forward foreign currency exchange contracts, the net
gain or loss is separately determined and (as discussed above) generally treated
as ordinary income or loss.
Generally, the hedging transactions in which the Portfolios may engage may
result in "straddles" or "conversion transactions" for U.S. federal income tax
purposes. The straddle and conversion
41
<PAGE>
transaction rules may affect the character of gains (or in the case of the
straddle rules, losses) realized by the Portfolios. In addition, losses realized
by the Portfolios on positions that are part of a straddle may be deferred under
the straddle rules, rather than being taken into account in calculating the
taxable income for the taxable year in which the losses are realized. Because
only a few regulations implementing the straddle rules and the conversion
transaction rules have been promulgated, the tax consequences to the Portfolios
of hedging transactions are not entirely clear. The hedging transactions may
increase the amount of short-term capital gain realized by the Portfolios (and,
if they are conversion transactions, the amount of ordinary income) which is
taxed as ordinary income when distributed to shareholders.
Each Portfolio may make one or more of the elections available under the Code
which are applicable to straddles. If a Portfolio makes any of the elections,
the amount, character, and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Transactions that may be engaged in by certain of the Portfolios (such as short
sales "against the box") may be subject to special tax treatment as
"constructive sales" under section 1259 of the Code if a Portfolio holds certain
"appreciated financial positions" (defined generally as any interest (including
a futures or forward contract, short sale or option) with respect to stock,
certain debt instruments, or partnership interests if there would be a gain were
such interest sold, assigned, or otherwise terminated at its fair market value).
Upon entering into a constructive sales transaction with respect to an
appreciated financial position, a Portfolio will be deemed to have
constructively sold such appreciated financial position and will recognize gain
as if such position were sold, assigned, or otherwise terminated at its fair
market value on the date of such constructive sale (and will take into account
any gain for the taxable year which includes such date).
Because application of the straddle, conversion transaction and constructive
sale rules may affect the character of gains or losses, defer losses and/or
accelerate the recognition of gains or losses from the affected straddle or
investment positions, the amount which must be distributed to shareholders and
which will be taxed to shareholders as ordinary income or long-term capital gain
may be increased or decreased as compared to a fund that did not engage in such
transactions.
Requirements relating to each Portfolio's tax status as a RIC may limit the
extent to which a Portfolio will be able to engage in transactions in options
and futures contracts.
STATE TAXES
Distributions by a Portfolio to shareholders and the ownership of shares may be
subject to state
42
<PAGE>
and local taxes.
MISCELLANEOUS CONSIDERATIONS
The foregoing general discussion of federal income tax consequences is based on
the Code and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. Future legislative or administrative
changes or court decisions may significantly change the conclusions expressed
herein, and any such changes or decisions may have a retroactive effect with
respect to the transactions contemplated herein.
Prospective shareholders are encouraged to consult their tax advisors as to the
consequences of these and other U.S., state, local, and foreign tax rules
affecting investments in the Portfolio.
SECTION 817 DIVERSIFICATION REQUIREMENTS
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of segregated asset accounts that fund contracts such as the
VA Contracts and VLI Policies (that is, the assets of the Portfolios), which are
in addition to the diversification requirements imposed on the Portfolios by the
1940 Act and Subchapter M. Failure to satisfy those standards would result in
imposition of Federal income tax on a VA Contract or VLI Policy owner with
respect to the increase in the value of the VA Contract or VLI Policy. Section
817(h)(2) provides that a segregated asset account that funds contracts such as
the VA Contracts and VLI Policies is treated as meeting the diversification
standards if, as of the close of each calendar quarter, the assets in the
account meet the diversification requirements for a regulated investment company
and no more than 55% of those assets consist of cash, cash items, U.S.
Government securities and securities of other regulated investment companies.
Provided that all of the beneficial interests in the Portfolios are owned by one
or more (1) insurance companies in their general account or in segregated asset
accounts, or (2) fund managers in connection with the creation or management of
a regulated investment company or trust, the diversification requirements of
section 817 will be applied on a look-through basis to the assets held by the
Portfolios, and the interests in the Portfolios will be disregarded.
The Treasury Regulations amplify the diversification standards set forth in
Section 817(h). Under the regulations, an investment portfolio will be deemed
adequately diversified if (i) no more than 55% of the value of the total assets
of the portfolio is represented by any one investment; (ii) no more than 70% of
such value is represented by any two investments; (iii) no more than 80% of such
value is represented by any three investments; and (iv) no more than 90% of such
value is represented by any four investments. For purposes of these Regulations
all securities of the same issuer are treated as a single investment, but each
United States government agency or instrumentality shall be treated as a
separate issuer. Certain Portfolios holding Treasury securities may be able to
avail themselves of an alternative diversification test provided under the
Treasury Regulations.
43
<PAGE>
Each Portfolio will be managed with the intention of complying with these
diversification requirements. It is possible that, in order to comply with these
requirements, less desirable investment decisions may be made which would affect
the investment performance of a Portfolio.
PERFORMANCE INFORMATION
From time to time, a Portfolio may advertise yield and/or total return. Such
performance data for a Portfolio should be distinguished from the rate of return
of a corresponding division of a Participating Insurance Company's separate
account, which rate will reflect the deduction of additional insurance charges,
including mortality and expense risk charges, and will therefore be lower. VA
Contract owners and VLI Policy owners should consult their contract and policy
prospectuses, respectively, for further information. The Portfolio's results
also should be considered relative to the risks associated with its investment
objectives and policies.
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, a Portfolio may advertise yield. These figures are based on
historical earnings and are not intended to indicate future performance. The
yield of a Portfolio refers to the annualized income generated by an investment
in the Portfolio over a specified 30-day period. The yield is calculated by
assuming that the same amount of income generated by the investment during that
period is generated in each 30-day period over one year and is shown as a
percentage of the investment. In particular, yield is calculated according to
the following formula:
Yield = 2((a-b/cd + 1)(6) - 1) where a = dividends and interest earned during
the period; b = expenses accrued for the period (net of reimbursement); c = the
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.
44
<PAGE>
CALCULATION OF TOTAL RETURN
From time to time, a Portfolio may advertise total return. The total return of a
Portfolio refers to the average compounded rate of return to a hypothetical
investment for designated time periods (including but not limited to, the period
from which the Portfolio commenced operations through the specified date),
assuming that the entire investment is redeemed at the end of each period. In
particular, total return is calculated according to the following formula: P (1
+ T)(n) = ERV, where P = a hypothetical initial payment of $1,000; T = average
annual total return; n = number of years; and ERV = ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the designated time period
as of the end of such period.
Total returns quoted for a Portfolio include the effect of deducting the
Portfolio's expenses, but may not include charges and expenses attributable to
any particular Variable Contract. Accordingly, the prospectus of the sponsoring
Participating Insurance Company separate account should be carefully reviewed
for information on relevant charges and expenses. Excluding these charges and
expenses from quotations of a Portfolio's performance has the effect of
increasing the performance quoted, and the effect of these charges should be
considered when comparing a Portfolio's performance to that of other mutual
funds.
Based on the foregoing, the average annual total return and the aggregate total
return for each of the Portfolios through December 31, 1999, were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Aggregate Total
Portfolio Return
Average Annual Total Return Since Inception
------------------------------------
One Year Since Inception
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth II Portfolio(1) 98.19 36.70 130.50
- --------------------------------------------------------------------------------------------------------------------
Large Cap Growth Portfolio(1) 65.22 41.99 155.10
- ---------------------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio(2) 15.93 14.71 34.79
- --------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Portfolio(4) 25.66 35.90 39.48
- --------------------------------------------------------------------------------------------------------------------
Select Value Portfolio(2) 8.89 22.93 56.68
- --------------------------------------------------------------------------------------------------------------------
Technology & Communications Portfolio(1) 234.38 77.08 360.17
- --------------------------------------------------------------------------------------------------------------------
Select 20 Portfolio(3) 100.61 68.69 227.01
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not in operation during the period.
(1) The Average Annual Total Return Since Inception and Aggregate Total Return
Since Inception periods are calculated from May 1, 1997 (commencement of
operations) through December 31, 1999.
45
<PAGE>
(2) The Average Annual Total Return Since Inception and Aggregate Total Return
Since Inception periods are calculated from October 29, 1997 (commencement
of operations) through December 31, 1999.
3 The Average Annual Total Return Since Inception and Aggregate Total Return
Since Inception periods are calculated from September 26, 1997
(commencement of operations) through December 31, 1999.
4 The Average Annual Total Return Since Inception and Aggregate Total Return
Since Inception periods are calculated from November 30, 1998 (commencement
of operations) through December 31, 1999.
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.
Each Portfolio may periodically compare its performance to that of other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.) or by financial and business publications and periodicals, broad
groups of comparable mutual funds, unmanaged indices which may assume investment
of dividends but generally do not reflect deductions for administrative and
management costs and other investment alternatives. Each Portfolio may quote
services such as Morningstar, Inc., a service that ranks mutual funds on the
basis of risk-adjusted performance, and Ibbotson Associates of Chicago,
Illinois, which provides historical returns of the capital markets in the U.S.
Each Portfolio may use long-term performance of these capital markets to
demonstrate general long-term risk versus reward scenarios and could include the
value of a hypothetical investment in any of the capital markets. Each Portfolio
may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.
Each Portfolio may quote various measures of volatility and benchmark
correlation in advertising and may compare these measures to those of other
funds. Measures of volatility attempt to compare historical share price
fluctuations or total returns to a benchmark while measures of benchmark
correlation indicate how valid a comparative benchmark might be. Measures of
volatility and correlation are calculated using averages of historical data and
cannot be calculated precisely.
46
<PAGE>
FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP ("PWC"), located at 2400 Eleven Penn Center,
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.
The audited financial statements for the fiscal year ended December 31, 1999 and
the report of the independent accountants for that year are included in the
Company's Annual Report to Shareholders dated December 31, 1999. The Annual
Report for each Portfolio, except for pages 1 through 2 thereof, is incorporated
herein by reference and made a part of this document. These financial statements
have been audited by PWC and have been incorporated by reference into the
Statement of Additional Information in reliance on the report of PWC,
independent accountants, given on the authority of that firm as experts in
auditing and accounting.
47
<PAGE>
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")
Form of 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) Investment Advisory Agreement dated April 1, 1997, by and between the
Registrant, on behalf of each Portfolio of the Registrant, and Pilgrim
Baxter & Associates, Ltd. Incorporated herein by reference to PEA No. 3.
Schedule A dated February 20, 1998 to Investment Advisory Agreement dated
April 1, 1997, by and between the Registrant, on behalf of each Portfolio
of the Registrant, and Pilgrim Baxter & Associates, Ltd. incorporated
herein by reference to PEA No. 4.
Schedule A dated January 31, 2000 to the Investment Advisory Agreement
dated April 1, 1997, by and between the Registrant, on behalf of each
Portfolio of the Registrant, and Pilgrim Baxter & Associates, Ltd.
Investment Sub-Advisory Agreement dated April 1, 1997, by and among the
Registrant, on behalf of the Small Cap Value and Large Cap Value
Portfolios, Pilgrim Baxter & Associates, Ltd. and Pilgrim Baxter Value
Investors, Inc. (formerly, Newbold's Asset Management, Inc.) incorporated
herein by reference to PEA No. 3.
Schedule A dated February 20, 1998 to Investment Sub-Advisory Agreement
dated April 1, 1997, by and among the Registrant, on behalf of the Small
Cap Value, Mid-Cap Value and Large Cap Value Portfolios, Pilgrim Baxter &
Associates, Ltd. and Pilgrim Baxter Value Investors, Inc. (formerly,
Newbold's Asset Management, Inc.) incorporated herein by reference to PEA
No. 4.
Schedule A dated January 31, 2000 to Investment Sub-Advisory Agreement
dated April 1, 1997, by and among the Registrant, on behalf of the Small
Cap Value, Mid-Cap Value and Select Value Portfolios, Pilgrim Baxter &
Associates, Ltd. and Pilgrim Baxter Value Investors, Inc.
(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.
C-1
<PAGE>
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 February 20, 1998 to Custodian Agreement dated April 1,
1997 by and between the Registrant and First Union National Bank
incorporated herein by reference to PEA No. 5.
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 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 February 20, 1998 to Administrative Services Agreement
dated April 1, 1997 by and between the Registrant and PBHG Fund Services
incorporated herein by reference to PEA No. 4.
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.
Schedule A dated February 20, 1998 to Sub-Administrative Services Agreement
dated April 1, 1997, by and among the Registrant, PBHG Fund Services and
SEI 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
C-2
<PAGE>
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.
Sub-Shareholder Services Agreement dated January 1, 1998 by and between
PBHG Fund Services and UAM Shareholder Service Center incorporated herein
by reference to PEA No. 5.
(i) Not Applicable
(j) Consent of Independent Accountants
(k) Not Applicable
(l) Stock Subscription Agreement dated March 6, 1997 incorporated herein by
reference to PEA No.5
(m) Not Applicable
(n) Financial Data Schedules
(o) Not Applicable
(p) Code of Ethics of Registrant [To be approved at the April Board of
Directors meeting]
Code of Ethics of Pilgrim Baxter & Associates, Ltd. [To be approved at the
April Board of Directors meeting]
Code of Ethics of Pilgrim Baxter Value Investors, Inc. [To be approved at
the April Board of Directors meeting]
Code of Ethics of SEI Investments Distribution Company [To be approved at
the April Board of Directors meeting]
24 (a) Directors' Power of Attorney
(b) Officers' Power of Attorney
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.
C-3
<PAGE>
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
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
C-4
<PAGE>
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:
Other business, profession, vocation, or employment of a substantial nature in
which each director or principal officer of Pilgrim Baxter & Associates, Ltd. is
or has been, at any time during the last two fiscal years, engaged for his own
account or in the capacity of director, officer, employee, partner or trustee
are as follows:
<TABLE>
<CAPTION>
Name and Position with Pilgrim
Baxter & Associates, Ltd. Name of Other Company Connection with Other Company
- ------------------------------ --------------------- -----------------------------
<S> <C> <C>
Harold J. Baxter Pilgrim Baxter Value Investors, Inc. Director, Chairman and Chief Executive Officer
Director, Chairman & PBHG Fund Services Trustee
Chief Executive Officer PBHG Fund Distributors Trustee
United Asset Management
Corporation Director
Gary L. Pilgrim PBHG Fund Services Trustee
Director, Chief Investment Officer Pilgrim Baxter Value Investors, Inc. Director, President and Chief Investment Officer
& President
Carol W. Proffer
Managing Director - Private Crossroads Investment Advisers, L.P. Managing Director
Equity Group
Eric C. Schneider Pilgrim Baxter Value Investors, Inc. Director, Chief Financial Officer & Treasurer
Chief Financial Officer & PBHG Fund Services Chief Financial Officer
Treasurer PBHG Fund Distributors Trustee, Chief Financial Officer
John M. Zerr Pilgrim Baxter Value Investors, Inc. General Counsel and Secretary
General Counsel and Secretary PBHG Fund Distributors General Counsel and Secretary
PBHG Fund Services General Counsel and Secretary
</TABLE>
<TABLE>
<CAPTION>
Name and Position with Pilgrim
Baxter Value Investors, Inc. Name of Other Company Connection with Other Company
- ------------------------------ --------------------- -----------------------------
<S> <C> <C>
Harold J. Baxter Pilgrim Baxter & Associates, Ltd. Director, Chairman & Chief Executive Officer
Director, Chairman & Chief PBHG Fund Services Trustee
Executive Officer PHBG Fund Distributors Trustee
United Asset Management Corporation Director
</TABLE>
C-5
<PAGE>
<TABLE>
<S> <C> <C>
Gary L. Pilgrim Pilgrim Baxter & Associates, Ltd. Director, President and Chief Investment Officer
Director, President and Chief
Investment Officer PBHG Fund Services Trustee
Eric C. Schneider Pilgrim Baxter & Associates, Ltd. Chief Financial Officer and Treasurer
Director, Chief Financial Officer & PBHG Fund Services Chief Financial Officer and Treasurer
Treasurer PBHG Fund Distributors Trustee, Former Chief Financial Officer
John M. Zerr Pilgrim Baxter & Associates, Ltd. General Counsel & Secretary
General Counsel & Secretary PBHG Fund Distributors General Counsel & Secretary
PBHG Fund Services General Counsel & Secretary
</TABLE>
The principal business addresses of the entities listed in the above tables are
as follows:
Pilgrim Baxter & Associates, Ltd., Pilgrim Baxter Value Investors, Inc., PBHG
Fund Services, and PBHG Fund Distributors: 825 Duportail Road, Wayne, PA 19087
United Asset Management Corporation: One International Place, 44th Floor,
Boston, MA 02110.
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
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
Boston 1784 Funds (R) June 1, 1993
Morgan Grenfell Investment Trust January 3, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
Ark Funds November 1, 1995
Monitor Funds January 11, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
The PBHG Funds, Inc. June 1, 1996
C-6
<PAGE>
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
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
Henry H. Greer Director -
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 - -
Investment Services Division
Leo J. Dolan, Jr. Senior Vice President -
Carl A. Guarino Senior Vice President -
Larry Hutchinson Senior Vice President -
Jack May Senior Vice President -
Hartland J. McKeown Senior Vice President -
Barbara J. Moore Senior Vice President -
Kevin P. Robins Senior Vice President, General Counsel -
and Secretary
Patrick K. Walsh Senior Vice President -
Robert Crudup Vice President & Managing Director -
Vic Galef Vice President & Managing Director -
Kim Kirk Vice President & Managing Director -
John Krzeminski Vice President & Managing Director -
Carolyn McLaurin Vice President & Managing Director -
W. Kelso Morrill Vice President & Managing Director -
Mark Samuels Vice President & Managing Director -
Wayne M. Withrow Vice President & Managing Director -
Robert Aller Vice President -
Gordon W. Carpenter Vice President -
Todd Cipperman Vice President & Assistant Secretary
Barbara Doyne Vice President -
</TABLE>
C-7
<PAGE>
<TABLE>
<S> <C> <C>
Jeff Drennen Vice President -
Kathy Heilig Vice President -
Jeff Jacobs Vice President -
Samuel King Vice President -
Joanne Nelson Vice President -
Mark Nagle Vice President -
Sandra K. Orlow Vice President & Assistant Secretary -
Cynthia M. Parrish Vice President & Assistant Secretary -
Kim Rainey Vice President -
Rob Redican Vice President -
Maria Reinehart Vice President -
Steve Smith Vice President -
Daniel Spaventa Vice President -
Kathryn L. Stanton Vice President & Assistant Secretary -
Joseph M. O'Donnel Vice President & Assistant Secretary -
S. Courtney Collier Vice President & Assistant Secretary -
Lydia A. Gavalis Vice President & Assistant Secretary -
Greg Gettinger Vice President & Assistant Secretary -
Lynda J. Striegel Vice President & Assistant Secretary Vice President and
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 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
C-8
<PAGE>
ITEM 29. MANAGEMENT SERVICES:
None
ITEM 30. UNDERTAKINGS
Not Applicable.
C-9
<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. 7 to the
Registration Statement to be signed on its behalf by the undersigned thereto
duly authorized, in the City of Wayne, and Commonwealth of Pennsylvania, on the
28th day of February, 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. 7 to the Registration Statement has been signed below by the
following persons on the 11th day of February, 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 2/24/00
Harold J. Baxter
* Director 2/24/00
- -------------------------
John R. Bartholdson
* Director 2/24/00
- -------------------------
Jettie M. Edwards
* Director 2/24/00
- -------------------------
Albert A. Miller
/s/ Gary L. Pilgrim President 2/24/00
Gary L. Pilgrim
/s/ Lee T. Cummings Treasurer, Chief Financial Officer 2/24/00
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) Form of Articles of Amendment
EX-99.B(d) Schedule A dated January 31, 2000 to the Investment Advisory
Agreement dated April 1, 1997, by and between the Registrant,
on behalf of each Portfolio of the Registrant, and Pilgrim
Baxter & Associates, Ltd.
Schedule A dated January 31, 2000 to Investment Sub-Advisory
Agreement dated April 1, 1997, by and among the Registrant, on
behalf of the Small Cap Value, Mid-Cap Value and Select Value
Portfolios, Pilgrim Baxter & Associates, Ltd. and Pilgrim
Baxter Value Investors, Inc.
EX-99.B(g) Schedule A dated January 31, 2000 to Custodian Agreement dated
April 1, 1997 by and between the Registrant and First Union
National Bank.
EX-99.B(h) Schedule A dated January 31, 2000 to Agency Agreement dated
April 1, 1997, by and between the Registrant and DST systems,
Inc.
Schedule A dated January 31, 2000 to Administrative Services
Agreement dated April 1, 1997 by and between the Registrant
and PBHG Fund Services
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 Fund Resources
Schedule A dated January 31, 2000 to Expense Limitation
Agreement dated April 1, 1997 between the Registrant and
Pilgrim Baxter & Associates, Ltd.
EX-99.B(p) Code of Ethics of Registrant
Code of Ethics of Pilgrim Baxter & Associates, Ltd.
Code of Ethics of Pilgrim Baxter Value Investors, Inc.
Code of Ethics of SEI Investments Distribution Company
EX-99.B(j) Consent of Independent Accountants
EX-99.B(n) Financial Data Schedules
EX-99.B24(a) Directors' Power of Attorney
EX-99.B24(b) Officers' Power of Attorney
EX-99.B(a)
PBHG INSURANCE SERIES FUND, INC.
ARTICLES OF AMENDMENT
PBHG Insurance Series Fund, Inc., a Maryland corporation (the
"Corporation"), having its principal office in the City of Baltimore, testifies
that:
FIRST: The charter of the Corporation is hereby amended by changing the
name of the "PBHG Large Cap Value Fund" to the "PBHG Select Value Fund."
SECOND: The foregoing amendment was approved by a majority of the entire
Board of Directors of the Corporation and is limited to a change expressly
permitted by Section 2-605(a)(4) of the Maryland General Corporation Law to be
made without action by the stockholders.
THIRD: The Corporation is registered as an open-end management investment
company under the Investment Company Act of 1940
FOURTH: The undersigned Vice President of the Corporation acknowledges that
these Articles of Amendment to be the corporate act of the Corporation and as to
all matter or facts required to be verified under oath, the undersigned
President acknowledges that, to the best of his knowledge, information and
belief, these matters and facts are true in all material respects under the
penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
to be executed under seal in its name and on its behalf by one of its Vice
Presidents and its corporate seal to be affixed and attested to by its Secretary
on this ___ day of February, 2000.
ATTEST: PBHG INSURANCE SERIES
FUND, INC.
- ------------------------ -----------------------------
John M. Zerr, Secretary Meghan Mahon, Vice President
(SEAL)
EX-99.B(d)
SCHEDULE A
PBHG Growth II Portfolio
PBHG Large Cap Growth Portfolio
PBHG Select 20 Portfolio
PBHG Select Value Portfolio
PBHG Mid-Cap Value Portfolio
PBHG Small Cap Value Portfolio
PBHG Technology & Communications Portfolio
Dated: January 31, 2000
EX-99.B(g)
SCHEDULE A
PBHG Growth II Portfolio
PBHG Large Cap Growth Portfolio
PBHG Select 20 Portfolio
PBHG Select Value Portfolio
PBHG Mid-Cap Value Portfolio
PBHG Small Cap Value Portfolio
PBHG Technology & Communications Portfolio
Dated: January 31, 2000
EX-99.B(h)
SCHEDULE A
PBHG Growth II Portfolio
PBHG Large Cap Growth Portfolio
PBHG Select 20 Portfolio
PBHG Select Value Portfolio
PBHG Mid-Cap Value Portfolio
PBHG Small Cap Value Portfolio
PBHG Technology & Communications Portfolio
Dated: January 31, 2000
EX-99.B(j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in Post-Effective Amendment
No. 7 to the registration statement on Form N-1A ("Registration Statement") of
our report dated February 4, 2000, relating to the financial statements and
financial highlights which appears in the December 31, 1999 Annual Report to
Shareholders of the PBHG Insurance Series Fund, Inc., which is also incorporated
by reference into the Registration Statement. We also consent to the references
to us under the headings "Financial Highlights" and "Financial Statements" in
such Registration Statement.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 24, 2000
EX-99.B(p)
PILGRIM BAXTER & ASSOCIATES, LTD.
CODE OF ETHICS
This Code of Ethics has been adopted by the Board of Directors of Pilgrim Baxter
& Associates, Ltd. ("Pilgrim Baxter") in accordance with Rule 17j-1(b) under the
Investment Company Act of 1940, as amended (the "Act"), and the Recommendations
of the Investment Company Institute Advisory Group on Personal Investing. Rule
17j-1 under the Act generally proscribes fraudulent or manipulative practices
with respect to purchases or sales of securities held or to be acquired by
investment companies, if effected by associated persons of such investment
companies.
While affirming its confidence in the integrity and good faith of all of its
employees, officers, and directors, Pilgrim Baxter recognizes that certain of
its personnel have or may have knowledge of present or future portfolio
transactions and, in certain instances, the power to influence portfolio
transactions made by or for Pilgrim Baxter's Clients, and that if such
individuals engage in personal transactions in securities that are eligible for
investment by Clients, these individuals could be in a position where their
personal interests may conflict with the interests of Clients.
In view of the foregoing and of the provisions of Rule 17j-1(b)(1) under the
Act, Pilgrim Baxter has determined to adopt this Code of Ethics to specify and
prohibit certain types of transactions deemed to create actual conflicts of
interest, the potential for conflicts, or the appearance of conflicts, and to
establish reporting requirements and enforcement procedures.
I. STATEMENT OF GENERAL PRINCIPLES
In recognition of the trust and confidence placed in Pilgrim Baxter by its
Clients and to give effect to Pilgrim Baxter's belief that its operations should
be directed to benefit its Clients, Pilgrim Baxter hereby adopts the following
general principles to guide the actions of its employees, officers, and
directors:
1. The interests of Clients are paramount. All Pilgrim Baxter personnel must
conduct themselves and their operations to give maximum effect to this
tenet by assiduously placing the interests of Clients before their own.
<PAGE>
2. All personal transactions in securities by Pilgrim Baxter personnel must be
accomplished so as to avoid even the appearance of a conflict of interest
on the part of such personnel with the interests of a Client.
3. All Pilgrim Baxter personnel must avoid actions or activities that allow
(or appear to allow) a person to profit or benefit from his or her position
with respect to a Client, or that otherwise bring into question the
person's independence or judgment.
II. DEFINITIONS
1. "Access Person" means (i) every director or officer of Pilgrim Baxter, (ii)
every employee of Pilgrim Baxter who, in connection with his or her regular
functions or duties, makes, participates in, or obtains information
regarding the Purchase or Sale of a Security by a Client, or whose
functions relate to the making of any recommendations with respect to such
purchases or sales, and (iii) any natural person in a Control relationship
to Pilgrim Baxter who obtains information concerning recommendations made
by Pilgrim Baxter with respect to the Purchase or Sale of a Security by a
Client.
2. "Beneficial Ownership" of a Security is to be determined in the same manner
as it is for purposes of Section 16 of the Securities Exchange Act of 1934.
This means that a person should generally consider himself of herself the
beneficial owner of any securities in which he or she has a direct or
indirect pecuniary interest. In addition, a person should consider himself
or herself the beneficial owner of securities held by (i) his or her spouse
or partner, (ii) minor children, (iii) a relative who shares his or her
home, or (iv) other persons by reason of any contract, arrangement,
understanding, or relationship that provides him or her with sole or shared
voting or investment power over the securities held by such person.
3. "Control" shall have the same meaning as that set forth in Section 2(a)(9)
of the Act. Section 2(a)(9) provides that "control" means the power to
exercise a controlling influence over the management or policies of a
company, unless such power is solely the result of an official position
with such company. Ownership of 25% or more of a company's outstanding
voting securities is presumed to give the holder of those securities
control over the company. This is a rebuttable presumption, and it may be
countered by the facts and circumstances of the given situation. A natural
person shall not be presumed to be a controlled person.
<PAGE>
4. "Client" means any investment company registered under the Act, a series of
an investment company registered under the Act, or a separately managed
investment management account for which Pilgrim Baxter acts as investment
adviser or sub-adviser.
5. "Initial Public Offering" means an offering of securities registered under
the Securities Act of 1933, the issuer of which, immediately before the
registration, was not subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934.
6. "Investment Personnel" means (a) any portfolio manager and (b) Security
analysts, traders and other personnel, who provide information and/or
advice to any portfolio manager, or who execute or help execute any
portfolio manager's decisions.
7. "Limited Offering" means an offering that is exempt from registration under
the Securities Act of 1933 pursuant to Section 4(2) or Section 4(6) or
pursuant to Rules 504, 505, or 506 under the Securities Act of 1933. The
term includes so-called private placements such as any investment limited
partnership that is exempt from registration.
8. An Access Person's "Personal Account" means any Securities account in which
such Access Person has direct or indirect Beneficial Ownership.
9. "Purchase or Sale of a Security" includes, among other things, the writing
of an option to purchase or sell a Security.
10. The designated "Review Officer" is the Chief Compliance Officer of Pilgrim
Baxter. The "Alternate Review Officers" are (i) the Chief Investment
Officer of Pilgrim Baxter, (ii) the General Counsel and Secretary of
Pilgrim Baxter, and (iii) the Senior Compliance Officer of the Investment
Adviser. In the absence of the Review Officer, an Alternate Review Officer
shall act in all respect in the manner prescribed herein for the Review
Officer. A "Code of Ethics Officer," as designated by the Review Officer,
shall act under the direction and supervision of the Review Officer.
11. A "Related Security" is any Security whose value directly fluctuates as a
result of a change in the value of a Security or Limited Offering in the
Securities Universe.
12. "Security" shall have the same meaning as that set forth in Section
2(a)(36) of the Act, except that it shall not include securities issued by
the Government of the United States or an agency thereof, bankers'
acceptances, bank certificates of deposit, commercial paper, and shares of
registered open-end
<PAGE>
mutual funds. The term includes any investment limited partnership that is
registered under the Securities Act of 1933 and any Initial Public
Offering.
13. A "Limited Offering or Security Held or to be Acquired" by a Client means
any Limited Offering or Security which, within the most recent 15 days, (i)
is or has been held by a Client or (ii) is being or has been considered by
Pilgrim Baxter for purchase for a Client.
14. A Limited Offering or Security is "Being Purchased or Sold" by a Client
from the time when a recommendation has been communicated to the persons
who place the buy and sell orders for a Client until the time when such
program has been fully completed or terminated.
15. "Security Universe" means only the Securities or Limited Offerings held or
to be acquired by Pilgrim Baxter, or a subsidiary of Pilgrim Baxter located
on the same premises as Pilgrim Baxter or using Pilgrim Baxter's security
transaction facilities for a Client.
III. PROHIBITED PURCHASES AND SALES OF SECURITIES AND LIMITED OFFERINGS.
1. No Access Person shall, in connection with the purchase or sale, directly
or indirectly, by such person of a Limited Offering or Security Held or to
be Acquired by any Client:
a) employ any device, scheme, or artifice to defraud such Client;
b) make to such Client any untrue statement of a material fact or omit to
state to such Client a material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading;
c) engage in any act, practice, or course of business that would operate
as a fraud or deceit upon such Client; or
d) engage in any manipulative practice with respect to such Client.
2. Subject to Section IV of this Code, no Access Person may purchase or sell,
directly or indirectly, a Security or Limited Offering for a Personal
Account at the same time that the same Security, Limited Offering or a
Related Security is in the Security Universe.
<PAGE>
3. No Access Person shall reveal to any other person (except in the normal
course of his or her duties on behalf of any Client) any information
regarding transactions in Securities or Limited Offerings by any Client or
the Security Universe.
4. No Access Person shall recommend any transaction in Securities or Limited
Offering by any Client without having disclosed his or her interest, if
any, in such Securities or Limited Offering or the issuer thereof,
including without limitation:
a) the Access Person's direct or indirect Beneficial Ownership of any
Securities or Limited Offerings of such issuer;
b) any contemplated transaction by the Access Person in such Securities
or Limited Offering;
c) any position the Access Person has with such issuer or its affiliates
(for example, a directorship); and
d) any present or proposed business relationship between such issuer or
its affiliates, on the one hand, and the Access Person or any party in
which the Access Person has a significant interest, on the other;
provided, however, that in the event the interest of such Access
Person in such Securities, Limited Offering or issuer is not material
to his or her personal net worth and any contemplated transaction by
the Access Person in such Securities or Limited Offering cannot
reasonably be expected to have a material adverse effect on any such
transaction by any Client or on the market for the Securities or
Limited Offering generally, that Access Person shall not be required
to disclose his or her interest in the Securities, Limited Offering or
the issuer in connection with any such recommendation.
5. Every Access Person is prohibited from directly or indirectly acquiring
beneficial ownership in any securities in an Initial Public Offering.
6. Every Access Person must obtain prior written approval from the Limited
Offering Review Committee before directly or indirectly acquiring or
selling any beneficial ownership in a Limited Offering.
7. No Investment Personnel shall profit from the purchase and sale, or sale
and purchase, of the same (or an equivalent) Security within a 60-day
calendar day period. This 60-day period will not include
<PAGE>
any purchase or sale made pursuant to the exercise or expiration of an
option on a Security; provided that such exercise or expiration is not at
the discretion of the Investment Personnel. Other exceptions to this policy
are permitted only with the approval of the Review Officer.
8. Subject to Section IV of this Code, new employees who at the date of their
employment own, directly or indirectly, any Security included in the
Security Universe or a Limited Offering and current employees with a
Security holding that subsequently is included in the Security Universe are
prohibited from engaging in any transaction which might be deemed to
violate Section III (1) of this Code.
IV. PRE-CLEARANCE OF TRANSACTIONS.
A. Limited Offerings
1. As provided in Section III(3) of this Code, every person must obtain prior
written approval from the Limited Offering Review Committee before directly
or indirectly acquiring or selling any beneficial ownership in a Limited
Offering. This pre-clearance approval process is governed by the
Pre-Clearance Procedures and Conditions for Limited Offerings which are
attached to and made part of this Code. The Review Officer shall report all
such transactions to the Board of Directors of the PBHG Family of Funds.
B. Securities
1. Except as provided in Section IV(3) of this Code, every Access Person must
pre-clear each proposed transaction in Securities with the Review Officer
prior to proceeding with the transaction. No transaction in Securities
shall be effected without the prior written approval of the Review Officer.
In determining whether to grant such clearance, the Review Officer shall
refer to Section IV(4) below. Pre-clearance of a Securities transaction is
valid for two (2) business days.
2. In determining whether to grant approval for the purchase of a Security
offered in a private placement, the Review Officer shall take into account,
among other factors, whether the investment opportunity should be reserved
for a Client, and whether the opportunity is being offered to the Access
Person by virtue of his or her position with Pilgrim Baxter.
3. The pre-clearance requirements of Section IV(1) shall not apply to the
following transactions:
a) Purchases or sales over which the Access Person has no direct or
indirect influence or Control.
<PAGE>
b) Purchases or sales that are non-volitional on the part of the Access
Person, including purchases or sales upon exercise of puts or calls
written by the Access Person and sales from a margin account pursuant
to a bona fide margin call.
c) Purchases that are part of an automatic dividend reinvestment plan.
d) Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its Securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
e) Purchases or sales of Securities that are not eligible for inclusion
in the Securities Universe.
4. Transactions that may be entitled to clearance from the Review Officer
include transactions, which appear upon reasonable inquiry and
investigation to present no reasonable likelihood of harm to any Client and
with respect to registered investment companies, which are otherwise in
accordance with Rule 17j-1. Such transactions would normally include
purchases or sales of up to 1,000 shares of a Security that is in the
Security Universe (but not then Being Purchased or Sold) if the issuer has
a market capitalization of over $1 billion. The Review Officer shall report
all such transactions to the Board of Directors of The PBHG Family of
Funds.
V. ADDITIONAL RESTRICTIONS AND REQUIREMENTS.
1. The receipt of any gift, favor, gratuity or other thing ("Gift") by an
Access Person from any person or entity that does business with Pilgrim
Baxter with a fair market value in excess of $100 requires pre-approval by
the Review Officer prior to its acceptance. Gifts do not include occasional
participation in lunches, dinners, cocktail parties, sporting activities or
similar gatherings conducted for business purposes. No Access Person or
member of his or her family may accept a Gift or consider the prior receipt
of a Gift when exercising his or her fiduciary responsibilities.
2. No Investment Personnel shall accept a position as a director, trustee, or
general partner of a publicly traded company or partnership unless the
acceptance of such position has been approved by the Review Officer as
consistent with the interests of the Clients.
3. Every Access Person must direct each brokerage firm or bank at which the
Access Person maintains a securities account to send duplicate copies of
confirmations of all personal securities transactions and copies of
periodic statements for all securities accounts promptly to Pilgrim
Baxter's Compliance
<PAGE>
Department. Compliance with this provision can be effected by the Access
Person providing duplicate copies of all such statements directly to the
Compliance Department.
VI. REPORTING OBLIGATIONS
1. Every Access Person shall report all transactions in which such Access
Person has, or by reason of such transaction acquires, any direct or
indirect Beneficial Ownership in Securities and Limited Offerings provided:
however, that an Access Person shall not be required to make a report with
respect to transactions effected for any account over which such person
does not have any direct or indirect influence. Reports shall be filed with
the Compliance Department each quarter. The Review Officer shall submit
confidential quarterly reports with respect to his or her own personal
securities transactions to the Alternate Review Officer, who shall act in
all respects in the manner prescribed herein for the Review Officer.
2. Every report shall be made not later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:
a) the date of the transaction, the title and the number of shares, and
the principal amount of each Security and Limited Offering involved;
b) the nature of the transaction (i.e., purchase, sale or any other type
of acquisition or disposition);
c) the price at which the transaction was effected;
d) the name of the broker, dealer, bank or other entity with or through
whom the transaction was effected; and
e) the date the report was signed.
3. Any such report may refer to the information contained in the statements
required by Section V (3) of this Code.
<PAGE>
4. Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that he or she
has any direct or indirect Beneficial Ownership in the Security or Limited
Offering to which the report relates.
5. Every Access Person shall report the name of any publicly-traded company
(or any company anticipating a public offering of its equity securities)
and the total number of its shares beneficially owned by him or her if such
total ownership is more than 1/2 of 1% of the company's outstanding shares.
6. In the event that no reportable transactions occurred during the quarter,
the report should be so noted and returned signed and dated.
7. No later than 10 days after the end of a calendar quarter, each access
person must report to the Compliance Department all accounts opened during
the quarter in which Securities or Limited Offerings were held for the
direct or indirect benefit of the Access Person. Specifically, the Access
Person must report:
a) the name of the broker, dealer, bank or other entity with whom the
account was opened;
b) the date the account was opened; and
c) the date the Access Person signed the report.
8. Reports maintained pursuant to Rule 204-2(a)(12) under the Advisers Act
shall meet the requirements for reports required to be made under this
section.
9. Within 10 days of becoming an Access Person, every Access Person must
provide to the Review Officer a complete listing of all Securities and
Limited Offerings owned by such person and thereafter must submit a revised
list of such holdings as of December 31 of each subsequent year to the
Compliance Department.
10. Every Access Person shall certify annually that he or she:
a) has read and understands this Code and recognized that he/she is
subject to it;
b) has complied with the Code during the past year;
<PAGE>
c) will comply with the Code during the upcoming year; and
d) has disclosed and reported all personal Securities and Limited
Offering transactions required to be disclosed or reported.
VII. REVIEW AND ENFORCEMENT
1. The Code of Ethics Officer shall review all reports submitted pursuant to
Section VI.
2. The Code of Ethics Officer shall provide a comparison of all reported
personal transactions with completed portfolio transactions of the Access
Persons and a list of Securities and Limited Offerings being considered for
purchase or sale by Pilgrim Baxter to the Review Officer. Determination of
whether a violation of this Code may have occurred will be made by the
Review Officer. Before making any determination that a violation has been
committed by any person, the Review Officer shall give such person an
opportunity to supply additional explanatory material.
3. If the Review Officer determines that a violation of this Code may have
occurred, he or she shall submit his or her determination and any
additional explanatory material provided by the individual, to an Alternate
Review Officer, who shall make an independent determination as to whether a
violation has occurred.
4. If the Alternate Review Officer finds that a violation has occurred, the
Alternate Review Officer shall impose upon the individual such sanctions as
he or she deems appropriate, including, but not limited to, a letter of
censure, suspension or termination of the employment of the violator, or
disgorgement of profits. There shall be no mandatory sanction for
inadvertent non-compliance with the blackout trading restrictions set forth
in Section III (2).
5. No Person shall participate in a determination of whether he or she has
committed a violation of this Code or of the imposition of any sanction
against himself. If a personal transaction of the Alternate Review Officer
is under consideration, the other Alternate Review Officer or the Chief
Executive Officer shall act in all respects in the manner prescribed herein
for an Alternate Review Officer.
<PAGE>
VIII. RECORDS.
Pilgrim Baxter shall maintain records in the manner and to the extent set forth
below, which records shall be available for examination by representatives of
the Securities and Exchange Commission.
1. A copy of this Code and any other code which is, or at any time within the
past six years has been, in effect shall be preserved;
2. A record of any violation of this Code, and of any action taken as a result
of such violation, shall be preserved for a period of not less than six
years;
3. A copy of each report made by an Access Person pursuant to this Code shall
be preserved for a period of not less than six years; and
4. A list of all persons who are, or within the past six years have been,
required to make reports pursuant to this Code shall be maintained.
5. A list of personnel who are, or within the past six years have been Review
Officers, Code of Ethics Officers and members of the Limited Offering
Review Committee shall be maintained.
6. Effective January 2000, a record of any decision by the Limited Offering
Review Committee, and the reasons supporting the decision, to approve the
acquisition or sale of a Limited Offering by an Access Person. This record
will be kept for five years after the end of the fiscal year in which the
approval is granted.
IX. MISCELLANEOUS
1. All reports of Securities and Limited Offering transactions and any other
information filed with Pilgrim Baxter pursuant to this Code shall be
treated as confidential.
2. Pilgrim Baxter may from time to time adopt such interpretations of this
Code as it deems appropriate.
3. The Review Officer shall prepare a report to Pilgrim Baxter's Board of
Directors, upon request, as to the operation of this Code and shall address
in any such report the need (if any) for further changes or modifications
to this Code.
Adopted this 1st day of February 2000.
PILGRIM BAXTER VALUE INVESTORS, INC.
CODE OF ETHICS
This Code of Ethics has been adopted by the Board of Directors of Pilgrim Baxter
Value Investors, Inc. ("PBVI") in accordance with Rule 17j-1(b) under the
Investment Company Act of 1940, as amended (the "Act"), and the Recommendations
of the Investment Company Institute Advisory Group on Personal Investing. Rule
17j-1 under the Act generally proscribes fraudulent or manipulative practices
with respect to purchases or sales of securities held or to be acquired by
investment companies, if effected by associated persons of such investment
companies.
While affirming its confidence in the integrity and good faith of all of its
employees, officers, and directors, PBVI recognizes that certain of its
personnel have or may have knowledge of present or future portfolio transactions
and, in certain instances, the power to influence portfolio transactions made by
or for PBVI's Clients, and that if such individuals engage in personal
transactions in securities that are eligible for investment by Clients, these
individuals could be in a position where their personal interests may conflict
with the interests of Clients.
In view of the foregoing and of the provisions of Rule 17j-1(b)(1) under the
Act, PBVI has determined to adopt this Code of Ethics to specify and prohibit
certain types of transactions deemed to create actual conflicts of interest, the
potential for conflicts, or the appearance of conflicts, and to establish
reporting requirements and enforcement procedures.
I. STATEMENT OF GENERAL PRINCIPLES
In recognition of the trust and confidence placed in PBVI by its Clients and to
give effect to PBVI's belief that its operations should be directed to benefit
its Clients, PBVI hereby adopts the following general principles to guide the
actions of its employees, officers, and directors:
1. The interests of Clients are paramount. All PBVI personnel must conduct
themselves and their operations to give maximum effect to this tenet by
assiduously placing the interests of Clients before their own.
2. All personal transactions in securities by PBVI personnel must be
accomplished so as to avoid even the appearance of a conflict of interest
on the part of such personnel with the interests of a Client.
3. All PBVI personnel must avoid actions or activities that allow (or appear
to allow) a person to profit or benefit from his or her position with
respect to a Client, or that otherwise bring into question the person's
independence or judgment.
II. DEFINITIONS
1. "Access Person" means (i) every director or officer of PBVI, (ii) every
employee of PBVI who, in connection with his or her regular functions or
duties, makes, participates in, or
<PAGE>
obtains information regarding the Purchase or Sale of a Security by a
Client, or whose functions relate to the making of any recommendations with
respect to such purchases or sales, and (iii) any natural person in a
Control relationship to PBVI who obtains information concerning
recommendations made by PBVI with respect to the Purchase or Sale of a
Security by a Client.
2. "Beneficial Ownership" of a Security is to be determined in the same manner
as it is for purposes of Section 16 of the Securities Exchange Act of 1934.
This means that a person should generally consider himself of herself the
beneficial owner of any securities in which he or she has a direct or
indirect pecuniary interest. In addition, a person should consider himself
or herself the beneficial owner of securities held by (i) his or her spouse
or partner, (ii) minor children, (iii) a relative who shares his or her
home, or (iv) other persons by reason of any contract, arrangement,
understanding, or relationship that provides him or her with sole or shared
voting or investment power over the securities held by such person.
3. "Control" shall have the same meaning as that set forth in Section 2(a)(9)
of the Act. Section 2(a)(9) provides that "control" means the power to
exercise a controlling influence over the management or policies of a
company, unless such power is solely the result of an official position
with such company. Ownership of 25% or more of a company's outstanding
voting securities is presumed to give the holder of those securities
control over the company. This is a rebuttable presumption, and it may be
countered by the facts and circumstances of the given situation. A natural
person shall not be presumed to be a controlled person.
4. "Client" means any investment company registered under the Act, a series of
an investment company registered under the Act, or a separately managed
investment management account for which PBVI acts as investment adviser or
sub-adviser.
5. "Initial Public Offering" means an offering of securities registered under
the Securities Act of 1933, the issuer of which, immediately before the
registration, was not subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934.
6. "Investment Personnel" means (a) any portfolio manager and (b) Security
analysts, traders and other personnel, who provide information and/or
advice to any portfolio manager, or who execute or help execute any
portfolio manager's decisions.
7. "Limited Offering" means an offering that is exempt from registration under
the
<PAGE>
Securities Act of 1933 pursuant to Section 4(2) or Section 4(6) or pursuant
to Rules 504, 505, or 506 under the Securities Act of 1933. The term
includes so-called private placements such as any investment limited
partnership that is exempt from registration.
8. An Access Person's "Personal Account" means any Securities account in which
such Access Person has direct or indirect Beneficial Ownership.
9. "Purchase or Sale of a Security" includes, among other things, the writing
of an option to purchase or sell a Security.
10. The designated "Review Officer" is the Chief Compliance Officer of PBVI.
The "Alternate Review Officers" are (i) the Chief Investment Officer of
PBVI, (ii) the General Counsel and Secretary of PBVI, and (iii) the Senior
Compliance Officer of the Investment Adviser. In the absence of the Review
Officer, an Alternate Review Officer shall act in all respect in the manner
prescribed herein for the Review Officer. A "Code of Ethics Officer," as
designated by the Review Officer, shall act under the direction and
supervision of the Review Officer.
11. A "Related Security" is any Security whose value directly fluctuates as a
result of a change in the value of a Security or Limited Offering in the
Securities Universe.
12. "Security" shall have the same meaning as that set forth in Section
2(a)(36) of the Act, except that it shall not include securities issued by
the Government of the United States or an agency thereof, bankers'
acceptances, bank certificates of deposit, commercial paper, and shares of
registered open-end mutual funds. The term includes any investment limited
partnership that is registered under the Securities Act of 1933 and any
Initial Public Offering.
13. A "Limited Offering or Security Held or to be Acquired" by a Client means
any Limited Offering or Security which, within the most recent 15 days, (i)
is or has been held by a Client or (ii) is being or has been considered by
PBVI for purchase for a Client.
14. A Limited Offering or Security is "Being Purchased or Sold" by a Client
from the time when a recommendation has been communicated to the persons
who place the buy and sell orders for a Client until the time when such
program has been fully completed or terminated.
15. "Security Universe" means only the Securities or Limited Offerings held or
to be acquired by PBVI, or a subsidiary of PBVI located on the same
premises as PBVI or using PBVI's security transaction facilities for a
Client.
<PAGE>
III. PROHIBITED PURCHASES AND SALES OF SECURITIES AND LIMITED OFFERINGS.
1. No Access Person shall, in connection with the purchase or sale, directly
or indirectly, by such person of a Limited Offering or Security Held or to
be Acquired by any Client:
a) employ any device, scheme, or artifice to defraud such Client;
b) make to such Client any untrue statement of a material fact or omit to
state to such Client a material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading;
c) engage in any act, practice, or course of business that would operate
as a fraud or deceit upon such Client; or
d) engage in any manipulative practice with respect to such Client.
2. Subject to Section IV of this Code, no Access Person may purchase or sell,
directly or indirectly, a Security or Limited Offering for a Personal
Account at the same time that the same Security, Limited Offering or a
Related Security is in the Security Universe.
3. No Access Person shall reveal to any other person (except in the normal
course of his or her duties on behalf of any Client) any information
regarding transactions in Securities or Limited Offerings by any Client or
the Security Universe.
4. No Access Person shall recommend any transaction in Securities or Limited
Offering by any Client without having disclosed his or her interest, if
any, in such Securities or Limited Offering or the issuer thereof,
including without limitation:
a) the Access Person's direct or indirect Beneficial Ownership of any
Securities or Limited Offerings of such issuer;
b) any contemplated transaction by the Access Person in such Securities
or Limited Offering;
c) any position the Access Person has with such issuer or its affiliates
(for example, a directorship); and
<PAGE>
d) any present or proposed business relationship between such issuer or
its affiliates, on the one hand, and the Access Person or any party in
which the Access Person has a significant interest, on the other;
provided, however, that in the event the interest of such Access
Person in such Securities, Limited Offering or issuer is not material
to his or her personal net worth and any contemplated transaction by
the Access Person in such Securities or Limited Offering cannot
reasonably be expected to have a material adverse effect on any such
transaction by any Client or on the market for the Securities or
Limited Offering generally, that Access Person shall not be required
to disclose his or her interest in the Securities, Limited Offering or
the issuer in connection with any such recommendation.
5. Every Access Person is prohibited from directly or indirectly acquiring
beneficial ownership in any securities in an Initial Public Offering.
6. Every Access Person must obtain prior written approval from the Limited
Offering Review Committee before directly or indirectly acquiring or
selling any beneficial ownership in a Limited Offering.
7. No Investment Personnel shall profit from the purchase and sale, or sale
and purchase, of the same (or an equivalent) Security within a 60-day
calendar day period. This 60-day period will not include any purchase or
sale made pursuant to the exercise or expiration of an option on a
Security; provided that such exercise or expiration is not at the
discretion of the Investment Personnel. Other exceptions to this policy are
permitted only with the approval of the Review Officer.
8. Subject to Section IV of this Code, new employees who at the date of their
employment own, directly or indirectly, any Security included in the
Security Universe or a Limited Offering and current employees with a
Security holding that subsequently is included in the Security Universe are
prohibited from engaging in any transaction which might be deemed to
violate Section III (1) of this Code.
IV. PRE-CLEARANCE OF TRANSACTIONS.
A. Limited Offerings
2. As provided in Section III(3) of this Code, every person must obtain prior
written approval from the Limited Offering Review Committee before directly
or indirectly acquiring or selling any beneficial
<PAGE>
ownership in a Limited Offering. This pre-clearance approval process is
governed by the Pre-Clearance Procedures and Conditions for Limited
Offerings which are attached to and made part of this Code. The Review
Officer shall report all such transactions to the Board of Directors of the
PBHG Family of Funds.
B. Securities
5. Except as provided in Section IV(3) of this Code, every Access Person must
pre-clear each proposed transaction in Securities with the Review Officer
prior to proceeding with the transaction. No transaction in Securities
shall be effected without the prior written approval of the Review Officer.
In determining whether to grant such clearance, the Review Officer shall
refer to Section IV(4) below. Pre-clearance of a Securities transaction is
valid for two (2) business days.
6. In determining whether to grant approval for the purchase of a Security
offered in a private placement, the Review Officer shall take into account,
among other factors, whether the investment opportunity should be reserved
for a Client, and whether the opportunity is being offered to the Access
Person by virtue of his or her position with PBVI.
7. The pre-clearance requirements of Section IV(1) shall not apply to the
following transactions:
f) Purchases or sales over which the Access Person has no direct or
indirect influence or Control.
g) Purchases or sales that are non-volitional on the part of the Access
Person, including purchases or sales upon exercise of puts or calls
written by the Access Person and sales from a margin account pursuant
to a bona fide margin call.
h) Purchases that are part of an automatic dividend reinvestment plan.
i) Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its Securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
j) Purchases or sales of Securities that are not eligible for inclusion
in the Securities Universe.
8. Transactions that may be entitled to clearance from the Review Officer
include transactions, which appear upon reasonable inquiry and
investigation to present no reasonable likelihood of harm to any Client and
with respect to registered investment companies, which are otherwise in
accordance with
<PAGE>
Rule 17j-1. Such transactions would normally include purchases or sales of
up to 1,000 shares of a Security that is in the Security Universe (but not
then Being Purchased or Sold) if the issuer has a market capitalization of
over $1 billion. The Review Officer shall report all such transactions to
the Board of Directors of The PBHG Family of Funds.
V. ADDITIONAL RESTRICTIONS AND REQUIREMENTS.
1. The receipt of any gift, favor, gratuity or other thing ("Gift") by an
Access Person from any person or entity that does business with PBVI with a
fair market value in excess of $100 requires pre-approval by the Review
Officer prior to its acceptance. Gifts do not include occasional
participation in lunches, dinners, cocktail parties, sporting activities or
similar gatherings conducted for business purposes. No Access Person or
member of his or her family may accept a Gift or consider the prior receipt
of a Gift when exercising his or her fiduciary responsibilities.
2. No Investment Personnel shall accept a position as a director, trustee, or
general partner of a publicly traded company or partnership unless the
acceptance of such position has been approved by the Review Officer as
consistent with the interests of the Clients.
3. Every Access Person must direct each brokerage firm or bank at which the
Access Person maintains a securities account to send duplicate copies of
confirmations of all personal securities transactions and copies of
periodic statements for all securities accounts promptly to PBVI's
Compliance Department. Compliance with this provision can be effected by
the Access Person providing duplicate copies of all such statements
directly to the Compliance Department.
VI. REPORTING OBLIGATIONS
1. Every Access Person shall report all transactions in which such Access
Person has, or by reason of such transaction acquires, any direct or
indirect Beneficial Ownership in Securities and Limited Offerings provided:
however, that an Access Person shall not be required to make a report with
respect to transactions effected for any account over which such person
does not have any direct or indirect influence. Reports shall be filed with
the Compliance Department each quarter. The Review Officer shall submit
confidential quarterly reports with respect to his or her own personal
securities transactions to the Alternate Review Officer, who shall act in
all respects in the manner prescribed herein for the Review Officer.
<PAGE>
2. Every report shall be made not later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:
a) the date of the transaction, the title and the number of shares, and
the principal amount of each Security and Limited Offering involved;
b) the nature of the transaction (i.e., purchase, sale or any other type
of acquisition or disposition);
c) the price at which the transaction was effected;
d) the name of the broker, dealer, bank or other entity with or through
whom the transaction was effected; and
e) the date the report was signed.
3. Any such report may refer to the information contained in the statements
required by Section V (3) of this Code.
4. Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that he or she
has any direct or indirect Beneficial Ownership in the Security or Limited
Offering to which the report relates.
5. Every Access Person shall report the name of any publicly-traded company
(or any company anticipating a public offering of its equity securities)
and the total number of its shares beneficially owned by him or her if such
total ownership is more than 1/2 of 1% of the company's outstanding shares.
6. In the event that no reportable transactions occurred during the quarter,
the report should be so noted and returned signed and dated.
7. No later than 10 days after the end of a calendar quarter, each access
person must report to the Compliance Department all accounts opened during
the quarter in which Securities or Limited
<PAGE>
Offerings were held for the direct or indirect benefit of the Access
Person. Specifically, the Access Person must report:
d) the name of the broker, dealer, bank or other entity with whom the
account was opened;
e) the date the account was opened; and
f) the date the Access Person signed the report.
8. Reports maintained pursuant to Rule 204-2(a)(12) under the Advisers Act
shall meet the requirements for reports required to be made under this
section.
9. Within 10 days of becoming an Access Person, every Access Person must
provide to the Review Officer a complete listing of all Securities and
Limited Offerings owned by such person and thereafter must submit a revised
list of such holdings as of December 31 of each subsequent year to the
Compliance Department.
10. Every Access Person shall certify annually that he or she:
a) has read and understands this Code and recognized that he/she is
subject to it;
b) has complied with the Code during the past year;
c) will comply with the Code during the upcoming year; and
d) has disclosed and reported all personal Securities and Limited
Offering transactions required to be disclosed or reported.
VII. REVIEW AND ENFORCEMENT
6. The Code of Ethics Officer shall review all reports submitted pursuant to
Section VI.
7. The Code of Ethics Officer shall provide a comparison of all reported
personal transactions with completed portfolio transactions of the Access
Persons and a list of Securities and Limited Offerings being considered for
purchase or sale by PBVI to the Review Officer. Determination of whether a
violation of this Code
<PAGE>
may have occurred will be made by the Review Officer. Before making any
determination that a violation has been committed by any person, the Review
Officer shall give such person an opportunity to supply additional
explanatory material.
8. If the Review Officer determines that a violation of this Code may have
occurred, he or she shall submit his or her determination and any
additional explanatory material provided by the individual, to an Alternate
Review Officer, who shall make an independent determination as to whether a
violation has occurred.
9. If the Alternate Review Officer finds that a violation has occurred, the
Alternate Review Officer shall impose upon the individual such sanctions as
he or she deems appropriate, including, but not limited to, a letter of
censure, suspension or termination of the employment of the violator, or
disgorgement of profits. There shall be no mandatory sanction for
inadvertent non-compliance with the blackout trading restrictions set forth
in Section III (2).
10. No Person shall participate in a determination of whether he or she has
committed a violation of this Code or of the imposition of any sanction
against himself. If a personal transaction of the Alternate Review Officer
is under consideration, the other Alternate Review Officer or the Chief
Executive Officer shall act in all respects in the manner prescribed herein
for an Alternate Review Officer.
VIII. RECORDS.
PBVI shall maintain records in the manner and to the extent set forth below,
which records shall be available for examination by representatives of the
Securities and Exchange Commission.
7. A copy of this Code and any other code which is, or at any time within the
past six years has been, in effect shall be preserved;
8. A record of any violation of this Code, and of any action taken as a result
of such violation, shall be preserved for a period of not less than six
years;
9. A copy of each report made by an Access Person pursuant to this Code shall
be preserved for a period of not less than six years; and
<PAGE>
10. A list of all persons who are, or within the past six years have been,
required to make reports pursuant to this Code shall be maintained.
11. A list of personnel who are, or within the past six years have been Review
Officers, Code of Ethics Officers and members of the Limited Offering
Review Committee shall be maintained.
12. Effective January 2000, a record of any decision by the Limited Offering
Review Committee, and the reasons supporting the decision, to approve the
acquisition or sale of a Limited Offering by an Access Person. This record
will be kept for five years after the end of the fiscal year in which the
approval is granted.
IX. MISCELLANEOUS
4. All reports of Securities and Limited Offering transactions and any other
information filed with PBVI pursuant to this Code shall be treated as
confidential.
5. PBVI may from time to time adopt such interpretations of this Code as it
deems appropriate.
6. The Review Officer shall prepare a report to PBVI's Board of Directors,
upon request, as to the operation of this Code and shall address in any
such report the need (if any) for further changes or modifications to this
Code.
Adopted this 1st day of February 2000.
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
CODE OF ETHICS
This Code of Ethics is adopted by the Board of Directors of PBHG Insurance
Series Fund, Inc. (the "Fund") in accordance with Rule 17j-1(b) under the
Investment Company Act of 1940, as amended (the "Act"), and the Recommendations
of the Investment Company Institute Advisory Group on Personal Investing. This
Code of Ethics is based upon the principle that the directors and officers of
the Fund, and certain Affiliated Persons of the Fund and its investment advisers
and sub-advisers, owe a fiduciary duty to, among others, the shareholders of the
Fund to conduct their affairs, including their personal securities transactions,
in such manner to avoid (i) serving their own personal interests ahead of
shareholders; (ii) taking inappropriate advantage of their position with the
Fund; and (iii) any actual or potential conflicts of interest or any abuse of
their position of trust and responsibility. This fiduciary duty includes the
duty of the investment advisers to the portfolios of the Fund to report material
violations of this Code of Ethics to the Board of Directors of the Fund.
I. DEFINITIONS
1. "Access Person" means any director, officer, or Advisory Person of the
Fund. Notwithstanding the foregoing and except for such reporting
requirements as may be required pursuant to in Section VI (5), an Access
Person of the Fund is not subject to this Code of Ethics if: (a) such
person is subject to a separate code of ethics of the Fund's investment
adviser, sub-adviser, administrator, sub-administrator or distributor and
such code
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<PAGE>
of ethics has been reviewed by the Board of Directors of the Fund, and (b)
such person is a director of the Fund who is not an "Interested Person" of
the Fund as defined in this Code, except where such director knows, in the
ordinary course of fulfilling his or her official duties as a director of
the Fund that such Security is a Security Held or to be Acquired by the
Fund, its Investment Adviser, or any sub-adviser.
2. "Advisory Person" means (a) any employee of the Fund who, in connection
with his or her regular functions or duties, normally makes, participates
in, or obtains current information regarding the Purchase or Sale of a
Security by the Fund, or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and (b) any
natural person in a Control relationship to the Fund who obtains
information concerning recommendations made to the Fund with regard to the
Purchase or Sale of a Security by the Fund.
3. "Affiliated Person" of another person means (a) any person directly or
indirectly owning, Controlling, or holding with power to vote, 5% or more
of the outstanding voting securities of such other person; (b) any person
5% or more of whose outstanding voting securities are directly or
indirectly owned, Controlled, or held with power to vote, by such other
person; (c) any person directly or indirectly Controlling, Controlled by,
or under common Control with, such other person; (d) any officer, director,
partner, copartner, or employee of such other person; (e) if such other
person is an investment company, any investment adviser thereof or any
member of an advisory board thereof; and (f) if such other person is an
unincorporated investment company not having a board of directors, the
depositor thereof.
4. "Beneficial Ownership" of a Security is to be determined in the same manner
as it is for purposes of Section 16 of the Securities Exchange Act
2
<PAGE>
of 1934. This means that a person should generally consider himself of
herself the beneficial owner of any securities in which he or she has a
direct or indirect pecuniary interest. In addition, a person should
consider himself or herself the beneficial owner of securities held by (i)
his or her spouse or domestic partner, (ii) minor children, (iii) a
relative who shares his or her home, or (iv) other persons by reason of any
contract, arrangement, understanding, or relationship that provides him or
her with sole or shared voting or investment power over the securities held
by such person.
5. "Control" shall have the same meaning as that set forth in Section 2(a)(9)
of the Act. Section 2(a)(9) provides that "control" means the power to
exercise a controlling influence over the management or policies of a
company, unless such power is solely the result of an official position
with such company. Ownership of 25% or more of a company's outstanding
voting securities is presumed to give the holder of those securities
control over the company. A natural person shall be presumed not to be a
controlled person.
6. "Disinterested Director" means a director who is not: an Affiliated Person,
as defined in (3) above of the Fund; a member of the immediate family of
any natural person who is an Affiliated Person of the Fund; an Interested
Person, as defined in (7) below of the Fund, any investment adviser or any
principal underwriter for the Fund.
3
<PAGE>
7. Initial Public Offering" means an offering of securities registered under
the Securities Act of 1933, the issuer of which, immediately before the
registration, was not subject ot the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934.
8. "Interested Person" of another person means--when used with respect to an
investment company--
a) any Affiliated Person of such company,
b) any member of the immediate family of any natural person who is an
Affiliated Person of such company,
c) any Interested Person of any investment adviser of or principal
underwriter for such company,
d) any person or partner or employee of any person who at any time since
the beginning of the last two completed fiscal years of such company
has acted as legal counsel for such company,
e) any broker or dealer registered under the Securities Exchange Act of
1934 or any Affiliated Person of such a broker or dealer, and
f) any natural person whom the Commission by order shall have determined
to be an Interested Person by reason of having had, at any time since
the beginning of the last two completed fiscal years of such company,
a material business or professional relationship with such company or
with the principal executive officer of such company or with any other
investment company having the same
4
<PAGE>
investment adviser or principal underwriter or with the principal
executive officer of such other investment company.
Provided, that no person shall be deemed to be an Interested Person of
an investment company solely by reason of (i) his or her being a
member of its board of directors or advisory board or an owner of its
securities, or (ii) his or her membership in the immediate family of
any person specified in clause (i) of this proviso.
9. "Investment Adviser" means Pilgrim Baxter & Associates, Ltd.
10. "Investment Personnel" means (a) any portfolio manager of the Fund and (b)
securities analysts, traders and other personnel who provide information
and/or advice to any portfolio manager or who execute or help execute the
portfolio manager's decisions.
11. A "Limited Offering" means any offering that is exempt from registration
under the Securities Act of 1933 pursuant to Section 4(2) or Section 4(6)
of pursuant to Rules 504, 505, or 506 under the Securities Act of 1933. The
term includes so-called private placements such as any investment limited
partnership that is exempt from registration.
12. An Access Person's "Personal Account" means any Securities account in which
such Access Person has direct or indirect Beneficial Ownership.
13. "Purchase or Sale of a Security" includes, among other things, the writing
of an option to purchase or sell a Security.
14. The designated "Review Officer" is the Chief Compliance Officer of the
Investment Adviser. The "Alternate Review Officers" are (i) Chief
Investment Officer of the Investment Adviser and President of the Fund,
(ii) General Counsel and Secretary of the Investment Adviser and Vice
5
<PAGE>
President and Secretary to the Fund, and (iii) Senior Compliance Officer of
the Investment Adviser. In the absence of the Review Officer, an Alternate
Review Officer shall act in all respect in the manner prescribed herein for
the Review Officer. A "Code of Ethics Officer," as designated by the Review
Officer, shall act under the direction and supervision of the Review
Officer.
15. "Security" shall have the same meaning as that set forth in Section
2(a)(36) of the Act, except that it shall not include securities issued by
the Government of the United States or an agency thereof, bankers'
acceptances, bank certificates of deposit, commercial paper, and shares of
registered open-end mutual funds. The term includes any investment limited
parthership that is registered under the Securities Act of 1933 and any
Initial Public Offering.
16. A "Limited Offering or Security Held or to be Acquired" by the Fund means
any Limited Offering or Security which, within the past 15 days, (i) is or
has been held by the Fund or (ii) is being or has been considered by the
Fund for purchase by the Fund.
17. A Security is "Being Purchased or Sold" by the Fund from the time when a
recommendation to purchase or sell the Security has been made and
communicated to the persons who place the buy and sell orders for the Fund
until the time when such program has been fully completed or terminated.
18. "Security Universe" means only the Securities or Limited Offerings held or
to be acquired for the Fund.
6
<PAGE>
II. PROHIBITED PURCHASES AND SALES OF SECURITIES AND LIMITED OFFERINGS.
1. No Access Person shall in connection with the purchase or sale, directly or
indirectly, by such person of a Limited Offering or Security Held or to be
Acquired by the Fund:
a) employ any device, scheme, or artifice to defraud the Fund;
b) make to the Fund any untrue statement of a material fact or omit to
state to the Fund a material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading;
c) engage in any act, practice, or course of business that would operate
as a fraud or deceit upon the Fund; or
d) engage in any manipulative practice with respect to the Fund.
2. Subject to Section III (4) of this Code no Access Person may purchase or
sell, directly or indirectly, a Security or Limited Offering for a Personal
Account at the time that the same (or a related) Security or Limited
Offering is in the Security Universe.
3. No Access Person shall reveal to any other person (except in the normal
course of his or her duties on behalf of the Fund) any information
regarding transactions in Securities of Limited Offerings by the Fund or in
the Security Universe.
4. No Access Person shall recommend any transaction in Securities or Limited
Offerings by the Fund without having disclosed his or her interest,
7
<PAGE>
if any, in such Securities or Limited Offerings or the issuer thereof,
including without limitation:
a) the Access Person's direct or indirect Beneficial Ownership of any
Securities or Limited Offerings of such issuer;
b) any contemplated transaction by the Access Person in such Securities
or Limited Offering;
c) any position the Access Person has with such issuer or its affiliates
(for example, a directorship); and
d) any present or proposed business relationship between such issuer or
its affiliates, on the one hand, and the Access Person or any party in
which the Access Person has a significant interest, on the other;
provided, however, that in the event the interest of such Access
Person in such Securities, Limited Offering or issuer is not material
to his or her personal net worth and any contemplated transaction by
the Access Person in such Securities or Limited Offerings cannot
reasonably be expected to have a material adverse effect on any such
transaction by the Fund or on the market for the Securities or Limited
Offerings generally, that Access Person shall not be required to
disclose his or her interest in the Securities, Limited Offering or
the issuer in connection with any such recommendation.
5. Every Access Person is prohibited from directly or indirectly acquiring
beneficial ownership in any securities in an Initial Public Offering.
8
<PAGE>
6. Every Access Person must obtain prior written approval from the Limited
Offering Review Committee before directly or indirectly acuiring or selling
any beneficial ownership in a Limited Offering.
7. Subject to Section III (4) of this Code, no Investment Personnel shall
profit from the purchase and sale, or sale and purchase, of the same (or an
equivalent) Security within a 60-day calendar day period. This 60-day
period will not include any purchase or sale made pursuant to the exercise
or expiration of an option on a Security; provided that such exercise or
expiration is not at the discretion of the Investment Personnel. Other
exceptions to this policy are permitted only with the approval of the
Review Officer.
8. Subject to Section IV (4) of this Code, new employees who at the date of
their employment own, directly or indirectly, any Security included in the
Security Universe or a Limited Offering and current employees with a
Security holding that subsequently is included in the Security Universe are
prohibited from engaging in any transaction which might be deemed to
violate Section II (1) of this Code.
III. PRE-CLEARANCE OF TRANSACTIONS.
A. Limited Offerings
1. As provided in Section III(3) of this Code, every person must obtain prior
written approval from the Limited Offering Review Committee before directly
or indirectly acquiring or selling any beneficial ownership in a Limited
Offering. This pre-clearance approval process is governed by the
Pre-Clearance Procedures and Conditions for Limited Offerings which are
attached to and made part of this Code. The Review Officer shall report all
such transactions to the Board of Directors of the PBHG Family of Funds.
9
<PAGE>
1. B. Securities. Except as provided in Section III (3) of this Code, every
Access Person must pre-clear each proposed transaction in Securities with
the Review Officer prior to proceeding with the transaction. No transaction
in Securities shall be effected without the prior written approval of the
Review Officer. In determining whether to grant such clearance, the Review
Officer shall refer to Section III(4) below. Pre-clearance of a Securities
transaction is valid for two (2) business days.
2. In determining whether to grant approval for the purchase of a Security
offered in a private placement, the Review Officer shall take into account,
among other factors, whether the investment opportunity should be reserved
for the Fund, and whether the opportunity is being offered to the Access
Person by virtue of his or her position with the Fund, the Investment
Adviser, or any subsidiary of the Investment Adviser.
3. The pre-clearance requirements of Section III(1) of this Code, shall not
apply to the following transactions:
a) Purchases or sales made by directors of the Fund who are not
"Interested Persons" of the Fund as defined in this Code, except where
such director knows in the ordinary course of fulfilling his or her
official duties as a director of the Fund that such Security is a
Security Held or to be Acquired by the Fund, its Investment Adviser,
or any sub-adviser.
b) Purchases or sales over which the Access Person has no direct or
indirect influence or Control.
c) Purchases or sales that are non-volitional on the part of the Access
Person, including purchases or sales upon exercise of puts or calls
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<PAGE>
written by the Access Person and sales from a margin account pursuant
to a bona fide margin call.
d) Purchases that are part of an automatic dividend reinvestment plan.
e) Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its Securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
f) Purchases or sales of securities that are not eligible for purchase or
sale by the Fund.
4. The following transactions may be entitled to clearance from the Review
Officer:
a) Transactions which appear upon reasonable inquiry and investigation to
present no reasonable likelihood of harm to the Fund and which are
otherwise in accordance with Rule 17j-l. Such transactions would
normally include purchases or sales of up to 1,000 shares of a
Security that is in the Security Universe (but not then Being
Purchased or Sold) if the issuer of such Security has a market
capitalization of over $1 billion.
b) The Review Officer shall report all transactions cleared pursuant to
Section III (4)(a) to the Board of Directors of the Fund.
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IV. ADDITIONAL RESTRICTIONS AND REQUIREMENTS.
1. The receipt any gift, favor, gratuity or other thing ("Gift") by an Access
Person from any person or entity that does business with or on behalf of
the Fund, the Investment Adviser or a subsidiary of the Investment Adviser
with a fair market value in excess of $100 requires pre-approval by the
Review Officer. Gifts do not include occasional participation in lunches,
dinners, cocktail parties, sporting activities or similar gatherings
conducted for business purposes. No Access Person or member of his or her
family may accept a Gift or consider the prior receipt of a Gift when
exercising his or her fiduciary responsibilities.
2. No Investment Personnel shall accept a position as a director, trustee, or
general partner of a publicly-traded company or partnership unless the
acceptance of such position has been approved by the Review Officer as
consistent with the interests of the Fund.
3. Every Access Person must direct each brokerage firm or bank at which the
Access Person maintains a securities account to send duplicate copies of
confirmations of all personal securities transactions and copies of
periodic statements for all securities accounts promptly to the compliance
department of the Investment Adviser's. Compliance with this provision can
be effected by the Access Person providing duplicate copies of all such
statements directly to the compliance department of the Investment Adviser.
V. REPORTING OBLIGATIONS
1. Every Access Person shall report all transactions in which such Access
Person has, or by reason of such transaction acquires, any direct or
indirect Beneficial Ownership in Securities and Limited Offerings:
provided, however, that an Access Person shall not be required to make a
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report with respect to transactions effected for any account over which
such person does not have any direct or indirect influence. Reports shall
be filed with the Compliance Department each quarter. The Review Officer
shall submit confidential quarterly reports with respect to his or her own
personal securities transactions to an Alternate Review Officer, who shall
act in all respects in the manner prescribed herein for the Review Officer.
2. Every report shall be made not later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:
a) the date of the transaction, the title and the number of shares, and
the principal amount of each Security and Limited Offering involved;
b) the nature of the transaction ( i.e., purchase, sale or any other type
of acquisition or disposition);
c) the price at which the transaction was effected;
d) the name of the broker, dealer, bank or other entity with or through
whom the transaction was effected; and
e) the date the report was signed.
3. Any such report may refer to the information contained in the statements
required by Section IV (3) of this Code.
4. Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that he or
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she has any direct or indirect Beneficial Ownership in the Security or
Limited Offering to which the report relates.
5. Every director who is not an "Interested Person" of the Fund need only
report a transaction in a Security if such director, at the time of that
transaction, knew in the ordinary course of fulfilling his or her official
duties as a director of the Fund that such Security was a Security Held or
to be Acquired by the Fund, the Investment Adviser or a sub-adviser.
6. Every Access Person shall report the name of any publicly-traded company
(or any company anticipating a public offering of its equity securities)
and the total number of its shares beneficially owned by him or her if such
total ownership is more than 1/2 of 1% of the company's outstanding shares.
7. In the event that no reportable transactions occurred during the quarter,
the report should be so noted and returned signed and dated.
8. No later than 10 days after the end of a calendar quarter, each access
person must report to the Compliance Department all accounts opened during
the quarter in which Securities or Limited Offerings were held for the
direct or indirect benefit of the Access Person. Specifically, the Access
Person must report:
a) the name of the broker, dealer, bank or other entity with whom the
account was opened;
b) the date the account was opened; and
c) the date the Access Person signed the report.
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9. Within 10 days of becoming an Access Person, every Access Person must
provide to the Review Officer a complete listing of all Securities and
Limited Offerings owned by such person and thereafter must submit a revised
list of such holdings as of December 31 of each subsequent year to the
Compliance Department.
10. Every Access Person shall certify annually that he or she:
a) has read and understands this Code and recognizes that he/she is
subject to it;
b) has complied with the Code during the past year;
c) will comply with the Code during the upcoming year; and
d) has disclosed and reported all personal Securities and Limited
Offering transactions required to be disclosed or reported.
VI. REVIEW AND ENFORCEMENT
1. The Code of Ethics Officer shall review all reports submitted pursuant to
Section V.
2. The Code of Ethics Officer shall provide a comparison of all reported
personal transactions with completed portfolio transactions of the Access
Persons and a list of Securities and Limited Offerings purchased or sold by
the Fund to the Review Officer. Determination of whether a violation of
this Code may have occurred will be made by the Review Officer. Before
making any determination that a violation has been committed by any person,
the
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Review Officer shall give such person an opportunity to supply additional
explanatory material.
3. If the Review Officer determines that a violation of this Code may have
occurred, he or she shall submit his or her determination, and any
additional explanatory material provided by the individual, to an Alternate
Review Officer, who shall make an independent determination as to whether a
violation has occurred.
4. If the Alternate Review Officer finds that a violation has occurred, the
Alternate Review Officer shall impose upon the individual such sanctions as
he or she deems appropriate, including, but not limited to, a letter of
censure, suspension or termination of the employment of the violator,
and/or disgorgement of profits.
5. No Person shall participate in a determination of whether he or she has
committed a violation of this Code or of the imposition of any sanction
against himself. If a personal transaction of the Alternate Review Officer
is under consideration, the other Alternate Review Officer or the Chief
Executive Officer shall act in all respects in the manner prescribed herein
for an Alternate Review Officer.
6. Any material violations involving Access Persons to the Fund shall be
reported to the Board of Directors of the Fund promptly. The Review Officer
shall determine in conjunction with an Alternate Review Officer whether a
material violation has occurred.
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VII. RECORDS.
1. The Investment Adviser shall maintain records in the manner and to the
extent set forth below, which records shall be available for examination by
representatives of the Securities and Exchange Commission.
2. A copy of this Code and any other code which is, or at any time within the
past six years has been, in effect shall be preserved;
3. A record of any violation of this Code, and of any action taken as a result
of such violation, shall be preserved in an easily accessible place for a
period of not less than six years
4. A copy of each report made by an Access Person pursuant to this Code shall
be preserved for a period of not less than six years; and
5. A list of all persons who are, or within the past six years have been,
required to make reports pursuant to this Code shall be maintained.
6. A list of personnel who are, or within the past six years have been, Review
Officers and Code of Ethics Officers and members of the Limited Offering
Review Committee shall be maintained.
7. Effective February 2000, a record of any decision by the Limited Offering
Review Committee, and the reasons supporting the decision, to approve the
acquisition or sale of a Limited Offering by an Access Person. This record
will be kept for five years after the end of the fiscal year in which the
approval is granted.
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VIII. MISCELLANEOUS
1. All reports of Securities and Limited Offering transactions and any other
information filed with the Investment Adviser pursuant to this Code shall
be treated as confidential.
2. The Board of Directors for the Fund may from time to time adopt such
interpretations of this Code, as it deems appropriate.
3. The Review Officer shall prepare a report to the Investment Adviser and to
the Board of Directors of the Fund at least annually as to the operation of
this Code and shall address in any such report the need (if any) for
further changes or modifications to this Code.
Adopted this 1st day of February 2000.
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SEI INVESTMENTS COMPANY
CODE OF ETHICS AND
INSIDER TRADING POLICY
January, 2000
<PAGE>
SEI INVESTMENTS COMPANY
CODE OF ETHICS AND INSIDER TRADING POLICY
TABLE OF CONTENTS
I. GENERAL POLICY
II. CODE OF ETHICS
A. PURPOSE OF CODE
B. EMPLOYEE CATEGORIES
C. RESTRICTIONS ON PERSONAL SECURITIES TRANSACTIONS
D. PRE-CLEARANCE OF PERSONAL SECURITIES TRANSACTIONS
E. REPORTING REQUIREMENTS
F. DETECTION AND REPORTING OF CODE VIOLATIONS
G. VIOLATIONS OF THE CODE OF ETHICS
H. CONFIDENTIAL TREATMENT
I. DEFINITIONS APPLICABLE TO THE CODE OF ETHICS
III. INSIDER TRADING POLICY
A. WHAT IS "MATERIAL" INFORMATION?
B. WHAT IS "NONPUBLIC INFORMATION"?
C. WHO IS AN INSIDER?
D. WHAT IS MISAPPROPRIATION?
E. WHAT IS TIPPING?
F. IDENTIFYING INSIDE INFORMATION?
G. TRADING IN SEI INVESTMENTS COMPANY SECURITIES
H. VIOLATIONS OF THE INSIDER TRADING POLICY
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I. GENERAL POLICY
SEI Investments Company, through various subsidiaries (jointly "SEI"), is an
investment adviser, administrator, distributor, and/or trustee of investment
companies, collective investment trusts, investment partnerships, and asset
management accounts (jointly "Investment Vehicles"). As an investment adviser,
SEI is subject to various U.S. securities laws and regulations governing the use
of confidential information and personal securities transactions. This Code of
Ethics and Insider Trading Policy (jointly "Policy") was developed based on
those laws and regulations, and sets forth the procedures and restrictions
governing the personal securities transactions of all SEI employees.
SEI has a highly ethical business culture and expects that all employees will
conduct any personal securities transactions consistent with this Policy and in
such a manner as to avoid any actual or potential conflict of interest or abuse
of a position of trust and responsibility. When an employee invests for his or
her own account, conflicts of interest may arise between a client's and the
employee's interest. Such conflicts may include using an employee's advisory
position to take advantage of available investment opportunities, taking an
investment opportunity from a client for an employee's own portfolio, or
frontrunning, which occurs when an employee trades in his or her personal
account before making client transactions. As a fiduciary, SEI owes a duty of
loyalty to clients which requires that an employee must always place the
interests of clients first and foremost and shall not take inappropriate
advantage of his or her position. Thus, SEI employees must conduct themselves
and their personal securities transactions in a manner that does not create
conflicts of interest with the firm's clients.
Pursuant to this Policy, employees will be subject to various pre-clearance and
reporting standards, based on their responsibilities within SEI. As a result, it
is important that all employees pay special attention to the employee category
section within this Policy to determine what provisions of the Policy applies to
them, as well as to the sections on restrictions, pre-clearance, and reporting
of personal securities transactions.
Employees outside the United States are subject to this Policy and the
applicable laws of the jurisdictions in which they are located. These laws may
differ substantially from U.S. law and may subject employees to additional
requirements. To the extent any particular portion of the Policy is inconsistent
with foreign law not included herein or within the firm's Compliance Manual,
employees should consult their designated Compliance Officer or the Compliance
Department at SEI's Oaks facility.
EACH EMPLOYEE SUBJECT TO THIS POLICY MUST READ AND RETAIN A COPY AND AGREE TO
ABIDE BY ITS TERMS. FAILURE TO COMPLY WITH THE PROVISIONS OF THIS POLICY MAY
RESULT IN THE IMPOSITION OF SERIOUS SANCTIONS, INCLUDING, BUT NOT LIMITED
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TO DISGORGEMENT OF PROFITS, DISMISSAL, SUBSTANTIAL PERSONAL LIABILITY AND/OR
REFERRAL TO REGULATORY OR LAW ENFORCEMENT AGENCIES.
Any questions regarding SEI's policy or procedures should be referred to the
Compliance Department, which currently includes Cyndi Parrish, the Compliance
Director. (x2807).
II. CODE OF ETHICS
A. PURPOSE OF CODE
This Code of Ethics ("Code") was adopted pursuant to the provisions of Section
17(j) of the Investment Company Act of 1940, as amended, and Rule 17j-1
thereunder, as amended. Those provisions of the U.S. securities laws were
adopted to prevent persons who are actively engaged in the management, portfolio
selection or underwriting of registered investment companies from participating
in fraudulent, deceptive or manipulative acts, practices or courses of conduct
in connection with the purchase or sale of securities held or to be acquired by
such companies. Employees (including contract employees) will be subject to
various pre-clearance and reporting standards based on their responsibilities
within SEI and accessibility to certain information. Those functions are set
forth in the categories listed below.
B. EMPLOYEE CATEGORIES
1. ACCESS PERSON - any director, officer or employee of SEI Investments Mutual
Fund Services who, in connection with his or her regular functions or
duties, makes, participates in, or obtains prior or contemporaneous
information regarding the purchase or sale of an Investment Vehicle's
portfolio securities for which SEI acts as distributor and/or
administrator.
2. INVESTMENT PERSON - any director, officer or employee of the Asset
Management Group who (1) directly oversees the performance of one or more
sub-advisers for any Investment Vehicle for which SEI acts as investment
adviser, (2) executes or helps execute portfolio transactions for any such
Investment Vehicle, or (3) obtains or is able to obtain prior or
contemporaneous information regarding the purchase or sale of an Investment
Vehicle's portfolio securities.
3. PORTFOLIO PERSONS - any director, officer or employee entrusted with direct
responsibility and authority to make investment decisions affecting one or
more client portfolios.
4. REGISTERED REPRESENTATIVE - any director, officer or employee who is
registered with the National Association of Securities Dealers as a
registered
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representative (Series 6, 7 or 63), a registered principal (Series 24 or
26) or an investment representative (Series 65), regardless of job title or
responsibilities.
5. ASSOCIATE - any director, officer or employee who does not fall within
definitions 1, 2, 3 or 4 above.
C. RESTRICTIONS ON PERSONAL SECURITIES TRANSACTIONS
When buying or selling securities, SEI employees may not employ any device,
scheme or artifice to defraud, mislead, or manipulate any fund or investment
client. The following restrictions are applicable to an employee's personal
securities transactions.
1. ACCESS PERSONS:
o may not purchase or sell, directly or indirectly, any Security within
24 HOURS before or after the time that the same (or a related)
Security is being purchased or sold by any Investment Vehicle for
which SEI acts as advisor, distributor and/or administrator.
o may not acquire Securities as part of an Initial Public
Offering("IPO") without obtaining the written approval of the
designated Compliance Officer at Mutual Fund Services before directly
or indirectly acquiring a beneficial ownership in such securities.
o may not acquire a beneficial ownership interest in Securities issued
in a private placement transaction without obtaining prior written
approval from the designated Compliance Officer at Mutual Fund
Services.
2. INVESTMENT PERSONS:
o may not purchase or sell, directly or indirectly, any Security within
24 HOURS before or after the time that the same (or a related)
Security is being purchased or sold by any Investment Vehicle for
which SEI or one of its sub-advisers acts as investment adviser or
sub-adviser to the Investment Vehicle.
o may not profit from the purchase and sale or sale and purchase of a
Security within 60 DAYS of acquiring or disposing of Beneficial
Ownership of that Security. This prohibition does not apply to
transactions resulting in a loss, or to futures or options on futures
on broad-based securities indexes or U.S. government securities.
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<PAGE>
o may not acquire Securities as part of an Initial Public Offering
without obtaining the written approval of the Compliance Department
before directly or indirectly acquiring a beneficial ownership in such
securities.
o may not acquire a beneficial ownership interest in Securities issued
in a private placement transaction without obtaining prior written
approval from the Compliance Department.
o may not receive any gift of more than de minimus value (currently
$100.00 per year) from any person or entity that does business with or
on behalf of any Investment Vehicle.
o may not serve on the board of directors of any publicly traded
company.
3. PORTFOLIO PERSONS:
o may not purchase or sell, directly or indirectly, any Security within
7 DAYS before or after a client portfolio has executed a trade in that
same (or an equivalent) Security, unless the order is withdrawn.
o may not acquire Securities as part of an Initial Public Offering
without obtaining the written approval of the designated Compliance
Officer before directly or indirectly acquiring a beneficial ownership
in such securities.
o may not acquire a beneficial ownership interest in Securities issued
in a private placement transaction without obtaining prior written
approval from the Compliance Department.
o may not profit from the purchase and sale or sale and purchase of a
Security within 60 DAYS of acquiring or disposing of Beneficial
Ownership of that Security. This prohibition does not apply to
transactions resulting in a loss, or to futures or options on futures
on broad-based securities indexes or U.S. government securities.
o may not receive any gift of more than de minimus value (currently
$100.00 per year) from any person or entity that does business with or
on behalf of any Investment Vehicle.
o may not serve on the board of directors of any publicly traded
company.
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4. REGISTERED REPRESENTATIVES:
o may not acquire Securities as part of an Initial Public Offering.
D. PRE-CLEARANCE OF PERSONAL SECURITIES TRANSACTIONS
1. ACCESS, INVESTMENT AND PORTFOLIO PERSONS:
o must pre-clear each proposed securities transaction with the
Compliance Department or the designated Compliance Officer for
Accounts held in their names or in the names of others in which they
hold a Beneficial Ownership interest. No transaction in Securities may
be effected without the prior written approval of the Compliance
Department or the designated Compliance Officer, except as set forth
below in Section D.4 which sets forth the securities transactions that
do not require pre-clearance.
o the Compliance Department or the designated Compliance Officer will
keep a record of the approvals, and the rationale supporting,
investments in IPO and private placement transactions.
2. REGISTERED REPRESENTATIVES/ASSOCIATES:
o must pre-clear transactions with the Compliance Department or
designated Compliance Officer ONLY IF the Registered Representative or
Associate knew or should have known at the time of the transaction
that, during the 24 HOUR period immediately preceding or following the
transaction, the Security was purchased or sold or was being
considered for purchase or sale by any Investment Vehicle.
3. TRANSACTIONS THAT DO NOT HAVE TO BE PRE-CLEARED:
o Purchases or sales over which the employee pre-clearing the
transaction ( the "Pre-clearing Person") has no direct or indirect
influence or control;
o Purchases, sales or other acquisitions of Securities which are
non-volitional on the part of the Pre-clearing Person or any
Investment Vehicle, such as purchases or sales upon exercise of puts
or calls written by the Pre-clearing Person, sales from a margin
account pursuant to a bona fide margin call, stock dividends, stock
splits, mergers, consolidations, spin-offs, or other similar corporate
reorganizations or distributions;
o Purchases which are part of an automatic dividend reinvestment plan or
automatic employee stock purchase plans;
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o Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its Securities, to the extent such
rights were acquired from such issuer;
o Acquisitions of Securities through gifts or bequests; and
o Transactions in OPEN-END mutual funds.
4. PRE-CLEARANCE PROCEDURES:
o All requests for pre-clearance of securities transactions must be
submitted to the Compliance Department or the designated Compliance
Officer by completing a Pre-clearance Request Form (attached as
EXHIBIT 1). SEI Employees located in the U.S. with access to the I
drive may also complete an electronic version of the form located at
I:\register\preform.doc.
o The following information MUST be provided on the Form:
a. Name, date, extension, title;
b. Transaction detail, i.e., whether the transaction is a buy or
sell; the security name and security type; number of shares;
price; date acquired if a sale; and whether the security is held
in a portfolio or Investment Vehicle, part of an initial public
offering, or part of a private placement transaction; and
c. Signature and date; if electronically submitted, initial and
date.
o The Compliance Department or the designated Compliance Officer will
notify the employee whether the request is approved or denied by
telephone or email, and by sending a copy of the signed form to the
employee. An employee is not officially notified that the transaction
has been pre-cleared until he or she receives a copy of the signed
form. Employees should retain copies of the signed form.
o Employees may not submit a Pre-clearance Request Form for a
transaction that he or she does not intend to execute.
o Pre-clearance authorization is valid for 3 BUSINESS DAYS ONLY.
Transactions, which are not completed within this period, must be
resubmitted with an explanation why the previous pre-cleared
transaction was not completed.
o Investment persons must submit to the Compliance Department or the
designated Compliance Officer transaction reports showing the
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transactions in all the Investment Vehicles for which SEI or a
sub-adviser serves as an investment adviser for the 24 hour period
before and after the date on which their securities transactions were
effected. Transaction reports need only be submitted for the
portfolios that hold or are eligible to purchase and sell the types of
securities proposed to be bought or sold by the Investment Person. For
example, if the Investment Person seeks to obtain approval for a
proposed equity trade, only the transaction reports for the portfolios
effecting transactions in equity securities are required.
o The Compliance Department or the designated Compliance Officer will
maintain pre-clearance records for 5 years.
9
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E. REPORTING REQUIREMENTS
1. DUPLICATE BROKERAGE STATEMENTS [ALL EMPLOYEES]
o All SEI Employees are required to instruct their brokers/dealers to
file duplicate brokerage statements with the Compliance Department at
SEI Oaks. Employees in SEI's global offices are required to have their
duplicate statements sent to the offices in which they are located.
Statements must be filed for all Accounts (including those in which
employees have a Beneficial Ownership interest), except those that
trade exclusively in open-end mutual funds, government securities, or
SEI stock through the employee stock/stock option plan. Failure of a
broker-dealer to send duplicate statements will not excuse an
Employee's violation of this Section, unless the Employee demonstrates
that he or she took every reasonable step to monitor the broker's or
dealer's compliance.
o Sample letters instructing the brokers/dealers to send the statements
to SEI are attached as EXHIBIT 2, and may be found at
I:\register\407pers.doc and I:\register\permltr.doc. If the broker or
dealer requires a letter authorizing a SEI employee to open an
account, the permission letter may used and may be found at
I:\register\permltr.doc. Please complete the necessary information in
the letter and forward a signature ready copy to the Compliance
Department.
o If no such duplicate statement can be supplied, the Employee should
contact the Compliance Department or the designated Compliance
Officer.
2. INITIAL HOLDINGS REPORT [ACCESS, INVESTMENT AND PORTFOLIO PERSONS]
o Access, Investment and Portfolio Persons must submit an Initial
Holdings Report to the Compliance Department or designated Compliance
Officer disclosing EVERY security beneficially owned directly or
indirectly by such person within 10 days of becoming an Access,
Investment or Portfolio Person.
o The Initial Holdings Report must include the following information:
(1) the title of the security; (2) the number of shares held; (3) the
principal amount of the security; and (4) the name of the broker,
dealer or bank where the security is held. The information disclosed
in the report must be current as of a date no more than 30 days before
the report is submitted.
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o The Initial Holdings Report is attached as EXHIBIT 3 to this Code and
can be found on the I drive at I:register\inhold.doc.
3. QUARTERLY REPORT OF SECURITIES TRANSACTIONS [ACCESS, INVESTMENT AND
PORTFOLIO PERSONS]
o Access, Investment and Portfolio Persons must submit quarterly
transaction reports of the purchases and/or sales of securities in
which such persons have a direct or indirect Beneficial Ownership
interest (See EXHIBIT 4- Quarterly Transaction Report). The report
will be provided to all Investment Persons before the end of each
quarter by the Compliance Department or the designated Compliance
Officer and must be completed and returned NO LATER THAN 10 DAYS after
the end of each calendar quarter. Quarterly Transaction Reports that
are not returned by the date they are due will be considered late and
will be reported as violations of the Code of Ethics. Investment and
Portfolio Persons who repeatedly return the reports late (5 late
filings) will be subject to a monetary fine for their Code of Ethics
violations.
o The following information must be provided on the report:
a. The date of the transaction, the description and number of
shares, and the principal amount of each security involved;
b. Whether the transaction is a purchase, sale or other
acquisition or disposition;
c. The transaction price; and
d. The name of the broker, dealer or bank through whom the
transaction was effected.
4. ANNUAL REPORT OF SECURITIES HOLDINGS [ACCESS, INVESTMENT AND PORTFOLIO
PERSONS]
o On an annual basis, Investment and Portfolio Persons must submit to
the Compliance Department or the designated Compliance Officer an
Annual Report of Securities Holdings that contains a list of all
securities subject to this Code in which they have any direct or
indirect Beneficial Ownership interest (See EXHIBIT 5 - ANNUAL
SECURITIES HOLDINGS REPORT). The information disclosed in the report
must be current as of a date no more than 30 days before the report is
submitted.
o Annual reports must be returned to the Compliance Department or the
designated Compliance Officer within 30 DAYS after the end of the
calendar year-end.
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4. ANNUAL CERTIFICATION OF COMPLIANCE [ALL EMPLOYEES]
o All employees will be required to certify annually that they:
- have read the Code of Ethics; - understand the Code of Ethics; and
- have complied with the provisions of the Code of Ethics.
o The Compliance Department or the designated Compliance Officer will
send out annual forms (attached as EXHIBIT 6) to all employees that
must be completed and returned NO LATER THAN 30 DAYS after the end of
the calendar year.
F. DETECTION AND REPORTING OF CODE VIOLATIONS
The Compliance Department or the designated Compliance Officer will :
o review the trading activity reports or duplicate statements filed by
Employees, focusing on patterns of personal trading;
o review the trading activity of Investment Vehicles;
o review the holdings reports submitted by Access, Investment and
Portfolio Persons;
o prepare an Annual Issues and Certification Report to the Board of
Trustees or Directors of the Investment Vehicles that, (1) describes
the issues that arose during the year under this Code, including, but
not limited to, material violations of and sanctions under the Code,
and (2) certifies that SEI has adopted procedures reasonably necessary
to prevent its access, investment and portfolio personnel from
violating this Code; and
o prepare a written report to SEI management personnel outlining any
violations of the Code together with recommendations for the
appropriate penalties.
G. VIOLATIONS OF THE CODE OF ETHICS
1. PENALTIES:
o Employees who violate the Code of Ethics may be subject to serious
penalties which may include:
- written warning;
- reversal of securities transaction;
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- restriction on trading privileges;
- disgorgement of trading profits;
- fine;
- suspension or termination of employment; and/or
- referral to regulatory or law enforcement agencies.
2. PENALTY FACTORS:
o Factors which may be considered in determining an appropriate penalty
include, but are not limited to:
- the harm to clients;
- the frequency of occurrence;
- the degree of personal benefit to the employee;
- the degree of conflict of interest;
- the extent of unjust enrichment;
- evidence of fraud, violation of law, or reckless disregard of a
regulatory requirement; and/or
- the level of accurate, honest and timely cooperation from the
employee.
H. CONFIDENTIAL TREATMENT
o The Compliance Department or the designated Compliance Officer will
use their best efforts to assure that all requests for pre-clearance,
all personal securities transaction reports and all reports for
securities holding are treated as "Personal and Confidential."
However, such documents will be available for inspection by
appropriate regulatory agencies and other parties within and outside
SEI as are necessary to evaluate compliance with or sanctions under
this Code.
I. DEFINITIONS APPLICABLE TO THE CODE OF ETHICS
1. ACCOUNT - a securities trading account held by an Employee and by any such
person's spouse, minor children and adults residing in his or her household
(each such person, an "immediate family member"); any trust for which the person
is a trustee or from which the Employee benefits directly or indirectly; any
partnership (general, limited or otherwise) of which the Employee is a general
partner or a principal of the general partner; and any other account over which
the Employee exercises investment discretion.
2. BENEFICIAL OWNERSHIP - Security ownership in which a person has a direct or
indirect financial interest. Generally, an employee will be regarded as a
beneficial owner of Securities that are held in the name of:
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a. a spouse or domestic partner;
b. a minor child;
c. a relative who resides in the employee's household; or
d. any other person IF: (a) the employee obtains from the securities
benefits substantially similar to those of ownership (for example,
income from securities that are held by a spouse); or (b) the employee
can obtain title to the securities now or in the future.
3. INITIAL PUBLIC OFFERING - an offering of securities for which a registration
statement has not been previously filed with the U.S. SEC and for which there is
no active public market in the shares.
4. PURCHASE OR SALE OF A SECURITY - includes the writing of an option to
purchase or sell a security.
5. SECURITY - includes notes, bonds, stocks (including closed-end funds),
convertibles, preferred stock, options on securities, futures on broad-based
market indices, warrants and rights. A "Security" DOES NOT INCLUDE direct
obligations of the U.S. Government ; bankers' acceptances, bank certificates of
deposit, commercial paper and high quality short-term debt instruments,
including repurchase agreements; and, shares issued by open-end mutual funds.
III. INSIDER TRADING POLICY
All Employees are required to refrain from investing in Securities based on
material nonpublic inside information. This policy is based on the U.S. federal
securities laws that prohibit any person from:
1. trading on the basis of material, nonpublic information;
2. tipping such information to others;
3. recommending the purchase or sale of securities on the basis of such
information;
4. assisting someone who is engaged in any of the above activities; and
5. trading a security, which is the subject of an actual or impending tender
offer when in possession of material nonpublic information relating to the
offer.
This includes any confidential information that may be obtained by Access,
Investment and Portfolio Persons regarding the advisability of purchasing or
selling specific securities for any Investment Vehicles or on behalf of clients.
Additionally, this policy includes any confidential information that may be
obtained about SEI Investments Company or any of its affiliated entities. This
Section outlines basic definitions and provides guidance to Employees with
respect to this Policy.
14
<PAGE>
A. WHAT IS "MATERIAL" INFORMATION?
INFORMATION IS MATERIAL WHEN THERE IS A SUBSTANTIAL LIKELIHOOD THAT A REASONABLE
INVESTOR WOULD CONSIDER IT IMPORTANT IN MAKING HIS OR HER INVESTMENT DECISIONS.
Generally, if disclosing certain information will have a substantial effect on
the price of a company's securities, or on the perceived value of the company or
of a controlling interest in the company, the information is material, but
information may be material even if it does not have any immediate direct effect
on price or value. There is no simple "bright line" test to determine when
information is material; assessments of materiality involve a highly
fact-specific inquiry. For this reason, any question as to whether information
is material should be directed to the Compliance Department.
B. WHAT IS "NONPUBLIC" INFORMATION?
INFORMATION ABOUT A PUBLICLY TRADED SECURITY OR ISSUER IS "PUBLIC" WHEN IT HAS
BEEN DISSEMINATED BROADLY TO INVESTORS IN THE MARKETPLACE. TANGIBLE EVIDENCE OF
SUCH DISSEMINATION IS THE BEST INDICATION THAT THE INFORMATION IS PUBLIC. For
example, information is public after it has become available to the general
public through a public filing with the SEC or some other governmental agency,
the Dow Jones "tape" or the Wall Street Journal or some other publication of
general circulation, and after sufficient time has passed so that the
information has been disseminated widely.
Information about securities that are not publicly traded, or about the issuers
of such securities, is not ordinarily disseminated broadly to the public.
However, for purposes of this Policy, such private information may be considered
"public" private information to the extent that the information has been
disclosed generally to the issuer's security holders and creditors. For example,
information contained in a private placement memorandum to potential investors
may be considered "public" private information with respect to the class of
persons who received the memorandum, but may still be considered "nonpublic"
information with respect to creditors who were not entitled to receive the
memorandum. As another example, a controlling shareholder may have access to
internal projections that are not disclosed to minority shareholders; such
information would be considered "nonpublic" information.
C. WHO IS AN INSIDER?
Unlawful insider trading occurs when a person, who is considered an insider,
with a duty not to take advantage of material nonpublic information violates
that duty. Whether a duty exists is a complex legal question. This portion of
the Policy is intended to provide an overview only, and should not be read as an
exhaustive discussion of ways in which persons may become subject to insider
trading prohibitions.
15
<PAGE>
Insiders of a company include its officers, directors (or partners), and
employees, and may also include a controlling shareholder or other controlling
person. A person who has access to information about the company because of some
special position of trust or has some other confidential relationship with a
company is considered a temporary insider of that company. Investment advisers,
lawyers, auditors, financial institutions, and certain consultants and all of
their officers, directors or partners, and employees are all likely to be
temporary insiders of their clients.
Officers, directors or partners, and employees of a controlling shareholder may
be temporary insiders of the controlled company, or may otherwise be subject to
a duty not to take advantage of inside information.
D. WHAT IS MISAPPROPRIATION?
Misappropriation usually occurs when a person acquires inside information about
Company A in violation of a duty owed to Company B. For example, an employee of
Company B may know that Company B is negotiating a merger with Company A; the
employee has material nonpublic information about Company A and must not trade
in Company A's shares.
For another example, Employees who, because of their association with SEI,
receive inside information as to the identity of the companies being considered
for investment by SEI Investment Vehicles or by other clients, have a duty not
to take advantage of that information and must refrain from trading in the
securities of those companies.
E. WHAT IS TIPPING?
Tipping is passing along inside information; the recipient of a tip (the
"tippee") becomes subject to a duty not to trade while in possession of that
information. A tip occurs when an insider or misappropriator (the "tipper")
discloses inside information to another person, who knows or should know that
the tipper was breaching a duty by disclosing the information and that the
tipper was providing the information for an improper purpose. Both tippees and
tippers are subject to liability for insider trading.
F. IDENTIFYING INSIDE INFORMATION
Before executing any securities transaction for your personal account or for
others, you must consider and determine whether you have access to material,
nonpublic information. If you think that you might have access to material,
nonpublic information, you MUST take the following steps:
16
<PAGE>
1. Report the information and proposed trade immediately to the Compliance
Department or designated Compliance Officer;
2. Do not purchase or sell the securities on behalf of yourself or others; and
3. Do not communicate the information inside or outside SEI, other than to the
Compliance Department or designated Compliance Officer.
These prohibitions remain in effect until the information becomes public.
Employees managing the work of consultants and temporary employees who have
access to material nonpublic information are responsible for ensuring that
consultants and temporary employees are aware of this Policy and the
consequences of non-compliance.
G. TRADING IN SEI INVESTMENTS COMPANY SECURITIES
This Policy applies to ALL EMPLOYEES with respect to trading in the securities
of SEI Investments Company, including shares held directly or indirectly in the
Company's 401(k) plan. Employees, particularly "officers" (as defined in Rule
16(a)-1(f) in the Securities Exchange Act of 1934, as amended), of the company
should be aware of their fiduciary duties to SEI and should be sensitive to the
appearance of impropriety with respect to any of their personal transactions in
SEI's publicly traded securities. Thus, the following restrictions apply to all
transactions in SEI's publicly traded securities occurring in an employee's
Account and in all other accounts in which the employee benefits directly or
indirectly, or over which the employee exercises investment discretion.
o Blackout Period - DIRECTORS AND OFFICERS are prohibited from buying or
selling SEI's publicly traded securities during the blackout period. The
blackout periods are as follows:
o for the first, second and third quarterly financial reports - begins at the
close of the prior quarter and ends after SEI publicly announces the
financial results for that quarter.
o for the annual and fourth quarter financial reports - begins on the 6th
business day of the first month following the end of the calendar year-end
and ends after SEI publicly announces its financial results.
All securities trading during this period may only be conducted with the
approval of SEI's General Counsel or the Compliance Director. In no event may
securities trading in SEI's stock be conducted while an Director or Officer of
the company is in possession of material nonpublic information regarding SEI.
o Major Events - Employees who have knowledge of any SEI events or
developments that may have a "material" impact on SEI's stock that have not
been publicly announced are prohibited from buying or selling SEI's
publicly
17
<PAGE>
traded securities before such announcements. (SEE definition of "material
information" contained in III. A. above.)
o SHORT SELLING AND DERIVATIVES TRADING PROHIBITION - All employees are
prohibited from engaging in short sales and options trading of SEI's common
stock.
Section 16(a) directors and officers are subject to the following additional
trading restriction.
o Short Swing Profits - Directors and Officers may not profit from the
purchase and sale or sale and purchase of SEI's securities within 6 MONTHS
of acquiring or disposing of Beneficial Ownership of that Security.
H. VIOLATIONS OF THE INSIDER TRADING POLICY
Unlawful trading of securities while in possession of material nonpublic
information, or improperly communicating that information to others, is a
violation of the federal securities laws and may expose violators to stringent
penalties. Criminal sanctions may include a fine of up to $1,000,000 and/or ten
years imprisonment. The SEC can recover the profits gained or losses avoided
through the violative trading, a penalty of up to three times the illicit
windfall or loss avoided, and an order permanently enjoining violators from such
activities. Violators may be sued by investors seeking to recover damages for
insider trading violations. In addition, violations by an employee of SEI may
expose SEI to liability. SEI views seriously any violation of this Policy, even
if the conduct does not, by itself, constitute a violation of the federal
securities laws. Violations of this Policy constitute grounds for disciplinary
sanctions, including dismissal.
18
<PAGE>
SEI INVESTMENTS COMPANY
CODE OF ETHICS AND INSIDER TRADING POLICY
EXHIBITS
EXHIBIT 1 PRE-CLEARANCE REQUEST FORM
EXHIBIT 2 ACCOUNT OPENING LETTERS TO BROKERS/DEALERS
EXHIBIT 3 INITIAL HOLDINGS REPORT
EXHIBIT 4 QUARTERLY TRANSACTION REPORT
EXHIBIT 5 ANNUAL SECURITIES HOLDINGS REPORT
EXHIBIT 6 ANNUAL COMPLIANCE CERTIFICATION
19
<PAGE>
EXHIBIT 1
20
<PAGE>
PRECLEARANCE REQUEST FORM
Name: Date:
Ext #: Title/Position:
- --------------------------------------------------------------------------------
TRANSACTION DETAIL: I REQUEST PRIOR WRITTEN APPROVAL TO EXECUTE THE
FOLLOWING TRADE:
- --------------------------------------------------------------------------------
Buy: / / Sell: / / Security Name: Security type:
No. of Shares: Price: If sale, date acquired:
Held in an SEI Portfolio: Yes / / No / / If yes, provide: (a) the
Portfolio's name:
(b) the date Portfolio bought or sold the security:
Initial Public Offering: Private Placement:
/ / Yes / / No / / Yes / / No
- --------------------------------------------------------------------------------
DISCLOSURE STATEMENTS
- --------------------------------------------------------------------------------
I hereby represent that, to the best of my knowledge, neither I nor the
registered account holder: (1) have knowledge of a possible or pending purchase
or sale of the above security in any of the portfolios for which SEI acts as an
investment adviser, distributor, administrator, or for which SEI oversees the
performance of one or more it sub-advisers; (2) is in possession of any material
nonpublic information concerning the security to which this request relates; and
(3) is engaging in any manipulative or deceptive trading activity.
I acknowledge that if the Compliance Officer to whom I submit this written
request determines that the above trade would contravene SEI Investments
Company's Code of Ethics and Insider Trading Policy ("the Policy"), the
Compliance Officer in his or her sole discretion has the right not to approve
the trade, and I undertake to abide by his or her decision.
I acknowledge that this authorization is valid for a period of three (3)
business days.
- --------------------------------------------------------------------------------
Signature: Date:
- --------------------------------------------------------------------------------
COMPLIANCE OFFICER'S USE ONLY
- --------------------------------------------------------------------------------
Approved: / / Disapproved: / / Date:
- --------------------------------------------------------------------------------
By: Comments:
Transaction Report Received: Yes / / No / /
NOTE: This preclearance will lapse at the end of the day on , 20 .
If you decide not to effect the trade, please notify the Compliance Department
or designated Compliance Officer immediately.
21
<PAGE>
EXHIBIT 2
22
<PAGE>
Date:
Your Broker
street address
city, state zip code
Re: Your Name
your S.S. number or account number
Dear Sir or Madam:
Please be advised that I am an employee of SEI Investments Distribution, Co., a
registered broker/dealer an/or SEI Investments Management Corporation, a
registered investment adviser. Please send DUPLICATE STATEMENTS ONLY of this
brokerage account to the attention of:
SEI Investments Company
Attn: The Compliance Department
One Freedom Valley Drive
Oaks, PA 19456
This request is made pursuant to SEI's Code of Ethics and Insider Trading
Policy and Rule 3050 of the NASD's Code of Conduct.
Thank you for your cooperation.
Sincerely,
Your name
23
<PAGE>
Date:
[Address]
Re: Employee Name
Account #
SS#
Dear Sir or Madam:
Please be advised that the above referenced person is an employee of SEI
Investments Distribution, Co., a registered broker/dealer and/or SEI Investments
Management Corporation, a registered investment adviser. We grant permission for
him/her to open a brokerage account with your firm and request that you send
DUPLICATE STATEMENTS ONLY of this employee's brokerage account to:
SEI Investments Company
Attn: The Compliance Department
One Freedom Valley Drive
Oaks, PA 19456
This request is made pursuant to SEI's Code of Ethics and Insider Trading
Policy and Rule 3050 of the NASD's Code of Conduct.
Thank you for your cooperation.
Sincerely,
Cynthia M. Parrish
Compliance Director
24
<PAGE>
EXHIBIT 3
<PAGE>
SEI INVESTMENTS MANAGEMENT CORPORATION
INITIAL HOLDINGS REPORT
NAME:_____________________________________________________________
SIGNATURE:__________________
SUBMISSION DATE:_____________________
<TABLE>
<CAPTION>
NUMBER OF NAME OF BROKER, DEALER OR
TITLE OF SECURITY SHARES HELD PRINCIPAL AMOUNT BANK WHERE SECURITY IS HELD
==========================================================================================
<S> <C> <C> <C>
</TABLE>
================================================================================
This report must be submitted within 10 days of becoming an Access, Investment
or Portfolio Person under SEI Investments Company's Code of Ethics. All
securities holdings must be reported on this form.
I confirm that the above list is an accurate and complete listing of all
securities in which I have a direct or indirect beneficial interest.
- -----------------
Signature
- ---------
Date
- -----------------
Received by:
<PAGE>
EXHIBIT 4
2
<PAGE>
SEI INVESTMENTS MANAGEMENT CORPORATION
QUARTERLY TRANSACTION REPORT
TRANSACTION RECORD OF SECURITIES DIRECTLY OR INDIRECTLY BENEFICIALLY OWNED
________________, 2000 TO ____________, 2000
NAME:___________________________________________________________________________
SIGNATURE:______________________________________________________________________
SUBMISSION
DATE:___________________________________________________________________________
NUMBER OF
SHARES AND BROKER/
TYPE OF DEALER ISSUER &
PRINCIPAL TYPE OF OR TITLE OF
DATE AMOUNT TRANSACTION BANK SECURITY PRICE
================================================================================
================================================================================
This report is required of all officers, directors and certain other persons
under Section 204 of the Investment Advisers Act of 1940 and Rule 17j-1 of the
Investment Company Act of 1940 and is subject to examination. Transactions in
direct obligations of the U.S. Government need not be reported. In addition,
persons need not report transactions in bankers' acceptances, certificates of
deposit, commercial paper or open-end investment companies. THE REPORT MUST BE
RETURNED WITHIN 10 DAYS OF THE APPLICABLE CALENDAR QUARTER END. The reporting of
transactions on this record shall not be construed as an admission that the
reporting person has any direct or indirect beneficial ownership in the security
listed.
By signing this document, I represent that all reported transactions were
pre-cleared through the Compliance Department or the designated Compliance
Officer in compliance with the SEI Investments Company Code of Ethics and
Insider Trading Policy.
3
<PAGE>
EXHIBIT 5
4
<PAGE>
SEI INVESTMENTS
ANNUAL SECURITIES HOLDINGS REPORT
AS OF DECEMBER 31, 19__
EMPLOYEE NAME: __________________
<TABLE>
- ------------------------------------------------------------------------------------------------------------
0 SECURITY 1 NUMBER OF SHARES TYPE OF OWNERSHIP ACCOUNT NUMBER AND
(DIRECT OR INDIRECT) NAME OF BROKERAGE
FIRM WHERE SECURITIES
ARE HELD
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
I confirm that the above list is an accurate and complete listing of all
securities in which I have a direct or indirect beneficial interest.
- ------------------------ -------------------------
Name Received by
- ---------
Date
Note: DO NOT report holdings of U.S. Government securities, bankers'
acceptances, certificates of deposit, commercial paper and mutual funds.
6
<PAGE>
EXHIBIT 6
<PAGE>
SEI INVESTMENTS
CODE OF ETHICS
ANNUAL COMPLIANCE CERTIFICATION
TO: COMPLIANCE DEPARTMENT
FROM:
DATE:
1. I hereby acknowledge receipt of a copy of the Code of Ethics and Insider
Trading Policy.
2. I have read and understand the Code of Ethics and Insider Trading Policy
and recognize that I am subject thereto.
3. I hereby declare that I have complied with the terms of the Code of Ethics
and Insider Trading Policy.
Signature: ___________________________
Date:___________________
Received by: _________________________
8
EX-99.B24(a)
POWER OF ATTORNEY
We, the undersigned Directors of PBHG Insurance Series Fund, Inc. (the
"Company"), whose signatures appear below, hereby make, constitute and appoint
Harold J. Baxter, John M. Zerr and William H. Rheiner, and each of them acting
individually, to be our true and lawful attorneys and agents, each of them with
the power to act without any other and with full power of substitution, to
execute, deliver and file in each undersigned Director's capacity as shown
below, any and all instruments that said attorneys and agents may deem necessary
or advisable to enable the Company to comply with the Securities Act of 1933, as
amended, including any and all pre-effective and post-effective amendments to
the Company's registration statement, and any rules, regulations, orders or
other requirements of the Securities and Exchange Commission thereunder in
connection with the registration of shares or additional shares of common stock
of the Company or any of its series or classes thereof, and the registration of
the Company or any of its series under the Investment Company Act of 1940, as
amended, including any and all amendments to the Company's registration
statement; and without limitation on its behalf, and to sign the name of each
such Director on his or her behalf, and we hereby grant to said attorney or
attorneys, full power and authority to do and perform each and every act and
thing whatsoever as said attorney or attorneys may deem necessary or advisable
to carry out fully the intent of this.
Power of Attorney to the same extent and with the same effect as if we might or
could do personally in our capacity as aforesaid and we ratify, confirm and
approve all acts and things which said attorney or attorneys might do or cause
to be done by virtue of this Power of Attorney and his and her signatures as the
same may be signed by said attorney or attorneys.
Signature Title Date
- --------- ----- ----
/s/ HAROLD J. BAXTER Director 2/25/00
- --------------------------------
Harold J. Baxter
/s/ JOHN R. BARTHOLDSON Director 2/25/00
- --------------------------------
John R. Bartholdson
/s/ JETTIE M. EDWARDS Director 2/25/00
- --------------------------------
Jettie M. Edwards
/s/ ALBERT A. MILLER Director 2/25/00
- --------------------------------
Albert A. Miller
<PAGE>
POWER OF ATTORNEY
We, the undersigned Directors of PBHG Insurance Series Fund, Inc. (the
"Company"), whose signatures appear below, hereby make, constitute and appoint
Harold J. Baxter, John M. Zerr and William H. Rheiner, and each of them acting
individually, to be our true and lawful attorneys and agents, each of them with
the power to act without any other and with full power of substitution, to
execute, deliver and file in each undersigned Officer's capacity as shown below,
any and all instruments that said attorneys and agents may deem necessary or
advisable to enable the Company to comply with the Securities Act of 1933, as
amended, including any and all pre-effective and post-effective amendments to
the Company's registration statement, and any rules, regulations, orders or
other requirements of the Securities and Exchange Commission thereunder in
connection with the registration of shares or additional shares of common stock
of the Company or any of its series under the Investment Company Act of 1940, as
amended, including any and all amendments to the Company's registration
statement; and without limitation of the foregoing, the power and authority to
sign the name of the Company on its behalf, and to sign the name of each such
Officer on his behalf and we grant to said attorney or attorneys, full power and
authority to do and perform each and every act and thing whatsoever as said
attorney or attorneys may deem necessary or advisable to carry out fully the
intent of this Power of Attorney to the same extent and with the same effect as
if we might or could do personally in our capacity as aforesaid and we ratify,
confirm and approve all acts and things which said attorney or attorneys might
do or cause to be done by virtue of this Power of Attorney and his signatures as
the same may be signed by said attorney or attorneys.
Signature Title Date
- --------- ----- ----
/s/ GARY L. PILGRIM President 2/25/00
- --------------------------------
Gary L. Pilgrim
/s/ MEGHAN M. MAHON Vice President and 2/25/00
- -------------------------------- Assistant Secretary
Meghan M. Mahon
/s/ LEE T. CUMMINGS Treasurer, Chief 2/25/00
- -------------------------------- Financial Officer
Lee T. Cummings and Controller
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001029526
<NAME> PBHG INSURANCE SERIES
<SERIES>
<NUMBER> 010
<NAME> GROWTH II PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 132527
<INVESTMENTS-AT-VALUE> 177292
<RECEIVABLES> 4381
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 181673
<PAYABLE-FOR-SECURITIES> 2823
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 248
<TOTAL-LIABILITIES> 3071
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 125374
<SHARES-COMMON-STOCK> 7747
<SHARES-COMMON-PRIOR> 1575
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8463
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 44765
<NET-ASSETS> 178602
<DIVIDEND-INCOME> 50
<INTEREST-INCOME> 324
<OTHER-INCOME> 0
<EXPENSES-NET> (549)
<NET-INVESTMENT-INCOME> (175)
<REALIZED-GAINS-CURRENT> 10179
<APPREC-INCREASE-CURRENT> 41832
<NET-CHANGE-FROM-OPS> 51836
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7432
<NUMBER-OF-SHARES-REDEEMED> (1260)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 160281
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 389
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 517
<AVERAGE-NET-ASSETS> 45779
<PER-SHARE-NAV-BEGIN> 11.63
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> 11.46
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 23.05
<EXPENSE-RATIO> 1.20
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001029526
<NAME> PBHG INSURANCE SERIES
<SERIES>
<NUMBER> 020
<NAME> LARGE CAP GROWTH PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 16315
<INVESTMENTS-AT-VALUE> 27095
<RECEIVABLES> 237
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27332
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37
<TOTAL-LIABILITIES> 37
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14781
<SHARES-COMMON-STOCK> 1070
<SHARES-COMMON-PRIOR> 816
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1734
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10780
<NET-ASSETS> 27295
<DIVIDEND-INCOME> 25
<INTEREST-INCOME> 81
<OTHER-INCOME> 0
<EXPENSES-NET> (169)
<NET-INVESTMENT-INCOME> (63)
<REALIZED-GAINS-CURRENT> 2199
<APPREC-INCREASE-CURRENT> 7768
<NET-CHANGE-FROM-OPS> 9904
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 502
<NUMBER-OF-SHARES-REDEEMED> (248)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 14697
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 115
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 179
<AVERAGE-NET-ASSETS> 15329
<PER-SHARE-NAV-BEGIN> 15.44
<PER-SHARE-NII> (0.05)
<PER-SHARE-GAIN-APPREC> 10.12
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 25.51
<EXPENSE-RATIO> 1.10
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001029526
<NAME> PBHG INSURANCE SERIES
<SERIES>
<NUMBER> 050
<NAME> SELECT VALUE PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 40618
<INVESTMENTS-AT-VALUE> 40662
<RECEIVABLES> 2329
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 42991
<PAYABLE-FOR-SECURITIES> 2961
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 58
<TOTAL-LIABILITIES> 3019
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33965
<SHARES-COMMON-STOCK> 2631
<SHARES-COMMON-PRIOR> 1561
<ACCUMULATED-NII-CURRENT> 332
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5631
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 44
<NET-ASSETS> 39972
<DIVIDEND-INCOME> 595
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