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Securities Act File No. 333-44193
Investment Company Act of 1940 File No. 811-08605
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 5 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 7 /X/
PBHG ADVISOR FUNDS, INC.
(Exact Name of Registrant as specified in Charter)
825 Duportail Road
Wayne, Pennsylvania 19087
Registrant's Telephone Number (610) 647-4100
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Harold J. Baxter
825 Duportail Road
Wayne, Pennsylvania 19087
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
William H. Rheiner, Esq. John M. Zerr, Esq.
Ballard Spahr Andrews & Ingersoll, LLP Pilgrim Baxter & Associates, Ltd.
1735 Market Street, 51st Floor 825 Duportail Road
Philadelphia, PA 19103-7599 Wayne, PA 19087
(215) 864-8600 (610) 578-1206
IT IS PROPOSED THAT THIS FILING BECOME EFFECTIVE (CHECK APPROPRIATE BOX):
[_] Immediately upon filing pursuant to Paragraph (b)
[_] on February 16, 1999 pursuant to Paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
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[_] on (date) pursuant to paragraph (a) (1)
[_] 75 days after filing pursuant to Paragraph (a)(2)
[_] on (date) pursuant to Paragraph (a)(2) of Rule 485
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[_] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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UAM FUNDS
Funds for the Informed Investor(SM)
THE ANALYTIC FUNDS
INSTITUTIONAL CLASS PROSPECTUS APRIL __, 1999
Analytic Enhanced Equity Fund
Analytic Defensive Equity Fund
Analytic Master Fixed Income Fund
Analytic Short-Term Government Fund
UAM
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
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Table of Contents
<TABLE>
<CAPTION>
<S> <C>
PORTFOLIO SUMMARY ................................................. 1
WHAT ARE THE OBJECTIVES OF THE FUNDS? ........................ 1
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE FUNDS? ... 1
WHAT ARE THE PRINCIPAL RISKS OF THE FUNDS? ................... 2
HOW HAVE THE FUNDS PERFORMED? ................................ 3
WHAT ARE THE FEES AND EXPENSES OF THE FUNDS? ................. 3
INVESTING WITH THE UAM FUNDS ...................................... 5
BUYING SHARES ................................................ 5
REDEEMING SHARES ............................................. 6
EXCHANGING SHARES ............................................ 7
TRANSACTION POLICIES ......................................... 7
ACCOUNT POLICIES .................................................. 10
SMALL ACCOUNTS ............................................... 10
DISTRIBUTIONS ................................................ 10
FEDERAL TAXES ................................................ 10
FUND DETAILS ...................................................... 12
PRINCIPAL INVESTMENTS AND RISKS OF THE FUNDS ................. 12
OTHER INVESTMENT PRACTICES AND STRATEGIES .................... 15
YEAR 2000 .................................................... 16
INVESTMENT MANAGEMENT ........................................ 17
SHAREHOLDER SERVICING ARRANGEMENTS ........................... 19
FINANCIAL HIGHLIGHTS .............................................. 20
</TABLE>
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PORTFOLIO SUMMARY
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WHAT ARE THE OBJECTIVES OF THE FUNDS?
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Listed below are the investment objectives of the Analytic Funds (the
"Funds"). The Analytic Funds cannot guarantee they will meet their
investment objectives. A Fund may not change its investment objective
without shareholder approval.
ANALYTIC ENHANCED EQUITY FUND
The Analytic Enhanced Equity Fund seeks above average total returns through
investments in equity securities.
ANALYTIC DEFENSIVE EQUITY FUND
The Analytic Defensive Equity Fund seeks to obtain a greater long-term
total return and smaller fluctuations in quarterly total return from a
diversified, hedged common stock portfolio than would be realized from the
same portfolio unhedged.
ANALYTIC MASTER FIXED INCOME FUND
The Analytic Master Fixed Income Fund seeks above average total returns
through investments in a diversified bond portfolio consisting primarily of
U.S. government, corporate, and mortgage-related fixed income securities.
ANALYTIC SHORT-TERM GOVERNMENT FUND
The Analytic Short-Term Government Fund seeks to provide a high level of
income consistent with both low fluctuations in market value and low credit
risk.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE FUNDS?
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The following is a brief description of the principal investment strategies
of the Funds. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF
THE FUNDS."
ANALYTIC ENHANCED EQUITY FUND
The Analytic Enhanced Equity Fund invests primarily in publicly traded
equity securities of corporations whose securities are traded in the U.S.
While the Fund may invest in companies of any size, it anticipates that it
will usually invest in medium to large companies (typically $2 billion or
higher).
ANALYTIC DEFENSIVE EQUITY FUND
The Analytic Defensive Equity Fund invests primarily in common stocks on
which options are traded on national securities exchanges and in securities
convertible into common stocks. The Fund may also use various strategies,
including futures and options, to hedge its investments. By combining
stocks and options, the Fund generally intends to create a well diversified
and significantly hedged portfolio.
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ANALYTIC MASTER FIXED INCOME FUND
The Analytic Master Fixed Income Fund normally invests at least 65% of its
assets in high-grade debt securities. The Fund expects its weighted average
duration to range between three and ten years.
ANALYTIC SHORT-TERM GOVERNMENT FUND
The Analytic Short-Term Government Fund normally invests at least 80% of
its total assets in U.S. government securities. The Fund expects to
maintain a dollar weighted average maturity and weighted average duration
of one to three years.
WHAT ARE THE PRINCIPAL RISKS OF THE FUNDS?
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The following is a summary of the principal risks associated with investing
in the Funds. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF
THE FUNDS."
RISKS COMMON TO ALL MUTUAL FUNDS
At any time, your investment in a mutual fund may be worth more or less
than the price you originally paid for it. You may lose money by investing
in any mutual fund because:
. The value of the investments it owns changes, sometimes rapidly and
unpredictably.
. The mutual fund is not successful in reaching its goal because of its
strategy or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
mutual fund.
ANALYTIC ENHANCED EQUITY FUND
Since this Fund invests mainly in equity securities, their principal risks
are those of investing in equity securities, which may include sudden,
unpredictable drops in value or long periods of decline in value. Equity
securities may lose value because of factors affecting the securities
markets generally, an entire industry or a particular company.
For the limited purpose of gaining exposure to the equity markets when the
Fund is holding cash, the Fund invests in derivatives, which may be
volatile and may magnify a Fund's gains or losses, causing it to make or
lose substantially more money than it invested.
ANALYTIC DEFENSIVE EQUITY FUND
Since this Fund invests mainly in equity securities, their principal risks
are those of investing in equity securities, which may include sudden,
unpredictable drops in value or long periods of decline in value. Equity
securities may lose value because of factors affecting the securities
markets generally, an entire industry or a particular company.
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Primarily for hedging purposes, this Fund invests in derivatives, which may
be volatile and may magnify a Fund's gains or losses, causing it to make or
lose substantially more money than it invested.
ANALYTIC MASTER FIXED INCOME AND SHORT-TERM GOVERNMENT FUNDS
Since the Funds invest in debt securities, the value of their investments
could fall because:
. Of market conditions and economic and political events.
. Interest rates rise, which tends to cause the value of debt securities to
fall.
. A security's credit rating worsens or its issuer becomes unable to honor
its financial obligations.
HOW HAVE THE FUNDS PERFORMED?
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The bar charts and tables below illustrate how the performance of the Funds
has varied from year to year. The following bar charts show the investment
returns of each Fund since its inception. The table following each bar
chart compares each Fund's average annual returns for the periods indicated
to those of a broad-based securities market index. Past performance does
not guarantee future results.
[INSERT TABLES AND BAR GRAPHS]
WHAT ARE THE FEES AND EXPENSES OF THE FUNDS?
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ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM THE ASSETS OF A
FUND)
This table describes the fees and expenses that you may pay if you buy and
hold shares of a Fund. This table is presented in the format required by
the Securities and Exchange Commission (SEC) and may not reflect the actual
expenses you would have paid as a shareholder in the Funds.
<TABLE>
<CAPTION>
Analytic Analytic Analytic Master Analytic Short-
Enhanced Defensive Fixed Income Term
Equity Fund Equity Fund Fund Government Fund
<S> <C> <C> <C> <C>
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Management Fees ___% ___% ___% ___%
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Other Expenses ___% ___% ___% ___%
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Total Expenses* ___% ___% ___% ___%
</TABLE>
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* ACTUAL FEES AND EXPENSES. For each Fund, the ratios stated in the
table above are higher than the expenses you would have actually paid as an
investor in the Fund. Due to certain expense limits by the adviser and
expense offsets for each Fund, investors in the Funds actually paid the
following total operating expenses during the fiscal year ended December
31.
<TABLE>
<CAPTION>
Analytic Analytic Analytic Master Analytic
Enhanced Defensive Fixed Income Fund Short-Term
Equity Fund Equity Fund Government Fund
<S> <C> <C> <C> <C>
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Actual Expenses
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</TABLE>
The fee waiver/expense reimbursement arrangement for each Fund is expected to
remain in effect for the current fiscal year and can be terminated at any time
at the option of the Fund.
EXAMPLE
This example can help you to compare the cost of investing in these Funds
to the cost of investing in other mutual funds. The example assumes you
invest $10,000 in a Fund for the periods shown and then redeem all of your
shares at the end of those periods. The example also assumes that you
earned a 5% return on your investment each year and that you paid the total
operating expenses stated above throughout the period of your investment.
The example reflects the gross expense ratios of the Funds and not the
actual fees and expenses of the Funds. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
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Analytic Enhanced Equity Fund
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Analytic Defensive Equity Fund
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Analytic Master Fixed Income Fund
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Analytic Short-Term Government Fund
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</TABLE>
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INVESTING WITH THE UAM FUNDS
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BUYING SHARES
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To open an account To buy more shares
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By Mail Send a check or money Send a check and, if
order and your account possible, the "Invest by
application to the UAM Mail" stub that
Funds. Make checks accompanied your
payable to "UAM Funds" statement to the UAM
(the UAM Funds will not Funds. Be sure your check
accept third-party checks). identifies clearly your
name, account number and
the Fund into which you
want to invest.
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
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By Wire Call the UAM Funds for Call the UAM Funds to get
an account number and a wire control number and
wire control number and wire your money to the
then send your completed UAM Funds.
account application to the
UAM Funds.
Wiring Instructions
United Missouri Bank
ABA #101000695
UAM Funds
DDA Acct. #9870964163
Ref: Fund name/account number/
account name/wire control number
The minimum amount for a wire is $__________.
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By Automatic Investment Not Available To set up a plan, mail a
Plan (VIA ACH) completed application to
the UAM Funds. To
cancel or change a plan,
write to the UAM Funds.
Allow up to 15 days to
create the plan and 3 days
to cancel or change it.
The minimum amount for an ACH
transaction is $________. The
maximum amount is $________.
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Minimum Investments $2,500 --- regular accounts $100
$500 --- IRAs
$250 --- spousal IRAs
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UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
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REDEEMING SHARES
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By Mail Send a letter signed by all registered
parties on the account to UAM Funds
specifying the Fund, the account number
and the dollar amount or number of
shares you wish to redeem. Certain
shareholders may have to include
additional documents. Send
correspondence to: UAM Funds, PO Box
419081, Kansas City, MO 64141-6081.
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By Telephone You must first establish the telephone
redemption privilege (and, if desired,
the wire redemption privilege) by
completing the appropriate sections of
the account application.
Call 1-877-UAM-Link to redeem your
shares. Based on your instructions, the
UAM Funds will mail your proceeds to you
or wire them to your bank.
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By Systematic Withdrawal Plan If your account balance is at least
(Via ACH) $10,000, you may transfer as little as
$100 per month from your UAM account to
your financial institution.
To participate in this service, you must
complete the appropriate sections of the
account application and mail it to the
UAM Funds.
EXCHANGING SHARES
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At no charge, you may exchange shares of one UAM Fund for shares of the
same class of any other UAM Fund by writing to or calling the UAM Funds.
Before exchanging your shares, read the prospectus of the UAM Fund for
which you want to exchange, which you may obtain from the UAM Funds. You
may not exchange shares represented by certificates over the telephone. You
may only exchange shares between accounts with identical registrations
(i.e., the same names and addresses).
TRANSACTION POLICIES
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CALCULATING YOUR SHARE PRICE
You may buy, sell or exchange shares of a UAM Fund at a price equal to its
net asset value (NAV) next computed after it receives your order. The Funds
calculate their NAVs as of the close of trading on the New York Stock
Exchange (NYSE) (generally 4:00 p.m. Eastern Time) on each day the NYSE is
open. Therefore, to receive the NAV on any given day, the UAM Funds must
accept your order by the close of trading on the NYSE that day. Otherwise,
you will receive the NAV that is calculated on the close of trading on the
following day. The UAM Funds are open for business on the same days as the
NYSE, which is closed on weekends and certain holidays.
Securities that are traded on foreign exchanges may trade on days when a
Fund does not price its shares. Consequently, the value of the Funds may
change on days when you are unable to purchase or redeem shares of the
Funds.
BUYING OR SELLING SHARES THROUGH A FINANCIAL INTERMEDIARY
You may buy, exchange or redeem shares of the UAM Funds through a financial
intermediary (such as a financial planner or adviser). Generally, to buy or
sell shares at the NAV on any given day, your financial intermediary must
receive your order by the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all subscription and
redemption requests, investment information, documentation and money to the
UAM Funds on time.
Certain financial intermediaries have agreements with the UAM Funds that
allow them to enter confirmed purchase or redemption orders on behalf of
clients and customers. Under this arrangement, the financial intermediary
must send your payment to the
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UAM Funds by the time they price their shares on the following day. If your
financial intermediary fails to do so, it may be responsible for any
resulting fees or losses.
CALCULATING NAV
The UAM Funds calculate their NAV by adding the total value of their
assets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The UAM Funds value their investments with
readily available market quotations at market value. Investments that do
not have readily available market quotations are valued at fair value,
according to guidelines established by the UAM Funds. The UAM Funds may
also value securities at fair value when events occur that make established
valuation methods (such as stock exchange closing prices) unreliable. The
UAM Funds value debt securities that will mature in 60 days or less at
amortized cost, which approximates market value.
IN-KIND TRANSACTIONS
Under certain conditions and at the UAM Funds' discretion, you may pay for
shares of a UAM Fund with securities instead of cash. In addition, the UAM
Funds may pay all or part of your redemption proceeds with securities
instead of cash.
PAYMENT OF REDEMPTION PROCEEDS
The UAM Funds will pay for all shares redeemed within seven days after they
receive a redemption request in proper order. If you redeem shares that
were purchased by check, you will not receive your redemption proceeds
until the check has cleared, which may take up to 15 days. You may avoid
these delays by paying for shares with a certified check, bank check or
money order.
SIGNATURE GUARANTEE
You must have your signature guaranteed when (1) you want the proceeds from
your redemption sent to a person or address different from that registered
on the account, or (2) you request a transfer of your shares.
You may obtain a signature guarantee from most banks, savings institutions,
securities dealers, national securities exchanges, registered securities
associations, clearing agencies and other guarantor institutions. A notary
public cannot guarantee a signature.
TELEPHONE TRANSACTIONS
The UAM Funds will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine; they may be liable for
any losses if they fail to do so. The UAM Funds will not be responsible for
any loss, liability, cost or expense
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for following instructions received by telephone that it reasonably
believes to be genuine.
RIGHTS RESERVED BY THE UAM FUNDS
PURCHASES
At any time and without notice, the UAM Funds may:
. Stop offering shares of a Fund.
. Reject any purchase order.
. Bar an investor engaged in a pattern of excessive trading from buying
shares of any Fund. (Excessive trading can hurt the performance of a
Fund by disrupting its management and by increasing its expenses.)
REDEMPTIONS
The UAM Funds may suspend your right to redeem if:
. An emergency exists and a Fund cannot dispose of its investments or
fairly determine their value.
. Trading on the NYSE is restricted.
. The SEC tells the UAM Funds to delay redemptions.
At any time, the UAM Funds may change or eliminate any of the redemption
methods described above, except redemption by mail.
EXCHANGES
The UAM Funds may:
. Modify or cancel the exchange program at any time on 60 days' written
notice to shareholders.
. Reject any request for an exchange.
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
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ACCOUNT POLICIES
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SMALL ACCOUNTS
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The UAM Funds may redeem your shares without your permission (but only
after providing you with 60 days' written notice of the proposed
redemption) if the value of your account falls below 50% of the required
minimum initial investment, but not because of a drop in the value of your
shares caused by market fluctuations. This provision does not apply to
retirement accounts and certain other accounts.
DISTRIBUTIONS
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Normally, the Analytic Enhanced Equity and Defensive Equity Funds
distribute their net investment income quarterly. The Analytic Master Fixed
Income and Short-Term Government Funds accrue dividends daily and pay them
monthly to shareholders. In addition, the Funds distribute any net capital
gains once a year. The UAM Funds will automatically reinvest dividends and
distributions in additional shares of the Fund, unless you elect on your
account application to receive them in cash.
FEDERAL TAXES
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The following is a summary of the federal income tax consequences of
investing in these Funds. You may also have to pay state and local taxes on
your investment. You should always consult your tax advisor for specific
guidance regarding the tax effect of your investment in the UAM Funds.
TAXES ON DISTRIBUTIONS
The distributions of the Funds will generally be taxable to shareholders as
ordinary income or capital gains (which may be taxable at different rates
depending on the length of time the Fund held the relevant assets). You
will be subject to income tax on these distributions regardless of whether
they are paid in cash or reinvested in additional shares. Once a year UAM
Funds will send you a statement showing the types and total amount of
distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In
this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of your investment. This is known as "buying into a
dividend" and should be avoided.
TAXES ON EXCHANGES AND REDEMPTIONS
When you redeem or exchange shares in any Fund, you may recognize a gain or
loss for income tax purposes. This gain or loss will be based on the
difference between your
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tax basis in the shares and the amount you receive for them. (To aid in
computing your tax basis, you generally should retain your account
statements for the periods during which you held shares.) Any loss realized
on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received
with respect to the shares.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax qualified plan) will not be currently taxable, but they may be taxable
at some time in the future.
To the extent a Fund invests in foreign securities, it may be subject to
foreign withholding taxes with respect to dividends or interest the Funds
received from sources in foreign countries. The Funds may elect to treat
some of those taxes as a distribution to shareholders, which would allow
shareholders to offset some of their U.S. federal income tax.
BACKUP WITHHOLDING
By law, the UAM Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
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FUND DETAILS
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PRINCIPAL INVESTMENTS AND RISKS OF THE FUNDS
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The following is a brief description of the principal investment strategies
the Analytic Funds may employ in seeking their objectives. This discussion
is in addition to the discussion set forth in the "PORTFOLIO SUMMARY." For
more information concerning these investment practices and their associated
risks, please read the "PORTFOLIO SUMMARY" and the statement of additional
information (SAI). You can find information on each Fund's recent
strategies and holdings in the annual report. Each Fund may change these
strategies without shareholder approval.
ANALYTIC ENHANCED EQUITY FUND
The Fund will normally invest at least 65% of its total assets in equity
securities of corporations whose securities are traded in the U.S. The Fund
may also selectively use options and futures to gain exposure to the equity
markets when it holds cash balances. While the Fund may invest in companies
of any size, it anticipates that it will usually invest in medium to large
companies (typically $2 billion or higher).
EQUITY SECURITIES
Equity securities represent an ownership interest, or the right to acquire
an ownership interest, in an issuer. Different types of equity securities
provide different voting and dividend rights and priority in case of the
bankruptcy of the issuer. Equity securities include common stocks,
preferred stocks, convertible securities, rights and warrants.
Equity securities may lose value because of factors affecting the
securities markets generally, such as adverse changes in economic
conditions, the general outlook for corporate earnings, interest rates or
investor sentiment. These circumstances may lead to long periods of poor
performance, such as during a "bear market." Equity securities may also
lose value because of factors affecting an entire industry, such as
increases in production costs, or factors directly related to that company,
such as decisions made by its management.
DERIVATIVES
The ability of the Fund to achieve its objectives through the use of
derivatives depends on the degree to which interest rates correlate with
price movements in the relevant securities. The Fund could be negatively
affected if the change in market value of its securities fails to correlate
perfectly with the prices of the futures and options it purchased or sold.
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The lack of a liquid secondary market for a futures contract or option may
prevent the Fund from closing futures positions and could adversely impact
its ability to achieve its objectives and to realize profits or limit
losses.
Since futures and options transactions involve a high degree of leverage, a
relatively small price movement in a derivative may result in an immediate
and substantial loss (as well as gain) to the Fund. The Fund also may lose
more than it originally invested in the derivative.
The development of investment techniques and the management of individual
portfolios for institutions have given the adviser substantial experience
in carrying out this investment strategy.
ANALYTIC DEFENSIVE EQUITY FUND
The Fund attempts to create a well diversified and significantly hedged
portfolio using a combination of stocks, debt securities and options.
The Fund normally invests at least 65% of its total assets, and at least
80% of its total assets (taken at current value) excluding cash, cash
equivalents and U.S. government securities, in:
. dividend paying common stocks that one or more exchanges has approved
as underlying securities for listed call or put options.
. securities that are convertible into common stocks.
The Fund will buy and sell futures and options on stocks, interest rates
and indices to hedge the values of its securities or securities which it
intends to purchase against changes resulting from market conditions.
Because the Fund invests in equity securities, see the discussion of this
topic under "PRINCIPAL INVESTMENTS AND RISKS OF THE FUNDS --ANALYTIC
ENHANCED EQUITY FUND."
Typically, the Fund remains diversified across all industries represented
in the Standard & Poor's 500 Index with similar industry weightings. Total
return will be obtained from the following sources:
. net realized capital gains, if any.
. net changes in unrealized capital appreciation, if any.
. dividends received on the securities in the Fund's portfolio.
. interest income from money market instruments, U.S. government
securities, convertible securities, and short sales.
. net profits, if any, from closing purchase or closing sale
transactions.
. premiums from expired options.
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DERIVATIVES
The ability of the Fund to hedge its securities through derivatives depends
on the degree to which interest rates correlate with price movements in the
relevant securities. The Fund could be negatively affected if the change
in market value of its securities fails to correlate perfectly with the
prices of the futures and options it purchased or sold.
The lack of a liquid secondary market for a futures contract or option may
prevent the Fund from closing futures positions and could adversely impact
its ability to hedge its investments and to realize profits or limit
losses.
Since futures and options transactions involve a high degree of leverage, a
relatively small price movement in a derivative may result in an immediate
and substantial loss (as well as gain) to the Fund. The Fund also may lose
more than it originally invested in the derivative.
The development of hedging techniques and the management of individual
portfolios for institutions have given the adviser substantial experience
in carrying out this investment strategy.
ANALYTIC MASTER FIXED INCOME FUND
The Fund invests primarily in U.S. Treasury, U.S. government, and U.S.
dollar denominated high grade securities, including mortgage-related
securities. The adviser expects weighted average duration of the Fund to
range between three and ten years. Normally, the Analytic Master Fixed
Income Fund will invest at least 65% of its total assets in debt
securities.
DEBT SECURITIES
A debt security is an interest bearing security that corporations and
governments use to borrow money from investors. The issuer of a debt
security promises to pay interest at a stated rate, which may be variable
or fixed, and to repay the amount borrowed at maturity (dates when debt
securities are due and payable). Debt securities include securities issued
by the corporations and the U.S. government and its agencies, mortgage-
backed and asset-backed securities (securities that are backed by pools of
loans or mortgages assembled for sale to investors), commercial paper and
certificates of deposit.
The concept of duration is useful in assessing the sensitivity of an income
fund to interest rate movements, which are the main source of risk for
almost all income funds. Duration measures price volatility by estimating
the change in price of a debt security for a 1% change in its yield. For
example, a duration of five means the price of a debt
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security will change about 5% for every 1% change in its yield. Thus, the
higher the duration, the more volatile the security.
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up the price of the bond will go
down, and vice versa). Some types of debt securities are more affected by
changes in interest rates than others. For example, changes in rates may
cause people to pay off or refinance the loans underlying mortgage-backed
and asset-backed securities earlier or later than expected, which would
shorten or lengthen the maturity of the security. This behavior can
negatively affect the performance of a Fund by shortening or lengthening
its average maturity and, thus, reducing its effective duration. The
unexpected timing of mortgage-backed and asset-backed prepayments caused by
changes in interest rates may also cause the Fund to reinvest its assets at
lower rates, reducing the yield of the Fund.
The credit rating or financial condition of an issuer may affect the value
of a debt security. Generally, the lower the quality rating of a security,
the greater the risks that the issuer will fail to pay interest fully and
return principal in a timely manner. To compensate investors for assuming
more risk, issuers with lower credit ratings usually offer their investors
higher "risk premium" in the form of higher interest rates than they would
find with a safer security, such as a U.S. Treasury security. However,
since the interest rate is fixed on a debt security at the time it is
purchased, investors reflect changes in confidence regarding the certainty
of interest and principal by adjusting the price they are willing to pay
for the security. This will affect the yield-to-maturity of the security.
If an issuer defaults or becomes unable to honor its financial obligations,
the bond may lose some or all of its value.
ANALYTIC SHORT-TERM GOVERNMENT FUND
To minimize credit risk, the Fund will normally invest at least 80% of its
total assets in U.S. government securities. To minimize fluctuations in
market value, the Fund normally expects to maintain a dollar weighted
average maturity and weighted average duration between one and three years.
Because the Fund invests in debt securities, see the discussion of this
topic under "PRINCIPAL INVESTMENTS AND RISKS OF THE FUNDS -- ANALYTIC
MASTER FIXED INCOME FUND."
OTHER INVESTMENT PRACTICES AND STRATEGIES
- --------------------------------------------------------------------------------
As described below, the Funds may invest in foreign securities and may
deviate from their investment strategies from time to time. In addition,
they may employ investment practices that are not described in this
prospectus, such as repurchase agreements, when-issued and forward
commitment transactions, lending of securities, borrowing and other
techniques. For more information concerning the risks associated with
these investment practices, you should read the SAI.
FOREIGN SECURITIES
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<PAGE>
Each Fund may invest up to 20% in foreign securities. Foreign securities
can be riskier and more volatile than domestic securities. Adverse
political and economic developments or changes in the value of foreign
currency can make it harder for a Fund to sell its securities and could
reduce the value of your shares. Changes in tax and accounting standards
and difficulties obtaining information about foreign companies can
negatively affect investment decisions.
SHORT-TERM INVESTING
At times, the adviser may decide to suspend the normal investment
activities of a Fund by investing up to 100% of its assets in a variety of
securities, such as U.S. government and other high quality and short-term
debt obligations. The adviser may temporarily adopt a defensive position to
reduce changes in the value of a Fund's shares that may result from adverse
market, economic, political or other developments.
When the adviser pursues a defensive strategy, a Fund may not profit from
favorable developments that it would have otherwise profited from if it
were pursuing its normal strategies. Likewise, these strategies may prevent
a Fund from achieving its stated objectives.
YEAR 2000
- --------------------------------------------------------------------------------
Many computer programs in use today cannot distinguish the year 2000 from
the year 1900 because of the way they encode and calculate dates.
Consequently, these programs may not be able to perform necessary functions
and could disrupt the operations of the UAM Funds or financial markets in
general. The year 2000 issue affects all companies and organizations,
including those that provide services to the UAM Funds and those in which
the UAM Funds invest.
The UAM Funds and their advisers, administrator, distributor and transfer
agent are taking steps they believe are reasonably necessary to address any
Fund related year 2000-related computer problems. They are actively working
on necessary changes to their own computer systems to prepare for the year
2000 and expect that their systems will be adapted before that date. They
are also requesting information on each service provider's state of
readiness and contingency plan. However, at this time the degree to which
the year 2000 issue will affect the UAM Funds' investments or operations
cannot be predicted. Any negative consequences could adversely affect your
investment in the UAM Funds.
-16-
<PAGE>
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Analytic Investors, a California corporation located at 700 South Flower
St., Suite 2400, Los Angeles, CA 90017, is the investment adviser to
each of the Funds. The adviser manages and supervises the investment of
each Fund's assets on a discretionary basis. The adviser, an affiliate
of United Asset Management Corporation, was founded in 1970 as one of
the first independent investment counsel firms specializing in the
creation and continuous management of optioned equity and optioned debt
portfolios for fiduciaries and other long term investors. The adviser
serves pensions and profit-sharing plans, endowments, foundations,
corporate investment portfolios, mutual savings banks and insurance
companies.
Set forth in the table below are the management fees the Funds paid to
the adviser during the fiscal year ended December 31, 1998, expressed as
a percentage of average net assets. In addition, the adviser has
voluntarily agreed to limit the total expenses of each Fund to the
amounts listed in the table below. To maintain these expense limits, the
adviser may waive a portion of its management fee and/or reimburse
certain expenses of the Funds. The fee waiver/expense reimbursement
arrangement for each Fund is expected to remain in effect for the
current fiscal year and can be terminated at any time at the option of
the Fund.
<TABLE>
<CAPTION>
Analytic Enhanced Analytic Defensive Analytic Master Analytic Short-Term
Equity Fund Equity Fund Fixed Income Fund Government Fund
===========================================================================================================
<S> <C> <C> <C> <C>
Management fees ---% ---% ---% ---%
- -----------------------------------------------------------------------------------------------------------
Expenses Limit ---% ---% ---% ---%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Prior to March 31, 1999, Pilgrim Baxter & Associates, Ltd. ("Pilgrim
Baxter") was the Funds' investment adviser, and Analytic Investors was the
Funds' sub-adviser. Pilgrim Baxter was paid at the same rate as Analytic
Investors is currently paid.
PORTFOLIO MANAGERS
Listed below are the investment professionals of the Adviser who are
primarily responsible for the day-to day management of the Funds and a
description of their business experience during the past five years.
Analytic Enhanced Equity Fund & Defensive Equity Fund
NAME AND TITLE EXPERIENCE
===========================================================================
-17-
<PAGE>
Harindra de Silva Dr. de Silva has served as President of
President Analytic Investors, Inc. from April 1998 to
present. He formerly was Managing Director of
Analytic Investors, Inc. from October 1996 to
April 1998. He initially joined Analytic
Investors, Inc. in May 1995 as Director of
Research. Concurrently, he serves as
President of Analytic/TSA Investors, Inc.
Formerly he was Managing Director of
Analytic/TSA Investors, Inc. from October
1997 to April 1998. Concurrently, he serves
as Director to Analytic US Market Neutral,
Ltd. from January 1999 to present. He served
as President of the Analytic Optioned Equity
Fund from April 1997 to August 1998. He
served as Principal of Analysis Group
(Economic Management Consultant) from April
1986 to March 1998; President of AG Risk
Management (Investment Management Consultant)
from May 1993 to March 1998; and President of
Analytic Series Fund from April 1997 to July
1998.
---------------------------------------------------------------------------
Dennis M. Bein Mr. Bein serves as Portfolio Manager of
Portfolio Manager Analytic Investors, Inc. from 1995 to
present. He concurrently served as Senior
Associate, Analysis Group, Inc. (Economic
Management Consultant) from 1990 to 1998.
---------------------------------------------------------------------------
Analytic Short-Term Government Fund & Master Fixed Income Fund
NAME AND TITLE EXPERIENCE
===========================================================================
Greg McMurran Mr. McMurran serves as Chief Investment
Chief Investment Officer Officer of Analytic Investors from January
1998 to present. He formerly was Director and
Portfolio Manager from February 1996 to
January 1998. Concurrently he serves as Chief
Investment Officer of Analytic/TSA Investors,
Inc. from October 1997 to present. From
October 1976 to February 1996, Mr. McMurran
was Senior Vice President and Senior
Portfolio Manager of Analytic Investment
Management.
---------------------------------------------------------------------------
-18-
<PAGE>
Bob Bannon Mr. Bannon serves as Managing Director of
Managing Director Analytic Investors, Inc. from October 1996 to
present. He was Director of Research from
February 1996 to October 1996. Concurrently,
he serves as Managing Director of
Analytic/TSA Investors, Inc. from October
1997 to present. From 1995 to January 1996,
Mr. Bannon was Senior Vice President and
Senior Investment Strategist of TSA Capital
Management (Investment Advisor). Formerly, he
served as a Senior Bond Strategist with
I.D.E.A., Inc. (Fixed Income Strategy
Advisor) from May 1992 to April 1995 and a
Lecturer at the University of California,
Santa Cruz.
---------------------------------------------------------------------------
Scott Barker Mr. Barker serves as Portfolio Manager of
Portfolio Manager Analytic Investors, Inc. from 1995 to
present. He concurrently served as Research
Analyst, Analysis Group, Inc. (Economic
Management Consultant) from 1993 to 1998.
---------------------------------------------------------------------------
SHAREHOLDER SERVICING ARRANGEMENTS
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING
Certain financial intermediaries (service agents) may charge their clients
account fees for buying or redeeming shares of the UAM Funds. These fees
may include transaction fees and/or service fees paid by the UAM Funds from
their assets attributable to the service agent. The UAM Funds do not pay
these fees on shares purchased directly from UAM Fund Distributors. The
service agents may provide shareholder services to their clients that are
not available to a shareholder dealing directly with the UAM Funds. Each
service agent is responsible for transmitting to its clients a schedule of
any such fees and information regarding any additional or different
purchase or redemption conditions. You should consult your service agent
for information regarding these fees and conditions.
The adviser may pay its affiliated companies for referring investors to the
Funds. The adviser and its affiliates may, at their own expense, pay
qualified service providers for marketing, shareholder servicing,
recordkeeping and/or other services performed with respect to the Funds.
-19-
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the
financial performance of the Funds. The financial highlights table comes
from the financial statements of each Fund and reflects the financial
results for a single Fund share. The total returns in the table represent
the rate that an investor would have earned on an investment in the Funds
(assuming reinvestment of all dividends and distributions).
PricewaterhouseCoopers LLP has audited the financial statements of the
Funds. The financial statements and the unqualified opinion of
PricewaterhouseCoopers LLP are included in the annual report of the Funds,
which is available upon request.
[INSERT FINANCIAL DATA]
-20-
<PAGE>
THE ANALYTIC FUNDS
For investors who want more information about the Analytic Funds, the
following documents are available upon request.
ANNUAL REPORTS
The annual report of the Analytic Funds provides additional information about
their investments. In the annual report, you will also find a discussion of
the market conditions and investment strategies that significantly affected
the performance of the Analytic Funds during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional detailed information about the Analytic Funds and
is incorporated by reference into (legally part of) this prospectus.
Investors can receive free copies of these materials, request other
information about the Funds and make shareholder inquiries by writing to or
calling:
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(toll free) 1-877-UAM-LINK (826-5465)
You can review, for a fee, the reports of the Funds and SAI by writing to the
SEC's Public Reference Section, Washington, D.C. 20459-6009, or by calling
the SEC at 1-800-SEC-0330. You can get copies of this information for free on
the SEC's Internet site at http://www.sec.gov.
The Funds' Investment Company Act of 1940 file number is 811-08605.
-21-
<PAGE>
UAM Funds
PO Box 419081
Kansas City, MO 64141-6081
(Toll free) 1-877-UAM-LINK (826-5465)
THE ANALYTIC FUNDS
Analytic Enhanced Equity Fund
Analytic Defensive Equity Fund
Analytic Master Fixed Income Fund
Analytic Short-Term Government Fund
Institutional Class Shares
Statement of Additional Information
April __, 1999
This statement of additional information (SAI) is not a prospectus. However,
you should read it in conjunction with the Prospectus of The Analytic Funds
dated April __, 1999. You may obtain a Prospectus by contacting the UAM Funds
at the address listed above.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Definitions............................................................... 1
The Company............................................................... 1
Description of Permitted Investments...................................... 1
Securities Index Futures Contracts................................... 4
Writing Call Options................................................. 4
Writing Put Options.................................................. 5
Purchasing Put and Call Options...................................... 5
Securities Index Options............................................. 5
Over-the-counter Options............................................. 6
Limitations on Purchase and Sale of Futures Contracts and Options.... 6
Futures.............................................................. 6
Options.............................................................. 7
Investment Limitations.................................................... 8
Management of the Company................................................. 11
Code of Ethics............................................................ 11
Principal Holders of Securities........................................... 11
Investment Advisory and Other Services.................................... 12
Investment Adviser................................................... 12
Distributor.......................................................... 16
Administrative Services.............................................. 16
Custodian............................................................ 18
Independent Public Accountant........................................ 18
Brokerage Allocation and Other Practices.................................. 19
Selection of Brokers................................................. 19
Simultaneous Transactions............................................ 19
Brokerage Commissions................................................ 19
Capital Stock and Other Securities........................................ 19
Dividends and Capital Gains Distributions............................ 20
Purchase, Redemption, and Pricing of Shares.............................. 20
Purchase of Shares................................................... 20
Redemption of Shares................................................. 21
Exchange Privilege................................................... 23
Transfer of Shares................................................... 23
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Valuation of Shares.................................................. 23
Performance Calculations.................................................. 24
Total Return......................................................... 24
Yield................................................................ 25
Comparisons.......................................................... 26
Taxes..................................................................... 26
Expenses.................................................................. 27
Financial Statements...................................................... 27
</TABLE>
-ii-
<PAGE>
Definitions
The "Company" is UAM Funds, Inc. II
The term "Adviser" means Analytic Investors, Inc., investment adviser of
the Analytic Funds.
UAM is United Asset Management Corporation.
UAMFSI is UAM Fund Services, Inc., the Company's administrator[, transfer
agent, and shareholder-servicing agent].
UAMFDI is UAM Fund Distributors, Inc., the Company's distributor.
UAMSSC is UAM Fund Shareholder Servicing Center, the Company's sub-
shareholder-servicing agent.
[CGFSC is Chase Global Funds Service Company, the Company's sub-
administrator.]
UAM Funds Complex includes UAM Funds, Inc., UAM Funds, Inc. II, UAM Funds
Trust, UAM Funds Trust II and all of their portfolios.
The term "Funds" is used to refer to The Analytic Funds as a group, while
"Fund" refers to a single Analytic Fund.
The terms "board" and "governing board" refer to the Company's Board of
Directors as a group, while "board member" refers to a single member of the
board.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
All other defined terms, which are not otherwise defined in this SAI, have
the same meaning in the SAI as they do in the prospectus of The Analytic
Funds.
The Company
This Statement of Additional Information relates to the Company and each of the
Funds listed on the first page of this Statement of Additional Information.
Each Fund is a separate series of the Company, which was organized under the
name "PBHG Advisor Funds, Inc." as a Maryland corporation on January 9, 1998 and
is registered as an open-end management investment company under the 1940 Act.
On ___________ __, 1999, the Company changed its name to "UAM Funds, Inc. II."
The Company's principal executive office is located at One International Place,
Boston, MA 02110; shareholders should direct all correspondence to the address
listed on the cover of this SAI.
The Funds are diversified series of the Company. Each share of a Fund
represents an equal proportionate interest in that Fund. No investment in shares
of a Fund should be made without first reading the Fund's Prospectus.
Description of Permitted Investments
Repurchase Agreements
Repurchase agreements are agreements by which a person (e.g., a Fund) obtains a
security and simultaneously commits to return the security to the seller (a
member 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
-1-
<PAGE>
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 Fund for purposes of its
investment limitations. The repurchase agreements entered into by the Funds
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. With respect
to all repurchase agreements entered into by a Fund, the Fund's custodians or
their agents must take possession of the underlying collateral. However, if the
seller defaults, the Fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of the sale, including accrued
interest, are less than the resale price provided in the agreement including
interest. In addition, even though the Bankruptcy Code provides protection for
most repurchase agreements, if the seller should be involved in bankruptcy or
insolvency proceedings, the Fund may incur delays and costs in selling the
underlying security or may suffer a loss of principal and interest if the Fund
is treated as an unsecured creditor of the seller and is required to return the
underlying security to the seller's estate.
Investment Company Shares
Investment company shares that each Fund may invest in are limited to shares of
money market mutual funds, except as set forth under "Investment Limitations"
below. Since such mutual funds pay management fees and other expenses,
shareholders of the Funds would indirectly pay both Fund expenses and the
expenses of underlying funds with respect to Fund assets invested therein.
Applicable regulations prohibit an investment company 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: (i) the investment
company owns more than 3% of the total voting stock of the company; (ii) more
than 5% of the investment company's total assets are invested in securities of
any one investment company; or (iii) more than 10% of the total assets of the
investment company are invested in securities (other than treasury stock of the
investment company) issued by all investment companies. Each Fund has no
intention currently or in the foreseeable future of investing more than 5% of
its assets in investment company securities.
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 of the
Company, the Adviser determines the liquidity of each Fund's investments and,
through reports from the Adviser, the Board monitors investments in illiquid
instruments. In determining the liquidity of a Fund's investments, the Adviser
may consider various factors including: (i) the frequency of trades and
quotations; (ii) the number of dealers and prospective purchasers in the
marketplace; (iii) dealer undertakings to make a market; (iv) the nature of the
security (including any demand or tender features); and (v) the nature of the
marketplace for trades (including the ability to assign or offset a Fund's
rights and obligations relating to the investment). Investments currently
considered by a Fund to be illiquid include repurchase agreements not entitling
the holder to payment of principal and interest within seven days, over-the-
counter options, and non-government stripped fixed-rate mortgage backed
securities. Also, the Adviser may determine that some government-stripped
fixed-rate mortgage backed securities, loans and other direct debt instruments,
and swap agreements are illiquid. However, with respect to over-the-counter
options a Fund 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 Fund 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 Fund 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 privately in negotiated
transactions, pursuant to an exemption from registration under the 1933 Act, or
in a registered public offering. Where registration is required, a Fund may be
obligated to pay all or a part of the registration expense and a considerable
period may elapse between the time it decides to seek registration and the time
a Fund may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to develop,
a Fund might obtain a less favorable price than prevailed when it decided to
seek registration of the security. Moreover, investing in Rule 144A securities
(i.e., securities that qualify for resale under Rule 144A under the 1933 Act)
would
-2-
<PAGE>
have the effect of increasing the level of a Fund's liquidity to the extent that
qualified institutional buyers become, for a time, interested in purchasing
these securities. Restricted securities may be deemed to be liquid in the same
manner as determined under the preceding paragraph ("Illiquid Investments").
Foreign Currency Transactions
A Fund 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 Fund 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 Funds.
In connection with purchases and sales of securities denominated in foreign
currencies, a Fund may enter into currency forward contracts to fix a definite
price for the purchase or sale in advance of the trade's settlement date. This
technique is sometimes referred to as a "settlement hedge" or "transaction
hedge." The Adviser may enter into settlement hedges in the normal course of
managing the Fund's foreign investments. A Fund may also enter into forward
contracts to purchase or sell a foreign currency in anticipation of future
purchases or sales of securities denominated in foreign currency, even if the
specific investments have not yet been selected by the Adviser.
A Fund may also use forward contracts to hedge against a decline in the value of
existing investments denominated in foreign currency. For example, if a Fund
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 Fund 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 Deutsche marks 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, guidelines of the Securities and Exchange Commission
("SEC") require mutual funds to set aside appropriate liquid assets in a
segregated account to cover currency forward contracts. As required by SEC
guidelines, each Fund will segregate assets to cover currency forward contracts,
if any, whose purpose is essentially speculative. A Fund 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 skill of the
Adviser in analyzing and predicting currency values. Forward contracts may
substantially change a Fund's investment exposure to changes in currency
exchange rates, and could result in losses to a Fund if currencies do not
perform as the Adviser anticipates. For example, if a currency's value rose at
a time when the Adviser had hedged a Fund by selling that currency in exchange
for dollars, a Fund would be unable to participate in the currency's
appreciation. If the Adviser hedges a Fund's currency exposure through proxy
hedges, the Fund could realize currency losses from the hedge and the security
position at the same time if the two currencies do not move in tandem.
Similarly, if the Adviser increases a Fund's exposure to a foreign currency and
that currency's value declines, the Fund will realize a loss. There is no
assurance that the use of forward currency contracts by the Adviser will be
advantageous to a Fund or that it will hedge at an appropriate time.
-3-
<PAGE>
Futures Contracts
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
Commodities Futures Trading Commission ("CFTC").
No purchase price is paid or received when the contract is entered into.
Instead, a Fund, upon entering into a futures contract (and to maintain that
Fund'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 applicable Fund. 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 Fund expects to earn interest income on its initial
variation margin deposits.
A Fund 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 Fund will usually be liquidated in this manner, a Fund may instead
make or take delivery of underlying securities whenever it appears economically
advantageous to that Fund to do so. A clearing organization associated with the
exchange on which futures are traded assumes responsibility for closing out
transactions and guarantees that, as between the clearing members of an
exchange, the sale and purchase obligations will be performed with regard to all
positions that remain open at the termination of the contract.
Securities Index Futures Contracts. Purchases or sales of securities index
- ----------------------------------
futures contracts may be used in an attempt to protect each Fund'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, a Fund 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 Fund 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 Fund will be
affected to a lesser degree by adverse overall market price movements than would
otherwise be the case.
For information concerning the risks associated with utilizing futures
contracts, please see "Risks of Transactions in Futures Contracts and Options"
below.
Options
The types of options transactions that each Fund is permitted to utilize are
discussed below.
Writing Call Options. A call option is a contract which gives the purchaser of
- --------------------
the option (in return for a premium paid) the right to buy, and the writer of
the option (in return for a premium received) the obligation to sell, the
underlying security at the exercise price at expiration and/or any time prior to
the expiration of the option, regardless of the market price of the security
during the
-4-
<PAGE>
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 Fund 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, a Fund 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 Fund 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 Fund owns securities not subject to a
call option, a Fund, in writing call options, must assume that the call may be
exercised at any time prior to the expiration of its obligations 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 Fund may terminate its obligation under an option it has written by buying an
identical option. Such a transaction is called a "closing purchase
transaction." A Fund 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 in part by unrealized appreciation of the underlying security owned by
the Fund. When an underlying security is sold from a Fund's securities
portfolio, that Fund 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 Fund 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 Fund 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 such Fund, offset by the
option premium, is less than the current price). The risk of either strategy is
that the price of the underlying security may decline by an amount greater than
the premium received. The premium which a Fund 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 Fund 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 Fund 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 a Fund to preserve, at least
partially, unrealized gains in an appreciated security in its portfolio without
actually selling the security. In addition, a Fund will continue to receive
interest or dividend income on the security. A Fund may also purchase call
options on securities to protect against substantial increases in prices of
securities that the Fund intends to purchase pending its ability to invest in an
orderly manner in those securities. A Fund 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 costs paid on the put or call option which was bought.
Securities Index Options. Each Fund 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 Fund's securities or securities it intends to purchase. A Fund will only
write "covered" options. A call option on a securities index is considered
covered, for example, if, so long as the Fund 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 Fund are based. A put on a
securities index written by a Fund will be considered covered if, so long as it
is obligated as the writer of the put, the Fund segregates with its custodian
cash or other liquid obligations having a value
-5-
<PAGE>
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.
Over-the-Counter Options. Each Fund may enter into contracts with primary
- ------------------------
dealers with whom it may write over-the-counter options. Such contracts will
provide that the Fund 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 a Fund 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". Each Fund has established
standards of creditworthiness for these primary dealers, although such Fund may
still be subject to the risk that firms participating in such transactions will
fail to meet their obligations. In instances in which a Fund has entered into
agreements with respect to the over-the-counter options it has written, and such
agreements would enable the Fund to have an absolute right to repurchase at a
pre-established formula price the over-the-counter option written by it, the
Fund 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.
Limitations on Purchase and Sale of Futures Contracts and Options. Each Fund
- -----------------------------------------------------------------
may purchase and sell ("write") both put options and call options on securities,
securities indices and foreign currencies, enter into interest rate, foreign
currency and index futures contracts, and purchase and sell options on such
futures contracts ("Futures options") for various reasons: to hedge portfolio
securities against adverse fluctuations, to adjust the level of market exposure
of a portfolio, to facilitate trading, to reduce transaction costs, and/or to
seek higher investment returns when a futures or option contract is attractively
priced relative to a typical portfolio investment in the underlying security or
index or securities highly correlated to the underlying index, and not for
speculation. The Funds may purchase and sell foreign currency options for
purposes of increasing exposure to a foreign currency or to shift exposure to
foreign currency fluctuations from one country to another. If other types of
options, futures contracts, or futures options are traded in the future, the
Funds may also use those instruments, provided the Board of Directors determines
that their use is consistent with such Fund's investment objective, and their
use is consistent with restrictions applicable to options and futures contracts
currently eligible for use by such Fund.
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 by,
- -------
among other things, 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.
-6-
<PAGE>
For example, if at the time of purchase, 10% of the value of the futures
contract is deposited as margin, a subsequent 10% decrease in the value of the
futures contract would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the original margin deposit, if
the futures contract were closed out. Thus, a purchase or sale of a futures
contract may result in losses in excess of the amount invested in the futures
contract.
A decision of whether, when, and how to hedge involves skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior, market trends, or interest rate trends. There are
several risks in connection with the use by a Fund 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. If the Adviser
decides to hedge a Fund's investment, it 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 such Fund's
underlying instruments sought to be hedged.
Successful use of futures contracts by a Fund for hedging purposes is also
subject to the Fund's ability to correctly predict movements in the direction of
the market. It is possible that, when a Fund 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 that Fund's portfolio might decline. If this were to occur, the Fund
would lose money on the futures and also would experience a decline in value in
its underlying instruments.
Positions in futures contracts may be closed out only on an exchange or a board
of trade which provides the market for such futures. Although the Funds intend
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 out a futures
position at such time, and, in the event of adverse price movements, the Fund
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. 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 Fund is unable to effect a
closing purchase transaction, that Fund will not sell the underlying security
until the option expires or the Fund delivers the underlying security upon
exercise.
Options traded in the over-the-counter market may not be as actively traded as
those on an exchange. Accordingly, it may be more difficult to value such
options. In addition, it may be difficult to enter into closing transactions
with respect to options traded over-the-counter. A Fund 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 if
such hedging occurs 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 a Fund 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 Fund 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.
An exchange may establish limitations governing the maximum number of calls and
puts in each class (whether or not covered) which may be written by a single
investor or group of investors acting in concert (regardless of whether the
options are written on the same or different exchanges or are held or written in
one or more accounts or through one or more brokers). It is possible that the
Fund and clients advised by the Adviser may constitute such a group. An
exchange may order the liquidation of positions found to be in violation of
these limits, and it may impose certain other sanctions. These position limits
may limit the number of options which a Fund can write on a particular security.
-7-
<PAGE>
Small and Medium Capitalization Stocks
Investments in equity securities in general are subject to market risks
that may cause their prices to fluctuate over time. In certain cases, the
Analytic Defensive Equity Fund and Analytic Enhanced Equity Fund may invest
in securities of issuers with small or medium market capitalizations. An
investment in small and medium capitalization companies involves greater
risk and price volatility than that customarily associated with investments
in larger, more established companies. This increased risk may be due to
the greater business risks of their small or medium size, limited markets
and financial resources, narrow product lines and frequent lack of
management depth. The securities of small and medium capitalization
companies are often traded in the over-the-counter market and might not be
traded in volumes typical of securities traded on a national securities
exchange. Thus, the securities of small and medium capitalization
companies are likely to be less liquid, and subject to more abrupt or
erratic market movements, than securities of larger, more established
companies.
Over-the-Counter Stocks
The Analytic Enhanced Equity Fund and the Analytic Defensive Equity Fund
may invest in over-the-counter stocks. In contrast to the securities
exchanges, the over-the-counter market is not a centralized facility which
limits trading activity to securities of companies which initially satisfy
certain defined standards. Generally, the volume of trading in an unlisted
or over-the-counter common stock is less than the volume of trading in a
listed stock. This means that the depth of market liquidity of some stocks
in which each Fund invests may not be as great as that of other securities
and, if a Fund were to dispose of such a stock, it might have to offer the
shares at a discount from recent prices, or sell the shares in small lots
over an extended period of time.
Investments in Technology Companies
Each Fund may invest in securities of technology companies. Such
securities have tended to be subject to greater volatility than securities
of companies that are not dependent upon or associated with technological
issues. A Fund may invest in the securities of technology companies
operating in various industries. Many of these industries share common
characteristics. Therefore, an event or issue affecting one such industry
may have a significant impact on other, related industries and, thus, may
affect the value of a Fund's investments in technology companies. For
example, technology companies may be strongly affected by worldwide
scientific or technological developments and their products and services
may be subject to governmental regulation or adversely affected by
governmental policies.
INVESTMENT LIMITATIONS
Fundamental Policies
Each Fund has adopted certain investment restrictions which, in addition to
those restrictions summarized in the Prospectus (and indicated therein to be
fundamental), are fundamental and may not be changed without approval by a
majority vote of the Fund's shareholders. Such majority is defined in the 1940
Act as the lesser of (i) 67% or more of the voting securities of the Fund
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 Fund.
No Fund may:
1. Make loans except that each Fund, in accordance with its investment
objective and policies, may (a) purchase debt obligations, (b) enter into
repurchase agreements and (c) lend its portfolio securities.
2. Act as an underwriter of securities of other issuers, except as it may be
deemed to be an underwriter under the 1933 Act in connection with the
purchase and sale of portfolio securities.
-8-
<PAGE>
3. Purchase or sell commodities or commodity contracts, except that a Fund, 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 Fund 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 Fund'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 up to
25% of its assets may be invested without regard to these limits.
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 issuers (other than obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities and repurchase
agreements collateralized by such obligations) whose principal business
activities are in the same industry.
For purposes of this investment limitation, 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 end use of their service
(e.g., automobile finance, bank finance, and diversified finance).
8. Borrow money (other than pursuant to reverse repurchase agreements) except
for temporary or emergency purposes and then only in amounts up to (a) 10%
of the total assets of the Analytic Defense Equity Fund and (b) 15% of the
total assets of the Analytic Enhanced Equity Fund, the Analytic Master
Fixed Income Fund and the Analytic Short-Term Government Fund. The
temporary borrowing will include, for example, borrowing to facilitate the
orderly sale of portfolio securities to accommodate substantial redemption
requests if they should occur, to facilitate the settlement of securities
transactions, and is not for investment purposes. All borrowings in excess
of 5% of a Fund's total assets will be repaid before making additional
investments. The foregoing percentages will apply at the time of each
purchase of a security.
Non-fundamental Policies
In addition to the foregoing, and the policies set forth in each Fund's
Prospectus, each Fund has adopted additional investment restrictions which may
be amended by the Board of Directors without a vote of shareholders.
As a non-fundamental investment policy, no Fund may:
1. Pledge more than 10% of its total assets, except that each Fund may pledge
assets to the extent permitted by the 1940 Act in order to (i) secure
permitted borrowings or (ii) as may be necessary in connection with the
Fund's use of options and futures contracts.
2. Purchase or hold the securities of an issuer if, at the time thereof, any
such purchase or holding would cause more than 15% of the Fund's net assets
to be invested in illiquid securities. This limitation does not include
any Rule 144A security that has been determined by, or pursuant to
procedures established by, the board, based on trading markets for such
security, to be liquid.
3. Purchase or sell puts, calls, straddles, spreads, and any combination
thereof except that a Fund may, in accordance with its investment objective
and policies, write covered call options with respect to all of its
portfolio securities, write
-9-
<PAGE>
covered put options and enter into closing purchase transactions with
respect to such options, engage in put and call option transactions and
engage in interest rate and stock index futures contracts and related
options transactions.
4. Purchase securities of open-end or closed-end investment companies, except
to the extent permitted by the 1940 Act.
5. Invest in companies for the purpose of exercising control.
6. With respect to the Analytic Defensive Equity Fund, the Fund will not make
short sales of securities or maintain a short position, unless at all times
when a short position is open, the Fund owns an equal amount of such
securities or owns securities convertible into or exchangeable for
securities, without payment of additional consideration (except upon
exercise of covered call options on such securities with a strike price no
higher than the price at which the securities were sold short or, if
higher, if the difference between the strike price and the price at which
the securities were sold short is maintained in U.S. Government securities
in a segregated account with the Fund's custodian or a broker), which are
at least equal in an amount to and of the same issue as the securities sold
short and such securities are not subject to outstanding call options, and
unless not more than 10% of the Fund's net assets (taken at current value)
are held as collateral for such sales at any one time.
7. Purchase securities on margin, except that each Fund 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 Fund's use of options and futures contracts.
8. Invest in interests in oil, gas or other mineral leases, exploration or
development programs, except that this shall not prevent a Fund from
investing in readily marketable securities of issuers that invest or engage
in oil, gas or other mineral leases, exploration or development programs or
issuers secured by interest in such activities.
9. Invest more than 5% of the value of its net assets (total assets with
respect to the Analytic Defensive Equity Fund) in securities of issuers
which have a record of less than three years continuous operation,
including in such three years the operation of any predecessor company or
companies, partnership or individual proprietorship if the company whose
securities are to be purchased by the Fund has come into existence as a
result of a distribution, merger, consolidation, reorganization or the
purchase of all or substantially all of the assets of such predecessor.
10. Purchase or retain the securities of any issuer if, to the knowledge of the
Fund, any of the officers or directors of the Fund or its investment
adviser owns individually more than one-half of one percent of the
securities of such issuer and together own more than 5% of the securities
of such issuer.
In addition to the above, the Analytic Defensive Equity Fund, as a non-
fundamental policy, may not:
1. Invest more than 10% of the value of its total assets in securities
restricted as to disposition under the Federal securities laws.
2. Participate on a joint or a joint and several basis in any trading account
in securities.
3. Sell or buy options which are not listed for trading on a national
securities exchange if, as a result, more than 5% of the Fund's net assets
would be at risk in connection with all such unlisted options.
4. Sell any covered put stock option if, as a result, the Fund would then have
more than 50% of its total assets at current value subject to being
invested upon the exercise of put options.
5. Make short sales "against the box," except for the purpose of deferring
realization of gain or loss for Federal income tax purposes and/or to
receive interest on the proceeds of such sales when made in connection with
convertible securities. Such sales will not be made of securities subject
to outstanding options.
The foregoing percentages will apply at the time of each purchase of a security
(except with respect to the limitation on investments in illiquid securities).
-10-
<PAGE>
MANAGEMENT OF THE COMPANY
The business of the Company is managed by its governing board, which, in
turn, elects officers who are responsible for the day-to-day operations of
the Company and who execute policies formulated by the board. The Company
pays each board member who is not also an officer or affiliated person
(independent board member) a [$150] quarterly retainer fee per active
portfolio per quarter and a [$2,000] meeting fee. In addition, each
independent board member is reimbursed for travel and other expenses
incurred while attending board meetings. The [$2,000] meeting fee and
expense reimbursements are aggregated for all of the board members and
allocated proportionately among the portfolios of the UAM Funds Complex.
The Company does not pay the remaining board members, each of whom is
affiliated with the Company, for their services as board members. UAM or
its affiliates or CGFSC pay the Company's officers.
The following table lists the board members and officers of the Company and
provides information regarding their present positions, date of birth,
address, principal occupations during the past five years, aggregate
compensation received from the Company and total compensation received from
the UAM Funds Complex.
<TABLE>
<CAPTION>
Total
Position Aggregate Compensation
with the Compensation From UAM Funds
Name, Address, DOB Company Principal Occupations During the Past 5 years from Registrant** Complex***
------------------ ------- --------------------------------------------- ----------------- ----------
<S> <C> <C> <C> <C>
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- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Director/Officer who is an "interested person" of the Company (as defined in
the 1940 Act).
** The Company has not completed its first year since its organization.
Consequently, the information provided regarding compensation reflects payments
for the period from January 1, 1999 through _______ __, 1999, and estimates of
compensation for the period from ________ __, 1999 through December 31, 1999.
*** Reflects total payments received from the Fund Complex. As of _________
__, 1999, there were __ funds in the Fund Complex.
CODE OF ETHICS
The Company has adopted a Code of Ethics that restricts to a certain extent
personal transactions by access persons of the Company and imposes certain
disclosure and reporting obligations.
PRINCIPAL HOLDERS OF SECURITIES
As of ________, 1999, the members of the governing board and officers of
the Company as a group owned less than 1% of each Fund's outstanding
shares.
As of _____________, 1999, the following persons or organizations held [OF
RECORD, BENEFICIALLY] 5% or more of the shares of a portfolio:
-11-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Name and Address of Shareholder Shares Owned Fund
------------------------------- ------------ ----
<S> <C> <C>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Any persons or organizations listed above as owning 25% or more of the
outstanding shares of a Fund may be presumed to "control" (as that term is
defined in the 1940 Act) the portfolio. As a result, those persons or
organizations could have the ability to vote a majority of the shares of
the portfolio on any matter requiring the approval of shareholders of the
Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Control of Adviser
The Adviser is located at 700 S. Flower Street, Suite 2400, Los Angeles, CA
90017. The Adviser is a wholly-owned subsidiary of UAM and has provided
investment management services to corporations, pension and profit-sharing
plans, 401(k) and thrift plans, trusts, estates and other institutions and
individuals since 1970.
UAM is a holding company incorporated in Delaware in December 1980 for the
purpose of acquiring and owning firms engaged primarily in institutional
investment management. Since its first acquisition in August 1983, UAM has
acquired or organized approximately 45 such affiliated firms (the "UAM
Affiliated Firms"). UAM believes that permitting UAM Affiliated Firms to
retain control over their investment advisory decisions is necessary to
allow them to continue to provide investment management services that are
intended to meet the particular needs of their respective clients.
Accordingly, after acquisition by UAM, UAM Affiliated Firms continue to
operate under their own firm name and with their own leadership and
individual investment philosophy and approach. Each UAM Affiliated Firm
manages its own business independently on a day-to-day basis. Investment
strategies employed and securities selected by UAM Affiliated Firms are
separately chosen by each of them. Several UAM Affiliated Firms also act as
investment advisers to separate series or portfolios of the UAM Funds
complex.
Investment Advisory Agreement
Services Performed by Adviser
Pursuant to each Investment Advisory Agreement (Advisory Agreements)
between the Company, on behalf of each Fund, and the Adviser, the Adviser
has agreed to:
. Manage the investment and reinvestment of the assets of the Funds.
. Continuously review, supervise and administer the investment program
of the Funds.
. Determine in its discretion the securities a Fund will buy or sell
and the portion of its assets such portfolio will hold uninvested.
-12-
<PAGE>
Limitation of Liability
In the absence of (1) willful misfeasance, bad faith, or gross negligence
of the part of the Adviser in the performance of its obligations and duties
under the Advisory Agreements, (2) reckless disregard by the Adviser of its
obligations and duties under the Advisory Agreements, or (3) a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services, the Adviser shall not be subject to any
liability whatsoever to the Fund, for any error of judgment, mistake of law
or any other act or omission in the course of, or connected with, rendering
services under the Advisory Agreements.
Continuing an Advisory Agreement
Unless sooner terminated, an Advisory Agreement shall continue for periods
of one year so long as such continuance is specifically approved at least
annually (a) by a majority of those members of the governing board of the
Company who are not parties to the Advisory Agreement or interested persons
of any such party and (b) by a majority of the governing board of the
Company or a majority of the shareholders of the portfolio. An Advisory
Agreement may be terminated at any time by the Fund, without the payment of
any penalty, by vote of a majority of the Funds' shareholders or of a
majority of the governing board on 60 days' written notice to the Adviser.
The Adviser may terminate the Advisory Agreements at any time, without the
payment of any penalty, upon 90 days' written notice to the Fund. An
Advisory Agreement will automatically and immediately terminate if it is
assigned.
Investment Advisory Fee
For its services, the Adviser receives an advisory fee calculated by
applying the annual percentage rates listed below to the average daily net
assets of the portfolio for the month. The Adviser's fee is paid in monthly
installments.
Annual Percentage Rate
Analytic Enhanced Equity Fund 0.60%
Analytic Defensive Equity Fund 0.60%
Analytic Master Fixed Income Fund 0.45%
Analytic Short-Term Government Fund 0.30%
Expense Limitation and Fee Waiver
[The Adviser has currently agreed to waive or limit its advisory fees or
assume other expenses in an amount that operates to limit the aggregate
annual total of certain operating expenses of each Analytic Fund as
follows: 0.__% of the Analytic Defensive Equity Fund and the Analytic
Enhanced Equity Fund; 0.__% of the Analytic Master Fixed Income Fund; and
0.__% OF The Analytic Short-Term Government Fund.] The expenses subject to
such limitation exclude: (i) interest, taxes, brokerage commissions, and
other expenditures which are capitalized in accordance with generally
accepted accounting principles; (ii) [transfer agency fees]; and (iii)
other extraordinary expenses not incurred in the ordinary course of a
Fund's business. The fee waiver/expense reimbursement arrangement for each
Fund is expected to remain in effect for the current fiscal year and can be
terminated at any time at the option of the Fund. Each waiver of advisory
fees or assumption of other expenses by the Adviser is subject to a
possible reimbursement by each Fund in future years if such reimbursement
can be made within the foregoing annual expense limits.
History
The Adviser was founded in 1970 as Analytic Investment Management, Inc.,
one of the first independent investment counsel firms specializing in the
creation and continuous management of optioned equity and optioned debt
portfolios for fiduciaries and other long term investors. It is one of the
oldest investment management firms in this specialized area. In 1985 it
became a wholly-owned affiliate of United Asset Management (NYSE:UAM). UAM
is an investment management holding company, with 51 affiliated management
firms, managing more than
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<PAGE>
$206 billion in assets. In January 1996, Analytic Investment Management,
Inc. acquired and merged with TSA Capital Management which emphasizes U.S.
and global tactical asset allocation, currency management, quantitative
equity and fixed income management, as well as option and yield curve
strategies. The Adviser serves, among others, pension and profit-sharing
plans, endowments, foundations, corporate investment portfolios, mutual
savings banks, and insurance companies, for which it manages approximately
$1 billion.
Philosophy
Analytic Investors utilizes state of the art quantitative investment
management techniques to deliver superior investment performance. We
believe that the use of such techniques allows us to fulfill our clients'
objectives through rational, systematic identification of market
opportunities, while minimizing the impact of human emotions which often
dominate investment decision making. The firm has based its investment
decisions on quantitative techniques for more than 25 years.
Investment Process and Style
Enhanced Equity Fund
--------------------
Analytic Investors' Enhanced Equity Fund seeks to exceed the return on the
S&P 500 Index over full market cycles with no greater volatility.
Analytic Investors ranks all stocks in the S&P 500 index according to each
stock's one month expected return outlook, based on the forecasts of a
sophisticated proprietary mathematical model. Over 70 separate factors
drive the modeling process. Variables chosen for the modeling process are
drawn from categories such as risk, momentum, valuation, growth and
liquidity. An adaptive weighting scheme allows those variables that have
been most effective over recent horizons to have the greatest weight in
predicting expected returns. Based on the rankings, a non-linear
optimization process is used to determine a portfolio that maximizes
expected return while keeping expected volatility less than that of the S&P
500. Additional constraints are used in the optimization process to ensure
that the resulting portfolio has minimal exposure to size, style, and
industry sector biases.
Research shows that the differential performance between stocks is related
to a complex set of characteristics and not just to a single factor. A
focus on multiple attributes better captures the complex nature of an
equity investment and provides more reliable value added. Factors are
broadly grouped into five categories: valuation, growth prospects, risk,
momentum and liquidity. Intelligent diversification allows the portfolio as
a whole to capture desirable characteristics, even though few stocks
individually meet the criteria.
Proprietary mathematical models are used to incorporate the complex
interactions between securities for more precise risk control than can be
achieved intuitively. Limiting maximum holdings in any one stock creates a
well diversified portfolio of approximately 70-100 stocks and reduces the
probability of underperformance in any one period. Portfolio constraints on
industry exposures allow for the efficient use of the most attractive
securities within industry sectors without having the portfolio
concentrated in a particular industry, thereby increasing its risk relative
to the broad market. Portfolio positions are reviewed and revised as market
conditions change. Turnover averages approximately 180% per year.
Defensive Equity Fund
---------------------
Analytic Investors' Defensive Equity Fund seeks to deliver superior risk-
adjusted equity performance over full market cycles. In the short run, the
hedging strategy utilized by the fund is expected to: (1) improve upon the
return of the equity market when the equity market is gradually rising or
flat, (2) capture a large fraction of the return when the equity market is
steeply rising, and (3) provide substantial protection in declining
markets.
The Defensive Equity Fund is a portfolio of 70-100 S&P 500 securities with
similar industry weightings as the Index. It is virtually fully invested in
the equity market at all times, maintaining a minimal amount of cash for
management (less than 5%). Positions are hedged utilizing both put and call
options on both individual and index
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<PAGE>
exchange-traded stock options. No leverage is used, all options sold are
fully collateralized with the appropriate shares of stock or cash.
Active management centers on two functions: (1) optimal portfolio
construction and (2) active hedging applied to various security positions.
Portfolios are constructed using a proprietary valuation model which
evaluates securities on over 70 separate characteristics. Weights placed on
individual characteristics are increased or decreased over time depending
on changing market importance. Not all desirable characteristics are
equally important all of the time. As a result, an adaptive weighting
scheme is used to capture the evolution of market rewards over time.
Hedging decisions are based on estimates of the fair value and expected
contribution made by the position to the portfolio's expected return.
Estimates of the return volatility of underlying securities are the most
important element in determining the expected return. Each portfolio
decision is clear-cut. If hedging a position does not contribute to the
portfolio's stability and growth, it is not hedged.
Mathematical models used incorporate the complex interactions between
securities for more precise risk control than can be achieved intuitively.
In addition, limiting maximum holdings in any one stock and constraining
industry exposures reduces the probability of underperformance in any one
period.
Active hedging through the use of multiple types of option contracts
enables Analytic Investors to add value in virtually all market
environments. Individual options can be bought or sold, sector/broad-based
options may be used if neither alternative appears to be attractive. With
more than twenty-five years of experience in pricing options, Analytic
Investors is an industry leader in determining the cheapest, most
attractive means of hedging a portfolio.
Master Fixed Income Fund
------------------------
Analytic Investors' Master Fixed Income Fund seeks to provide superior
fixed income returns through quantitative analysis. Returns to the Master
Fixed Income Fund are expected to exceed the return of the Lehman Brothers
Government/Corporate Bond Index over full interest rate cycles, with no
greater volatility than the Index.
This Fund utilizes high quality fixed income instruments which are
augmented through the use of listed options for risk control and return
enhancement. Because of its unique source of value added, the Master Fixed
Income Fund maintains a low correlation to conventional bond managers and
has less sensitivity to rising rates.
Portfolio volatility is targeted to be similar to that of the Lehman
Aggregate. A diversified portfolio with this targeted risk characteristic
is constructed using high quality corporates, mortgages and government
securities, as well as listed options. Fixed income instruments typically
account for approximately 97% of the portfolio value with the remaining 3%
invested in selected option positions.
A fundamental insight of modern financial theory is that the value of a
bond can be decomposed into (1) a risk free component, and (2) an option
component. Absent changes in interest rates, the return volatility of fixed
income portfolios stems primarily from changes in the value of the option
component. We use this analytic framework to construct a portfolio of fixed
income securities with superior risk and return characteristics. Explicit
recognition of the importance of the option component in fixed income
valuation enables the portfolio construction to reflect well defined risk
parameters.
Securities are selected based on the application of a proprietary option
valuation process. This process values the embedded option component of a
fixed income security as well as combinations of options and fixed income
securities. Estimates of the return volatility of underlying securities or
sectors are the most important element in this valuation process. Analytic
Investors has produced such volatility forecasts for over 25 years.
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<PAGE>
Short-Term Government Fund
--------------------------
The Analytic Short Term Government Fund seeks to provide investors with a
high level of current income and a low level of risk by investing in a
portfolio of high quality short term fixed income securities.
Under normal market conditions, the fund will invest at least 80% of its
total assets in U.S. government securities. The remainder of the Fund's
assets will generally be invested in other high grade corporate fixed
income securities, debt securities of foreign governments, and debt
securities from supranational organizations. All debt securities included
in the portfolio will be considered, by recognized rating agencies, to be
high quality, investment grade securities at the time of purchase. Other
securities generally included in the Fund are options and futures on
foreign currencies, interest rate related options and futures, and cash and
cash equivalents
The Fund has targeted a risk level approximately equal to U.S. government
bonds that mature in 1 to 3 years. The 1 to 3 year section of the yield
curve has historically delivered superior risk-adjusted returns than other
sections of the U.S. government yield curve. The adviser selects a
diversified portfolio of high quality, short term fixed income investments
so as to provide superior return to risk ratio, taking into consideration
factors such as duration, liquidity, diversification and the prevailing
market environment. The Fund utilizes U.S. interest rate related options
and futures as a cost efficient way to hedge the Fund's exposure to adverse
changes in the U.S. government yield curve. In addition, the Fund will use
currency options and futures to gain cost effective exposure to short term
foreign government fixed income debt. The optimal level of exposure to
yield curve changes and foreign debt is based upon a quantitative
assessment of the economic environment, monetary conditions, inflation, and
other relevant factors.
DISTRIBUTOR
- --------------------------------------------------------------------------------
UAMFDI serves as the Company's distributor. The Company offers its shares
continuously. While UAMFDI will use its best efforts to sell shares of the
Company, it is not obligated to sell any particular amount of shares.
UAMFDI receives no compensation for its services. UAMFDI, an affiliate of
UAM, is located at 211 Congress Street, Boston, Massachusetts 02110.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Administrator
Pursuant to a Fund Administration Agreement with the Company, UAMFSI
manages, administers and conducts the general business activities of the
Company. As a part of its responsibilities, UAMFSI provides and oversees
the provision by various third parties of administrative, fund accounting,
dividend disbursing and transfer agent services for the Company. UAMFSI, an
affiliate of UAM, has its principal office at 211 Congress Street, Boston,
Massachusetts 02110.
UAMFSI will bear all expenses in connection with the performance of its
services under the Fund Administration Agreement. Other expenses to be
incurred in the operation of the Company will be borne by the Company or
other parties, including
. Taxes, interest, brokerage fees and commissions.
. Salaries and fees of officers and members of the board who are not
officers, directors, shareholders or employees of an affiliate of UAM,
including UAMFSI, UAMFDI or the Adviser.
. SEC fees and states Blue-Sky fees.
. EDGAR filing fees.
. Processing services and related fees.
-16-
<PAGE>
. Advisory and administration fees.
. Charges and expenses of pricing and data services, independent public
accountants and custodians.
. Insurance premiums including fidelity bond premiums.
. Outside legal expenses.
. Costs of maintenance of corporate existence.
. Typesetting and printing of prospectuses for regulatory purposes and
for distribution to current shareholders of the Company.
. Printing and production costs of shareholders' reports and corporate
meetings.
. Cost and expenses of Company stationery and forms.
. Costs of special telephone and data lines and devices.
. Trade association dues and expenses.
. Any extraordinary expenses and other customary Company expenses.
Unless sooner terminated, the Fund Administration Agreement shall continue
in effect from year to year provided the board specifically approves such
continuance at least annually. The board or UAMFSI may terminate the Fund
Administration Agreement, without penalty, on not less than ninety (90)
days' written notice. The Fund Administration Agreement shall automatically
terminate upon its assignment by UAMFSI without the prior written consent
of the Company.
UAMFSI will from time to time employ or associate with such person or
persons as may be fit to assist them in the performance of the Fund
Administration Agreement. Such person or persons may be officers and
employees who are employed by both UAMFSI and the Company. UAMFSI will pay
such person or persons for such employment. The Company will not incur any
obligations with respect to such persons.
Sub-Administrator
[UAMFSI has subcontracted some of the its administrative and fund
accounting services to CGFSC, an affiliate of The Chase Manhattan Bank,
under a Mutual Funds Service Agreement dated October 26, 1998. CGFSC is
located at 73 Tremont Street, Boston, Massachusetts 02108.]
Sub-Transfer Agent and Sub-Shareholder Servicing Agent
UAMFSI has subcontracted its transfer agent and dividend-disbursing agent
services to DST Systems, Inc. under an Agency Agreement between UAMFSI and
DST Systems Inc. DST Systems, Inc., is located at P.O. Box 419534, Kansas
City, Missouri 64141-6534.
UAMSSC serves as sub-shareholder servicing agent for the Company under an
agreement between UAMSSC and UAMFSI. The principal place of business of
UAMSSC is 825 Duportail Road, Wayne, Pennsylvania 19087.
-17-
<PAGE>
Administrative Fees
In exchange for administrative services, each Fund pays a four-part fee to
UAMFSI as follows:
A. A portfolio specific fee to UAMFSI calculated from the aggregate net
assets of each portfolio at the following rates:
<TABLE>
<CAPTION>
Annual Rate
======================================================================
<S> <C>
Analytic Enhanced Equity Fund 0.___%
----------------------------------------------------------------------
Analytic Defensive Equity Fund 0.___%
----------------------------------------------------------------------
Analytic Master Fixed Income Fund 0.___%
----------------------------------------------------------------------
Analytic Short-Term Government Fund 0.___%
----------------------------------------------------------------------
</TABLE>
B. An annual base fee that UAMFSI pays to CGFSC for its sub-
administration and other services calculated at the annual rate of
$52,500 for the first operational class; $7,500 for each additional
operational class; and 0.039% of their pro rata share of the combined
assets of the Company.
C. An annual base fee that UAMFSI pays to DST Systems, Inc. for its
services as transfer agent and dividend-disbursing agent equal to
$10,500 for the first operational class and $10,500 for each
additional class.
D. An annual base fee that UAMFSI pays to UAMSSC for its services as sub-
shareholder-servicing agent equal to $7,500 for the first operational
class and $2,500 for each additional class.
Each Fund also pays certain account and transaction fees and out-of-pocket
expenses that may be based on the number of open and closed accounts, the
type of account or the services provided to the account.
Shareholder Servicing Arrangements
UAM and any of its affiliates may, at its own expense, compensate a Service
Agent or other person for marketing, shareholder servicing, record-keeping
and/or other services performed with respect to the Company, a portfolio or
any class of shares of a Fund. The person making such payments may do so
out of its revenues, its profits or any other source available to it. Such
service arrangements, when in effect, are made generally available to all
qualified service providers. The Adviser may also compensate its affiliated
companies for referring investors to the portfolios.
CUSTODIAN
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, 3 Chase MetroTech Center, Brooklyn, New York
11245, provides for the custody of the Company's assets pursuant to the
terms of a custodian agreement with the Company.
INDEPENDENT PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, [ADDRESS], serves as independent accountant for
the Company.
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<PAGE>
Brokerage Allocation and Other Practices
SELECTION OF BROKERS
- --------------------------------------------------------------------------------
The Advisory Agreements authorize the Adviser to select the brokers or
dealers that will execute the purchases and sales of investment securities
for a Fund. The Advisory Agreement also directs the Adviser to use its
best efforts to obtain the best execution with respect to all transactions
for a Fund. The Adviser may select brokers based on research, statistical
and pricing services they provide to the Adviser. Information and research
provided by a broker will be in addition to, and not instead of, the
services the Adviser is required to perform under the Advisory Agreement.
In so doing, a Fund may pay higher commission rates than the lowest rate
available when the Adviser believes it is reasonable to do so in light of
the value of the research, statistical, and pricing services provided by
the broker effecting the transaction. The Adviser may place Fund orders
with qualified broker-dealers who refer clients to the Adviser.
It is not the practice of the Company to allocate brokerage or effect
principal transactions with dealers based on sales of shares that a broker-
dealer firm makes. However, the Company may place trades with qualified
broker-dealers who recommend the Company or who act as agents in the
purchase of Company shares for their clients.
SIMULTANEOUS TRANSACTIONS
- --------------------------------------------------------------------------------
The Adviser makes investment decisions for a Fund independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the
Adviser to engage in a simultaneous transaction, that is, buy or sell the
same security for more than one client. The Adviser strives to allocate
such transactions among its clients, including the Funds, in a fair and
reasonable manner. Although there is no specified formula for allocating
such transactions, the Company's governing board periodically reviews the
various allocation methods used by the Adviser, and the results of such
allocations.
BROKERAGE COMMISSIONS
- --------------------------------------------------------------------------------
Equity Securities
Generally, equity securities are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters
will include the underwriting commission or concession, and purchases from
dealers serving as market makers will include a dealer's mark-up or reflect
a dealer's mark-down.
Debt Securities
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, each Fund will
not pay brokerage commissions for such purchases. When a debt security is
bought from an underwriter, the purchase price will usually include an
underwriting commission or concession. The purchase price for securities
bought from dealers serving as market makers will similarly include the
dealer's mark up or reflect a dealer's mark down. When a Fund executes
transactions in the over-the-counter market, it will deal with primary
market makers unless prices that are more favorable are otherwise
obtainable.
Capital Stock and Other Securities
DESCRIPTION OF SHARES AND VOTING RIGHTS
- --------------------------------------------------------------------------------
The Company's Articles of Incorporation, as amended, provide that: (i) all
consideration received by the Company for shares of any Fund and all assets
in which such consideration is invested would belong to that Fund and would
be subject to the liabilities related thereto; (ii) each share of stock
shall entitle the holder thereof to one vote for each dollar (and each
fractional dollar thereof) of net asset
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<PAGE>
value (number of shares owned times net asset value per share) of shares of
stock outstanding in such holder's name on the books of the Company, and
all shares of stock shall be voted in the aggregate; provided, however,
that to the extent series voting is required by the 1940 Act or Maryland
law, or otherwise directed by the board, as to any such matter, shares of
stock shall be voted by series; (iii) in the event of the liquidation or
dissolution of any series of stock of the Company, stockholders of such
series shall be entitled to receive out of the assets of such series
available for distribution to stockholders the assets belonging to such
series; and the assets so distributable to the stockholders of such series
shall be distributed among such stockholders in proportion to the number of
shares of such series held by them and recorded on the books of the
Company; and (iv) no holder of shares of stock of the Company shall, as
such holders, have any preemptive rights to purchase or subscribe for any
additional shares of stock of the Company or any other security of the
Company.
The Company will not hold annual meetings except when required to by the
1940 Act or other applicable law.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Company tries to distribute substantially all of the net investment
income of a Fund and net realized capital gains so as to avoid income taxes
on its dividends and distributions and the imposition of the federal excise
tax on undistributed income and capital gains. However, the Company cannot
predict the timing or amount of any such dividends or distributions.
Distributions by a Fund reduce its net asset value ("NAV"). A distribution
that reduces the NAV of a Fund below its cost basis may be taxable,
although from an investment standpoint, it is a return of capital. If you
buy shares of a Fund on or before the "record date" - the date that
establishes which shareholders will receive an upcoming distribution - for
a distribution, you will receive some of the money you invested as a
taxable distribution.
Unless the shareholder elects otherwise in writing, all dividend and
capital gains distributions are automatically received in additional shares
of a Fund at net asset value (as of the business day following the record
date). This will remain in effect until the Company is notified by the
shareholder in writing at least three days prior to the record date that
either the Income Option (income dividends in cash and capital gains
distributions in additional shares at net asset value) or the Cash Option
(both income dividends and capital gains distributions in cash) has been
elected. An account statement is sent to shareholders whenever an income
dividend or capital gains distribution is paid.
Each Fund will be treated as a separate entity (and hence as a separate
"regulated investment company") for federal tax purposes. Each Fund will
distribute its net capital gains to its investors, but will not offset (for
federal income tax purposes) such gains against any net capital losses of
another Fund.
Purchase, Redemption, and Pricing of Shares
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Service Agents may enter confirmed purchase orders on behalf of their
customers. If shares of a Fund are purchased in this manner, the Service
Agent must receive your investment order before the close of trading on the
New York Stock Exchange ("NYSE") and transmit it to UAMSSC before the close
of its business day to receive that day's share price. UAMSSC must receive
proper payment for the order by the time the Fund is priced on the
following business day. Service Agents are responsible to their customers
and the Company for timely transmission of all subscription and redemption
requests, investment information, documentation, and money.
Purchases of shares of a Fund will be made in full and fractional shares of
the Fund calculated to three decimal places. Certificates for fractional
shares will not be issued. Certificates for whole shares will not be issued
except at the written request of the shareholder.
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<PAGE>
The Company reserves the right in its sole discretion to reduce or waive
the minimum for initial and subsequent investment for certain fiduciary
accounts such as employee benefit plans or under circumstances where
certain economies can be achieved in sales of a Fund's shares.
In-Kind Purchases
If accepted by the Company, shareholders may purchase shares of a Fund in
exchange for securities that are eligible for acquisition by the Fund.
Securities to be exchanged that are accepted by the Company will be valued
as described under "VALUATION OF SHARES" at the next determination of net
asset value after acceptance. Shares issued by a Fund in exchange for
securities will be issued at net asset value determined as of the same
time. All dividends, interest, subscription, or other rights pertaining to
such securities shall become the property of the Fund and must be delivered
to the Company by the investor upon receipt from the issuer. Securities
acquired through an in-kind purchase will be acquired for investment and
not for immediate resale.
The Company will not accept securities in exchange for shares of a Fund
unless:
. At the time of exchange, such securities are eligible to be included
in the Fund (current market quotations must be readily available for
such securities).
. The investor represents and agrees that all securities offered to be
exchanged are liquid securities and not subject to any restrictions
upon their sale by the Fund under the 1933 Act, or otherwise.
. The value of any such securities (except U.S. government securities)
being exchanged together with other securities of the same issuer
owned by the Fund will not exceed 5% of the net assets of the Fund
immediately after the transaction.
Investors who are subject to Federal taxation upon exchange may realize a
gain or loss for Federal income tax purposes depending upon the cost of
securities or local currency exchanged. Investors interested in such
exchanges should contact the Adviser.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
When you redeem, your shares may be worth more or less than the price you
paid for them depending on the market value of the investments held by the
Fund.
By Mail
Requests to redeem shares must include:
. Share certificates, if issued.
. A letter of instruction or an assignment specifying the number of
shares or dollar amount to be redeemed, signed by all registered
owners of the shares in the exact names in which they are registered.
. Any required signature guarantees (see "SIGNATURE GUARANTEES").
. Any other necessary legal documents, if required, in the case of
estates, trusts, guardianships, custodianships, corporations, pension
and profit sharing plans and other organizations.
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<PAGE>
By Telephone
The following tasks cannot be accomplished by telephone:
. Changing the name of the commercial bank or the account designated to
receive redemption proceeds (this can be accomplished only by a
written request signed by each shareholder, with each signature
guaranteed).
. Redemption of certificated shares by telephone.
The Company and its Sub-Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine, and they
may be liable for any losses if they fail to do so. These procedures
include requiring the investor to provide certain personal identification
at the time an account is opened, as well as prior to effecting each
transaction requested by telephone. In addition, all telephone transaction
requests will be recorded and investors may be required to provide
additional telecopied written instructions of such transaction requests.
The Company or Sub-Transfer Agent may be liable for any losses due to
unauthorized or fraudulent telephone instructions if the Company or the
Sub-Transfer Agent does not employ the procedures described above. Neither
the Company nor the Sub-Transfer Agent will be responsible for any loss,
liability, cost, or expense for following instructions received by
telephone that it reasonably believes to be genuine.
Redemptions-In-Kind
If the governing board determines that it would be detrimental to the best
interests of remaining shareholders of the Company to make payment wholly
or partly in cash, the Company may pay redemption proceeds in whole or in
part by a distribution in-kind of liquid securities held by a Fund in lieu
of cash in conformity with applicable rules of the SEC. Investors may incur
brokerage charges on the sale of portfolio securities received in payment
of redemptions.
However, the Company has made an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during
any 90-day period to the lesser of $250,000 or 1% of the net assets of the
Company at the beginning of such period. Such commitment is irrevocable
without the prior approval of the SEC. Redemptions in excess of the above
limits may be paid in whole or in part, in investment securities or in
cash, as the Directors may deem advisable; however, payment will be made
wholly in cash unless the governing board believes that economic or market
conditions exist which would make such a practice detrimental to the best
interests of the Company. If redemptions are paid in investment securities,
such securities will be valued as set forth under "Valuation of Shares." A
redeeming shareholder would normally incur brokerage expenses if these
securities were converted to cash.
Signature Guarantees
To protect your account, the Company and its Sub-Transfer Agent from fraud,
signature guarantees are required for certain redemptions. The purpose of
signature guarantees is to verify the identity of the person who has
authorized a redemption from your account.
Signatures must be guaranteed by an "eligible guarantor institution" as
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934. Eligible
guarantor institutions include banks, brokers, dealers, credit unions,
national securities exchanges, registered securities associations, clearing
agencies, and savings associations. A complete definition of eligible
guarantor institutions is available from the Company's [Sub-Transfer
Agent]. Broker-dealers guaranteeing signatures must be a member of a
clearing corporation or maintain net capital of at least $100,000. Credit
unions must be authorized to issue signature guarantees. Signature
guarantees will be accepted from any eligible guarantor institution that
participates in a signature guarantee program.
The signature guarantee must appear either (1) on the written request for
redemption, (2) on a separate instrument for assignment ("stock power")
which should specify the total number of shares to be redeemed, or (3) on
all
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<PAGE>
stock certificates tendered for redemption and, if shares held by the
Company are also being redeemed, on the letter or stock power.
Other Redemption Information
Normally, the Company will pay for all shares redeemed under proper
procedures within one business day of and no more than seven days after the
receipt of the request, or earlier if required under applicable law. The
Company may suspend the right of redemption or postpone the date at times
when both the NYSE and Custodian Bank are closed, or under any emergency
circumstances determined by the SEC.
The Company may suspend redemption privileges or postpone the date of
payment:
. During any period that both the NYSE and Custodian Bank are closed,
or trading on the NYSE is restricted as determined by the Commission.
. During any period when an emergency exists as defined by the rules of
the Commission as a result of which it is not reasonably practicable
for a Fund to dispose of securities owned by it, or to fairly
determine the value of its assets.
. For such other periods as the Commission may permit.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
The exchange privilege is only available with respect to Funds that are
qualified for sale in the shareholder's state of residence. Exchanges are
based on the respective net asset values of the shares involved. The
Institutional Class and Institutional Service Class Shares of UAM Funds do
not charge a sales commission or charge of any kind.
Neither the Company nor any of its service providers will be responsible
for the authenticity of the exchange instructions received by telephone.
The governing board of the Company may restrict the exchange privilege at
any time. Such instructions may include limiting the amount or frequency of
exchanges and may be for the purpose of assuring such exchanges do not
disadvantage the Company and its shareholders.
TRANSFER OF SHARES
- --------------------------------------------------------------------------------
Shareholders may transfer shares of each Fund to another person by making a
written request to the Company. Your request should clearly identify the
account and number of shares you wish to transfer. All registered owners
should sign the request and all stock certificates, if any, which are
subject to the transfer. The signature on the letter of request, the stock
certificate or any stock power must be guaranteed in the same manner as
described under "Signature Guarantees." As in the case of redemptions, the
written request must be received in good order before any transfer can be
made.
VALUATION OF SHARES
- --------------------------------------------------------------------------------
The Company does not price its shares on those days when the New York Stock
Exchange is closed, which are currently: New Year's Day; Dr. Martin Luther
King, Jr. Day; Presidents' Day; Good Friday; Memorial Day; Independence
Day; Labor Day; Thanksgiving Day; and Christmas Day.
Equity Securities
Equity securities listed on a securities exchange for which market
quotations are readily available are valued at the last quoted sale price
of the day. Price information on listed securities is taken from the
exchange where the security is primarily traded. Unlisted equity securities
and listed securities not traded on the valuation date for which market
quotations are readily available are valued neither exceeding the asked
prices nor less than the bid prices. Quotations of foreign securities in a
foreign currency are converted to U.S. dollar equivalents. The
-23-
<PAGE>
converted value is based upon the bid price of the foreign currency against
U.S. dollars quoted by any major bank or by a broker.
Debt Securities
Debt securities are valued according to the broadest and most
representative market, which will ordinarily be the over-the-counter
market. Debt securities may be valued based on prices provided by a pricing
service when such prices are believed to reflect the fair market value of
such securities. Securities purchased with remaining maturities of 60 days
or less are valued at amortized cost when the Board of Directors determines
that amortized cost reflects fair value.
Foreign Securities
Foreign securities are valued on the basis of quotations from the primary
market in which they are traded and are translated from the local currency
into U.S. dollars using current exchange rates. In addition, if quotations
are not readily available, or if the values have been materially affected
by events occurring after the closing of a foreign market, assets may be
valued by another method that the board believes accurately reflects fair
value.
Other Assets
The value of other assets and securities for which no quotations are
readily available (including restricted securities) is determined in good
faith at fair value using methods determined by the governing board.
Performance Calculations
The Funds measure performance by calculating yield and total return. Both
yield and total return figures are based on historical earnings and are not
intended to indicate future performance. Performance quotations by
investment companies are subject to rules adopted by the SEC, which require
the use of standardized performance quotations or, alternatively, that
every non-standardized performance quotation furnished by the Fund be
accompanied by certain standardized performance information computed as
required by the SEC. Current yield and average annual compounded total
return quotations used by the Company are based on the standardized methods
of computing performance mandated by the SEC. An explanation of the method
used to compute or express performance follows.
TOTAL RETURN
- --------------------------------------------------------------------------------
Total return is the change in value of an investment in a Fund over a given
period, assuming reinvestment of any dividends and capital gains. A
cumulative or aggregate total return reflects actual performance over a
stated period of time. An average annual total return is a hypothetical
rate of return that, if achieved annually, would have produced the same
cumulative total return if performance had been constant over the entire
period.
The average annual total return of a portfolio is determined by finding the
average annual compounded rates of return over 1, 5 and 10 year periods
that would equate an initial hypothetical $1,000 investment to its ending
redeemable value. The calculation assumes that all dividends and
distributions are reinvested when paid. The quotation assumes the amount
was completely redeemed at the end of each one, five and ten-year period
and the deduction of all applicable Fund expenses on an annual basis.
-24-
<PAGE>
These figures are calculated according to the following formula:
P (I + T)/n/ = ERV
Where:
P = a hypothetical initial payment of $ 1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10 year periods at the end of the 1,
5 or 10 year periods (or fractional portion thereof).
The average annual total rates of return of the Funds as of December 31,
1998, are as follows:
<TABLE>
<CAPTION>
One Year Five Years Since Inception
Ended Ended Inception Date
===================================================================================
<S> <C> <C> <C> <C>
Analytic Enhanced Equity Fund
- -----------------------------------------------------------------------------------
Analytic Defensive Equity Fund
- -----------------------------------------------------------------------------------
Analytic Master Fixed Income
- -----------------------------------------------------------------------------------
Analytic Short-Term Government
- -----------------------------------------------------------------------------------
</TABLE>
YIELD
- --------------------------------------------------------------------------------
Yield refers to the income generated by an investment in a Fund over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all funds. As this
differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
The current yield is determined by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price per
share on the last day of the period and annualizing the result. Expenses
accrued for the period include any fees charged to all shareholders during
the base period.
Yield is obtained using 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 reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive income distributions
d = the maximum offering price per share on the last day of the period.
-25-
<PAGE>
The Funds' yields and adjusted yields for the month ended February 28, 1999
were:
<TABLE>
<CAPTION>
Master Fixed Income Fund Short-Term Gov't Fund
------------------------ ---------------------
<S> <C> <C>
Yield ___% ___%
Yield Without Waiver ___% ___%
</TABLE>
COMPARISONS
- --------------------------------------------------------------------------------
The Funds' performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data
reported in financial and industry publications, and various indices as
further described in this SAI. This information may also be included in
sales literature and advertising.
To help investors better evaluate how an investment in a Fund might satisfy
their investment objective, advertisements regarding the Funds may discuss
various measures of Fund performance as reported by various financial
publications. Advertisements may also compare performance (as calculated
above) to performance as reported by other investments, indices and
averages. Please see Appendix B for publications, indices and averages
that may be used.
In assessing such comparisons of performance, an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in each Fund,
that the averages are generally unmanaged, and that the items included in
the calculations of such averages may not be identical to the formula used
by each Fund to calculate its performance. In addition, there can be no
assurance that each Fund will continue this performance as compared to such
other averages.
Taxes
In order for a Fund to continue to qualify for federal income tax treatment
as a regulated investment company under the Internal Revenue Code of 1986,
as amended, at least 90% of its gross income for a taxable year must be
derived from qualifying income; i.e., dividends, interest, income derived
from loans of securities, and gains from the sale of securities or foreign
currencies, or other income derived with respect to its business of
investing in such securities or currencies, as applicable.
Each Fund will distribute to shareholders annually any net capital gains
that have been recognized for federal income tax purposes. Shareholders
will be advised on the nature of the payments.
If for any taxable year a Fund does not qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code, all of the Fund's
taxable income would be subject to tax at regular corporate rates without
any deduction for distributions to shareholders. In this event, a Fund's
distributions to shareholders would be taxable as ordinary income to the
extent of the current and accumulated earnings and profits of the
particular Fund, and would be eligible for the dividends received deduction
in the case of corporate shareholders. The Funds intend to qualify as a
"regulated investment company" each year.
Dividends and interest received by each Fund may give rise to withholding
and other taxes imposed by foreign countries. These taxes would reduce each
Fund's dividends but are included in the taxable income reported on your
tax statement if each Fund qualifies for this tax treatment and elects to
pass it through to you. Consult a tax adviser for more information
regarding deductions and credits for foreign taxes.
-26-
<PAGE>
Expenses
<TABLE>
<CAPTION>
Investment Investment Investment
Advisory Advisory Advisory Administrator Sub-Administrator Brokerage
Fees Paid Fees Waived by Fees Paid Fee Fee Commissions
to Pilgrim Baxter* Pilgrim Baxter to Analytic**
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Analytic
Enhanced
Equity Fund
1998
1997
1996
- -----------------------------------------------------------------------------------------------------------------------------------
Analytic
Defensive
Equity Fund
1998
1997
1996
- -----------------------------------------------------------------------------------------------------------------------------------
Analytic Master
Fixed Income
Fund
1998
1997
1996
- -----------------------------------------------------------------------------------------------------------------------------------
Analytic Short-
Term
Government
Fund
1998
1997
1996
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Prior to March 31, 1999, Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter")
was the Fund's investment adviser.
** Prior to March 31, 1999, Analytic Investors, Inc., was the Funds' sub-
adviser. Each such fee was paid to Analytic from Pilgrim Baxter's net advisory
fee from such fund.
Financial Statements
The financial statements for each Fund for the fiscal period ended December
31, 1998, the financial highlights for the respective periods presented,
and the report thereon by PricewaterhouseCoopers LLP, the Company's
independent accountant, which appear in Funds' 1998 Annual Report, are
incorporated by reference into this SAI No other parts are incorporated by
reference herein.
Copies of the 1998 Annual Report may be obtained free of charge by
telephoning the Company at the telephone number appearing on the front page
of this SAI.
APPENDICES A AND B TO BE PROVIDED.
-27-
<PAGE>
PART C
PBHG ADVISOR FUNDS, INC.
OTHER INFORMATION
ITEM 23. EXHIBITS
Exhibits previously filed by the Fund are incorporated by reference to such
filings. The following table describes the location of all exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description Location
- ----------- ----------- ---------
<S> <C> <C>
A.1. Articles of Amendment and Incorporated herein by reference to
Restatement of the Registrant Registrant's Pre-Effective Amendment
dated April 9, 1998 No. 2 and Amendment No. 2 to Registration
Statement on Form N-1A (File Nos. 333-44193
and 811-08605) as filed electronically
with the Commission on April 17, 1998.
A.2. Articles Supplementary of Registrant Incorporated herein by reference to
dated April 9, 1998 Registrant's Pre-Effective Amendment
No. 2 and Amendment No. 2 to Registration
Statement on Form N-1A (File Nos. 333-44193
and 811-08605) as filed electronically
with the Commission on April 17, 1998.
A.3. Articles Supplementary of Registrant To be filed under amendment
dated July 28, 1998
B. Amended and Restated Bylaws of the Incorporated herein by reference to
Registrant adopted effective April 9, 1998 Registrant's Post-Effective Amendment No.
3 and Amendment No. 5 to Registration
Statement on Form N-1A (File Nos. 333-44193
and 811-08605) as filed electronically
with the Commission on August 18, 1998.
C. Instruments Defining Rights of Security To be filed under amendment
Holders
D. Investment Advisory Contracts To be filed under amendment
E. Distribution Agreements/Underwriting Contracts To be filed under amendment
F. Bonus and Profit Sharing Contracts None
G. Custodian Agreement To be filed under amendment
H. Other Material Contracts To be filed under amendment
I. Legal Opinion and Consent of Counsel To be filed under amendment
J. Other Opinions and Consent of Independent To be filed under amendment
Accountants
K. Omitted Financial Statements None
L. Initial Capital Agreements None
M. Rule 12b-1 Plan None
N. Financial Data Schedule To be filed under amendment
O. Rule 18f-3 Plan None
P. Power of Attorney Incorporated by reference to
Registrant's Post-Effective
</TABLE>
-3-
<PAGE>
Amendment No. 2 filed
June 25, 1998
- --------------------
(1) Incorporated herein by reference to Registrant's Pre-Effective Amendment No.
2 and Amendment No. 2 to Registration Statement on Form N-1A (File Nos. 333-
44193 and 811-08605) as filed electronically with the Commission on April
17, 1998.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.
Not applicable.
ITEM 25. INDEMNIFICATION
The Amended and Restated Articles of Incorporation of the Registrant include the
following:
ARTICLE VII
Section 7.1 DIRECTORS. To the maximum extent permitted by Maryland law in
effect from time to time, but subject to the limits on indemnification contained
in the 1940 Act, the Corporation shall indemnify and, without requiring a
preliminary determination of the ultimate entitlement to indemnification, shall
pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to (a) any individual who is a present or former director of the
Corporation or (b) any individual who, while a director of the Corporation and
at the request of the Corporation, serves or has served another corporation,
real estate investment trust, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a director, officer, partner, trustee,
employee, agent or fiduciary of such corporation, real estate investment trust,
partnership, joint venture, trust, employee benefit plan or other enterprise
from and against any claim or liability to which such person may become subject
or which such person may incur by reason of his status as a present or former
director of the Corporation. The Corporation may, with the approval of the Board
of Directors, provide such indemnification and advance for expenses to a person
who served a predecessor of the Corporation in any of the capacities described
in (a) or (b) above.
Section 7.2 OFFICERS. The Corporation shall have the power, to the maximum
extent permitted by Maryland law in effect from time to time, but subject to the
limits on indemnification contained in the 1940 Act, to obligate itself to
indemnify, and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to, (a) any individual who is a present or former
officer of the Corporation or (b) any individual who, while an officer of the
Corporation and at the request of the Corporation, serves or has served as a
director, officer, partner, trustee, employee, agent or fiduciary of another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise from and against any claim or
liability to which such person may become subject or which such person may incur
by reason of his status as a present or former officer of the Corporation. The
Corporation shall have the power, with the approval of the Board of Directors,
to provide such indemnification and advance for expenses to a person who served
a predecessor of the Corporation in any of the capacities described in (a) or
(b) above and to any employee or agent of the Corporation or a predecessor of
the Corporation.
The Amended and Restated By-Laws of the Registrant include the following:
ARTICLE IX
INDEMNIFICATION AND ADVANCE OF EXPENSES
-4-
<PAGE>
Section 1. Indemnification of Directors and Officers. The Corporation shall
------------------------------------------
indemnify its directors to the fullest extent that indemnification of directors
is permitted by the Maryland General Corporation Law. The Corporation shall
indemnify its officers to the same extent as its directors and to such further
extent as is consistent with law. The Corporation shall indemnify its directors
and officers who, while serving as directors or officers, also serve at the
request of the Corporation as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, real
estate investment trust, trust, other enterprise or employee benefit plan to the
fullest extent consistent with law. The indemnification and other rights
provided for by this Article shall continue as to a person who has ceased to be
a director or officer, and shall inure to the benefit of the heirs, executors
and administrators of such a person. This Article shall not protect any such
person against any liability to the Corporation or any stockholder thereof to
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross 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 provision, 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, suit 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 Amended and Restated Articles of Incorporation, Amended
and Restated By-Laws or any other instrument pursuant to which the Registrant is
organized or administered indemnify any director or officer of the Registrant,
or that any contract or agreement indemnifies any person who undertakes to act
as investment adviser or principal underwriter to the Registrant, any such
provision protecting or purporting to protect such persons against any liability
to the Registrant or its security holders to which he would otherwise be 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 THE INVESTMENT ADVISER
Other business, profession, vocation, or employment of a substantial nature in
which each director or principal officer of Pilgrim Baxter & Associates, Ltd.,
Pilgrim Baxter Value Investors, Inc. and Analytic Investors, Inc. 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 Connection with Other
Baxter & Associates, Ltd. Name of Other Company Company
- ------------------------ --------------------- -------
<S> <C> <C>
</TABLE>
-5-
<PAGE>
<TABLE>
<S> <C> <C>
Harold J. Baxter Pilgrim Baxter Value Director, Chairman and Chief
Director, Chairman and Chief Investors, Inc. Executive Officer
Executive Officer
PBHG Fund Services Trustee
PBHG Fund Distributors Trustee
825 Duportail Road
Wayne, PA 19087
United Asset Management Director
Corporation
Gary L. Pilgrim PBHG Fund Services Trustee
Director, President and Chief 825 Duportail Road
Investment Officer Wayne, PA 19087
Pilgrim Baxter Value Director, President
Investors, Inc.
Brian F. Bereznak PBHG Fund Services President and Trustee
Vice President and
Chief Operating Officer
(5/95-10/97)
Eric C. Schneider Pilgrim Baxter Value Director, Chief Financial Officer and
Chief Financial Officer Investors, Inc. Treasurer
and Treasurer
PBHG Fund Services Chief Financial Officer
PBHG Fund Distributors Trustee, President
825 Duportail Road
Wayne, PA 19087
John M. Zerr Pilgrim Baxter Value General Counsel and
General Counsel and Secretary Investors, Inc. Secretary
PBHG Fund Services General Counsel and
Secretary
PBHG Fund Distributors General Counsel and
825 Duportail Road Secretary
Wayne, PA 19087
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Name and Position with Pilgrim Connection with Other
Baxter Value Investors, Inc. Name of Other Company Company
- --------------------------- --------------------- -------
<S> <C> <C>
Harold J. Baxter Pilgrim Baxter & Director, Chairman and
Director, Chairman and Chief Associates, Chief
Executive Officer Ltd. Executive Officer
PBHG Fund Services Trustee
PBHG Fund Distributors Trustee
825 Duportail Road
Wayne, PA 19087
United Asset Management Director
Corporation
Brian F. Bereznak Pilgrim Baxter & Chief Operating Officer
Director Associates, Ltd. (5/95-12/97)
PBHG Fund Services President and Trustee
Gary L. Pilgrim Pilgrim Baxter & Director, Chief Investment
Director, President Associates, Ltd. Officer, President
(4/95-10/97), Secretary
(5/95-10/97)
PBHG Fund Services Trustee
825 Duportail Road
Wayne, PA 19087
David W. Jennings Pilgrim Baxter & Director of Client Service
Director, President and Chief Associates, Ltd.
Operating Officer (10/96-1/98)
825 Duportail Road
Wayne, PA 19087
Eric C. Schneider Pilgrim Baxter & Chief Financial Officer and
Director, Chief Financial Officer Associates, Ltd. Treasurer
and Treasurer
PBHG Fund Services Chief Financial Officer
PBHG Fund Distributors Trustee
825 Duportail Road
Wayne, PA 19087
John M. Zerr Pilgrim Baxter & General Counsel and
General Counsel and Secretary Associates, Ltd. Secretary
</TABLE>
-7-
<PAGE>
PBHG Fund Services General Counsel and
Secretary
PBHG Fund Distributors General Counsel and
825 Duportail Road Secretary
Wayne, PA 19087
The list required by this Item 26 of officers and directors of Analytic
Investors, Inc., together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules A
and D of Form ADV, filed by Analytic Investors, Inc. pursuant to the Investment
Advisers Act of 1940, as amended ("Advisers Act"), (SEC File No. 801-7082).
ITEM 27. PRINCIPAL UNDERWRITERS
(a) None.
(b) The principal business address of each person named in the table below
is PBHG Fund Distributors, 825 Duportail Road, Wayne, Pennsylvania
19087.
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- ---------------- ---------------
<S> <C> <C>
Harold J. Baxter Trustee Director and Chairman
Eric C. Schneider Trustee None
Lee T. Cummings Vice President Treasurer, Chief Financial
Officer and Controller
John M. Zerr General Counsel and Vice President and Secretary
Secretary
Michael T. Brophy Chief Financial Officer None
and Chief Financial
Compliance Officer
Amy S. Yuter Chief Compliance Officer None
</TABLE>
-8-
<PAGE>
(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.) 530
Walnut Street
Philadelphia, PA 19106
(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 Investments Mutual Funds Services (formerly 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-Advisers:
Pilgrim Baxter & Associates, Ltd.
825 Duportail Road
Wayne, PA 19087
Pilgrim Baxter Value Investors, Inc.
825 Duportail Road
Wayne, PA 19087
Analytic Investors, Inc.
700 South Flower Street, Suite 2400
Los Angeles, CA 90017
ITEM 29. MANAGEMENT SERVICES
None.
ITEM 30. UNDERTAKINGS.
None.
-9-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 5 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 this 29th day of January, 1999.
PBHG ADVISOR FUNDS, INC.
/s/ Harold J. Baxter
__________________________
By: Harold J. Baxter
Chairman and Director
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 5 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 29th day of January, 1999.
/s/ Harold J. Baxter
__________________________________
Harold J. Baxter, Chairman and
Director
*
__________________________________
John R. Bartholdson, Director
*
__________________________________
Jettie M. Edwards, Director
*
__________________________________
Albert A. Miller, Director
/s/ Gary L. Pilgrim
__________________________________
Gary L. Pilgrim, President
<PAGE>
/s/ Brian F. Bereznak
______________________________________
Brian F. Bereznak, Vice President
/s/ Lee T. Cummings
______________________________________
Lee T. Cummings, Treasurer,
Chief Financial Officer and Controller
/s/ John M. Zerr
*By: _________________________________
John M. Zerr
(Attorney-in-Fact)
<PAGE>
PBHG ADVISOR FUNDS, INC.
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
No Exhibits filed herewith.
