As filed with the Securities and Exchange Commission
on April 6, 2000
Registration Nos. 2-99810
811-04391
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment [ ]
Post-Effective Amendment No. 38 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 36 [X]
(Check appropriate box or boxes.)
THE PBHG FUNDS, INC.
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(Exact name of registrant as specified in charter)
825 Duportail Road
Wayne, Pennsylvania 19087
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(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code (800) 433-0051
Harold J. Baxter
Pilgrim Baxter & Associates, Ltd.
825 Duportail Road
Wayne, Pennsylvania 19087
(Name and Address of Agent For Service)
Copies to:
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William H. Rheiner, Esq. and to John M. Zerr, Esq.
Ballard Spahr Andrews & Ingersoll Pilgrim Baxter & Associates, Ltd.
1735 Market Street, 51st Floor 825 Duportail Road
Philadelphia, PA 19103-7599 Wayne, PA 19087
(215) 864-8600 (610) 341-9000
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Approximate Date of
Proposed Public Offering:
As soon as practicable after the effective date of this Filing.
It is proposed that this filing will become effective (check appropriate box)
| | immediately upon filing pursuant to paragraph (b)
| | on ________________________ pursuant to paragraph (b)
| | 60 days after filing pursuant to paragraph (a)(1)
| | on (date) pursuant to paragraph (a)(1)
|X| 75 days after filing pursuant to paragraph (a)(2)
| | on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
| | this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Offered: Common Stock
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THE PBHG FUNDS, INC.
CROSS REFERENCE SHEET
(as required by Rule 495 (a))
N-1A
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Item No. Location
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PART A
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1. Front and Back Cover Pages Front and Back Cover Pages
2. Risk/Return Summary: Investments,
Risks, and Performance Fund Summary
3. Risk/Return Summary: Fee Table Fund Summary
4. Investment Objectives, Principal
Investment Strategies and Related Risks Risks & Returns
5. Management's Discussion of Fund
Performance Not Applicable
6. Management, Organization, and
Capital Structure The Investment Adviser
7. Shareholder Information Pricing Fund Shares; Buying
Shares; Selling Shares; General Policies;
Distribution and Taxes
8. Distribution Arrangements Distribution Arrangements
9. Financial Highlights Not Applicable
PART B
10. Cover Page Cover Page
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11. Table of Contents Table of Contents
12. General Information and History The Fund
13. Investment Objectives and Policies Description of Permitted Investments;
Investment Limitations; Description of
Shares
14. Management of the Fund Directors and Officers of the Fund; The
Administrator and Sub-Administrator
15. Control Persons and Principal Holders Directors and Officers of the Fund
of Securities
16. Investment Advisory and Other The Adviser;
Services The Administrator and Sub-Administrator;
Other Service Providers
17. Brokerage Allocation and Other Portfolio Transactions
Practices
18. Capital Stock and Other Securities Description of Shares
19. Purchase, Redemption and Pricing of Purchases and Redemptions of
Securities Being Offered Shares; Determination of Net Asset Value
20. Tax Status Taxes
21. Underwriters The Distributor
22. Calculation of Performance Data Performance Advertising; Calculation of
Total Return
23. Financial Statements Financial Statements
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PART C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C of the Registration Statement.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
The PBHG Funds, Inc.
Prospectus
June __, 2000
PBHG Global Technology & Communications Fund
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any Fund shares or determined whether this prospectus is
truthful or complete. Anyone who tells you otherwise is committing a crime.
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An Introduction to the PBHG Funds(R) and this Prospectus
The PBHG Funds, Inc. is a mutual fund that offers a convenient and economical
means of investing in professionally managed portfolios of securities, called
funds. This prospectus offers PBHG Class Shares of the PBHG Global Technology &
Communications Fund.
The Fund has a specific investment goal and specific investment strategies for
reaching that goal. Before investing, make sure the Fund's goal matches your
own. The Fund is generally designed for long-term investors, such as those
saving for retirement, or investors that want a fund that seeks to outperform
the market in which it invests over the long-term. The Fund may not be suitable
for investors who require regular income or stability of principal, or who are
pursuing a short-term investment goal, such as investing emergency reserves.
INVESTMENT ADVISER
Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter") is the investment adviser
for the Fund.
This Prospectus contains important information you should know before investing
in the Fund and as a shareholder in the Fund. This information is arranged into
different sections for easy reading and future reference. To obtain more
information about the Fund, please refer to the back cover of this Prospectus.
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Contents
Fund Summary
More About The Fund
Risks & Returns
The Investment Adviser
Your Investment
Pricing Fund Shares
Buying Shares
Selling Shares
General Policies
Distribution & Taxes
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PBHG Global Technology & Communications Fund
Goal
The Fund seeks to provide investors with long-term growth of capital.
Main Investment Strategies
Under normal market conditions, the Fund, a non-diversified fund, will invest at
least 65% of its total assets in common stocks and ADRs of U.S. and non-U.S.
companies doing business in the technology and communications sectors of the
market. In addition, the Fund is concentrated which means it will invest 25% or
more of its total assets in one or more of the industries within these sectors.
These industries may include computer software and hardware, network and cable
broadcasting, semiconductors, defense and data storage and retrieval, and
biotechnology.
The Fund invests in companies that may be responsible for breakthrough products
or technologies or may be positioned to take advantage of cutting-edge
developments. These companies will be in at least three different countries, one
of which may include the U.S. Some of these countries may be considered emerging
or developing by the international finance community. The Fund's holdings may
range from smaller companies developing new technologies or pursuing scientific
breakthroughs to large, blue chip firms with established track records in
developing, using or marketing scientific advances.
Pilgrim Baxter uses its own fundamental research, computer models and
proprietary measures of growth and business momentum in managing this Fund. The
Fund may sell a security for a variety of reasons, such as a deterioration in
fundamentals or to invest in a company with more attractive growth prospects.
The Fund may use options, futures contracts and forward foreign currency
contracts for hedging and risk management.
Main Investment Risks
The Fund is non-diversified which means, as compared to a diversified fund, it
invests a higher percentage of its assets in a limited number of stocks in order
to achieve a potentially greater investment return than a more diversified fund.
As a result, the price change of a single security, positive or negative, has a
greater impact on the Fund's net asset value and will cause its shares to
fluctuate in value more than it would in a more widely diversified fund.
The Fund is concentrated which means, compared to a non-concentrated fund, it
invests a higher percentage of its assets in specific industries within the
technology and communications sectors of the market in order to achieve a
potentially greater investment return. As a result, the economic, political and
regulatory developments in a particular industry, positive or negative, have a
greater impact on the Fund's net asset value and will cause its shares to
fluctuate more than if the Fund did not concentrate its investments.
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The value of your investment in the Fund will go up and down, which means you
could lose money.
The price of the securities in the Fund will fluctuate. These price movements
may occur because of changes in the financial markets, the company's individual
situation, or industry changes. These risks are greater for foreign equity
securities and companies with smaller market capitalizations. Investments in
foreign equity securities involve risks relating to political, social and
economic developments abroad, as well as risks resulting from the differences
between the regulations to which U.S. and foreign issuers and markets are
subject. Companies with smaller market capitalizations tend to have more limited
product lines, markets and financial resources and may be dependent on a smaller
management group than larger, more established companies.
Securities of technology and communications companies are strongly affected by
worldwide scientific and technological developments and governmental policies
and, therefore, are generally more volatile than securities of companies not
dependent upon or associated with technology and communications issues.
Investments in emerging or developing countries may be subject to extreme
volatility because, in general, these countries' economies are more
under-developed, their political structures are less stable and their financial
markets are less liquid than more developed nations.
The Fund's use of options, futures contracts and forward foreign currency
contracts may reduce returns or increase volatility.
Although the Fund strives to achieve its goal, it cannot guarantee that the goal
will be achieved.
Your investment in the Fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency.
For more information on the Fund's investment strategies and the associated
risks, please refer to the More About the Fund section beginning on page __.
Performance Information
Performance information for the Fund will be presented once the Fund has
completed investment operations for a full calendar year.
Fees and Expenses
This table summarizes the shareholder fees and annual operating expenses you
would pay as an investor in the Fund. Shareholder fees are paid directly from
your account. Annual operating expenses are paid out of the Fund's assets. Since
the Fund did not commence operations as of the date of this Prospectus, "Other
Expenses" is based on estimated amounts the Fund expects to pay during the
current fiscal year.
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Fees and Expenses Table
Shareholder Fees None
Annual Fund Operating Expenses
Management Fees 1.50%
Distribution and/or Service (12b-1) Fees None
Other Expenses 0.50%
Total Annual Operating Expenses 2.00%*
* This is the actual total fund operating expenses you will pay as an investor
in this Fund for the current fiscal year ending March 31, 2001. You should know
that Pilgrim Baxter has contractually agreed to waive that potion, if any, of
the annual management fees payable by the Fund and to pay certain expense of the
Fund to the extent necessary to ensure that the total annual fund operating
expenses do not exceed 2.15%. You should also know that in any fiscal year in
which the Fund's assets are greater than $75million and its total annual fund
operating expenses are less than 2.15%, the Fund's Board of Directors may elect
to reimburse Pilgrim Baxter for any fees it waived or any expenses it reimbursed
on the Fund's behalf during the previous two fiscal years.
Example
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds. This example makes four
assumptions: 1) you invest $10,000 in the Fund for the time periods shown; 2)
you redeem all your shares at the end of those time periods; 3) you earn a 5%
return on your investment each year; and 4) the Fund's operating expenses remain
the same for the time periods shown. The example is hypothetical. Your actual
costs may be higher or lower.
Your Cost Over
1 Year 3 Years
$ 203 $627
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More About the Fund
Risks and Returns
This section takes a closer look at the investment strategies that make up the
Fund's risk and return characteristics.
In addition to the main investment strategies described in the Fund Summary
section of this Prospectus, the Fund may make other types of investments that
have different risk/return characteristics. These investments, the Fund's main
investment strategies and their risk/return characteristics are described in the
table set forth on the following pages. From time to time, the Fund may make
investments and pursue strategies different from those described in this
Prospectus. Those investments and strategies are described in the Statement of
Additional Information. The back cover of this Prospectus explains how you can
get a copy of the Statement of Additional Information.
The Fund may invest 100% of its total assets in cash or U.S. dollar-denominated
high quality short-term debt instruments for temporary defensive purposes, to
maintain liquidity or when economic or market conditions are unfavorable for
profitable investing. These types of investments typically have a lower yield
than other longer-term investments and lack the capital appreciation potential
of equity securities, like stocks. In addition, while these investments are
generally designed to limit the Fund's losses, they can prevent the Fund from
achieving its investment goal.
The Fund is actively managed, which means the Fund's manager may frequently buy
and sell securities. Frequent trading increases the Fund's turnover rate and may
increase transaction costs, such as brokerage commissions. Increased transaction
costs could detract from the Fund's performance. In addition, the sale of Fund
securities may generate capital gains which, when distributed, may be taxable to
you.
Securities
Shares representing ownership in a corporation. The Fund may invest in the
following types of securities: common and preferred stocks, convertible
securities, warrants and rights.
Potential Risks
Security prices fluctuate over time. Security prices may fall as a result of
factors that relate to the company, such as management decisions or lower demand
for the company's products or services.
Security prices may fall because of factors affecting companies in a number of
industries, such as production costs.
Security prices may fall because of changes in the financial markets, such as
interest rates or currency exchange rate changes.
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Potential Returns
Securities have generally outperformed more stable investments (such as bonds
and cash equivalents) over the long term.
Policies to Balance Risk and Return
Pilgrim Baxter maintains a long-term investment approach and focus on securities
it believes can appreciate over an extended time frame, regardless of interim
fluctuations.
Under normal circumstances, the Fund intends to remain fully invested, with at
least 65% of its total assets in securities.
Pilgrim Baxter focuses its active management on securities selection, the area
Pilgrim Baxter believes its commitment to fundamental research can most enhance
the Fund's performance.
Growth Securities
Securities that Pilgrim Baxter believes have or are expected to have strong
sales and earnings growth and capital appreciation potential and will grow
faster than the economy as a whole.
Potential Risks
See Securities.
Growth securities may be more sensitive to changes in business momentum and
earnings than other securities because they typically trade at higher earnings
multiples.
The growth securities in the Fund may never reach what Pilgrim Baxter believes
are their full value and may even go down in price.
Potential Returns
See Securities.
Growth securities may appreciate faster than non-growth securities.
Policies to Balance Risk and Return
See Securities.
In managing the Fund, Pilgrim Baxter uses its own software and research models
which incorporate important attributes of successful growth. Pilgrim Baxter
believes a key attribute of successful growth is positive business momentum as
demonstrated by earnings or revenue and sales growth, among other factors.
Pilgrim Baxter's investment process is extremely focused on companies which
exhibit positive business momentum. Pilgrim Baxter considers selling a security
when its anticipated appreciation is no longer probable, alternative investments
offer superior appreciation prospects or the risk of a decline in its market
price is too great.
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Foreign Equity Securities
Securities of foreign issuers, including ADRs, EDR's and GDRs. ADRs are
certificates issued by a U.S. bank that represent a stated number of shares of a
foreign corporation that the bank holds in its vault. EDRs and GDRs are also
receipts that represent a stated number of shares of a foreign corporation, only
they are issued by a non-U.S. bank or a foreign branch of a U.S. bank. An ADR is
bought and sold in the same manner as U.S. securities and is priced in U.S.
dollars. EDRs and GDRs are generally designed for use on foreign exchanges and
are typically not priced in U.S. dollars. ADRs, EDRs and GDRs each carry most of
the risks of investing directly in foreign equity securities.
Potential Risks
Foreign security prices may fall due to political instability, changes in
currency exchange rates, foreign economic conditions or inadequate regulatory
and accounting standards.
These risks tend to be greater in emerging markets. As a result, the Fund's
investments in emerging markets may be considered speculative.
The adoption of the euro as the common currency of the European Economic and
Monetary Union (the "EMU") presents some uncertainties and possible risks, such
as changes in the relative strength and value of major world currencies, adverse
tax consequences, and increased price competition among and between EMU and
non-EMU countries. These uncertainties and possible risks could adversely affect
the Fund.
Potential Returns
Favorable exchange rate movements could generate gains or reduce losses.
Foreign investments, which represent a major portion of the world's securities,
offer attractive potential performance and opportunities for diversification.
Policies to Balance Risk and Return
In managing the Fund, Pilgrim Baxter uses its own software and research models.
Pilgrim Baxter seeks to invest in companies with strong growth potential in
those countries with the best investment opportunities.
Pilgrim Baxter considers selling a security when another company or country
offers superior investment opportunities, the risk associated with a particular
currency becomes too great or the security falls short of Pilgrim Baxter's
expectations.
Small and Medium Sized Companies
Potential Risks
Smaller company securities involve greater risk and price volatility than
larger, more established companies because they tend to have more limited
product lines, markets and financial resources and may be more dependent on a
smaller management group.
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Potential Returns
Smaller company securities may appreciate faster than those of larger, more
established companies for many reasons. For example, smaller companies tend to
have younger product lines whose distribution and revenues are still maturing.
Policies to Balance Risk and Return
See Securities and Growth Securities.
Pilgrim Baxter focuses on smaller companies with strong balance sheets that they
expect to exceed consensus earnings expectations.
Futures, Options and Forward Foreign Currency Contracts
A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash payment
based on changes in the value of a securities index. An option contract is the
right to buy or sell a set quantity of an underlying instrument at a
pre-determined price. A forward foreign currency contract is an obligation to
buy or sell a given currency on a future date and at a set price.
Potential Risks
A contract used to hedge the Fund or specific securities may not fully offset
the underlying position.
A contract used for risk management may not have the intended effects and may
result in losses or missed investment opportunities.
The counterparty to the contract could default.
Potential Returns
A contract that correlates well with the underlying position can reduce or
eliminate losses at low cost.
The Fund could make money and protect against losses if Pilgrim Baxter's
analysis proves correct.
Policies to Balance Risk and Return
The Fund may use a contract for hedging and risk management, i.e., to establish
or adjust exposure to particular securities, markets, exchange rates or
currencies or to manage the Fund's exposure relative to its benchmark.
The Fund's aggregate initial margin deposit to establish a futures contract may
not exceed 5% of its net assets and the total market value of the Fund's futures
contracts may not exceed 50% of its net assets.
The Fund may not invest more than 10% of its net assets in options.
The Fund only establishes hedges that it expects will be highly correlated with
underlying securities positions.
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The Fund only considers using a contract if it would be cost-effective.
The Fund maintains assets sufficient to meet its obligations under the contract
in a segregated margin account with a custodian bank.
When Issued And Delayed Securities
Securities subject to settlement on a future date.
Potential Risks
When the Fund buys these securities, it could be exposed to leverage risk if it
does not use segregated accounts.
Potential Returns
The Fund can take advantage of attractive investment opportunities.
Policies to Balance Risk and Return
The Fund uses segregated accounts to offset leverage risk.
Technology or Communications Company Securities
Securities of companies that rely extensively on technology or communications in
their product development or operations or are expected to benefit from
technological advances and improvements.
Potential Risks
Technology or communications company securities are strongly affected by
worldwide scientific and technological developments and governmental policies,
and, therefore, are generally more volatile than companies not dependent upon or
associated with technology or communications issues.
Potential Returns
Technology or communications company securities offer investors significant
growth potential because they may be responsible for breakthrough products or
technologies or may be positioned to take advantage of cutting-edge,
technology-related developments.
Policies to Balance Risk and Return
Although the Fund will invest 25% of more of its total assets in one or more of
the industries within the technology and communications sectors, the Fund seeks
to strike a balance among the industries in which it invests in an effort to
lessen the impact of negative developments in the technology and communications
sectors.
OTC securities
Securities not listed and traded on an organized exchange, but bought and sold
through a computer network.
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Potential Risks
OTC securities are not traded as often as securities listed on an exchange. So,
if the Fund were to sell an OTC security, it might have to offer the security at
a discount or sell it in smaller share lots over an extended period of time.
Potential Returns
Increases the number of potential investments for the Fund.
OTC securities may appreciate faster than exchange-traded securities because
they are typically securities of younger, growing companies.
Policies to Balance Risk and Return
Pilgrim Baxter uses a highly disciplined investment process that seeks to, among
other things, identify quality investments that will enhance the Fund's
performance.
Illiquid Securities
Securities that do not have a ready market and cannot be easily sold, if at all,
at approximately the price that the Fund has valued them.
Potential Risks
The Fund may have difficulty valuing these securities precisely.
The Fund may be unable to sell these securities at the time or price it desires.
Potential Returns
Illiquid securities may offer more attractive yields or potential growth than
comparable widely traded securities.
Policies to Balance Risk and Return
The Fund may not invest more than 15% of its net assets in illiquid securities.
Restricted Securities
Privately placed securities whose resale is restricted under securities law.
Potential Risks
Restricted securities may be difficult to value because market quotations may
not be readily available.
Because of the restrictions in resale of these securities, the Fund may not be
able to find a qualified buyer or may not be able to sell these securities at
the time or price it desires.
Potential Returns
Restricted securities may offer more attractive yields or potential growth than
comparable widely traded securities.
Policies to Balance Risk and Return
The Fund limits the amount of restricted securities in which it will invest to
10% of its total assets.
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The Investment Adviser
Pilgrim Baxter & Associates, Ltd., 825 Duportail Road, Wayne, PA 19087, is the
investment advisor for each Fund. Founded in 1982, Pilgrim Baxter currently
manages approximately $29 billion in assets for pension and profit-sharing
plans, charitable institutions, corporations, trusts, estates and other
investment companies.
As investment adviser, Pilgrim Baxter makes investment decisions for the Fund.
The Fund's Board of Directors supervises Pilgrim Baxter and establishes policies
that Pilgrim Baxter must follow in its day-to-day investment management
activities.
Pilgrim Baxter believes that discipline and consistency are important to
long-term investment success. This belief is reflected in its investment
process. Pilgrim Baxter uses a quantitative and fundamental investment process
that is extremely focused on business momentum, as demonstrated by such things
as earnings or revenues and sales growth.
Pilgrim Baxter begins its investment process by creating a universe of rapidly
growing companies that possess certain growth characteristics. That universe is
continually updated. Pilgrim Baxter then ranks each company in its universe
using propriety software and research models that incorporate attributes of
successful growth like positive earnings surprises, upward earnings estimate
revisions, and accelerating sales and earnings growth. Finally, using its own
fundamental research and a bottom-up approach to investing, Pilgrim Baxter
evaluates each company's business momentum, earnings quality and whether the
company can sustain its current growth trend. Pilgrim Baxter believes that
through this highly disciplined investment process, it is able to construct a
portfolio of investments with strong growth characteristics.
Pilgrim Baxter's decision to sell a security depends on many factors. Generally
speaking, however, Pilgrim Baxter considers selling a security when its
anticipated appreciation is no longer probable, alternative investments offer
more superior appreciation prospects, the risk of a decline in its market price
is too great or deterioration in business fundamentals occurs or is expected to
occur.
As of the date of this Prospectus, the Fund had not commenced investment
operations. As investment adviser to this Fund, Pilgrim Baxter is entitled to
receive a fee, calculated daily and payable monthly, at the annual rate of 1.50%
of the Fund's average daily net assets.
Michael K. Ma will manage the Fund. Mr. Ma joined Pilgrim Baxter in October 1999
as a senior technology analyst. Prior to joining Pilgrim Baxter, Mr. Ma worked
for two and one-half years as an Equity Research Analyst in the
Telecommunications Services Group of Deutsche Bank Securities, Inc. Prior to
that, he worked, first as a research analyst and then after 1994 as a portfolio
Manager at United States Trust Company of New York.
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Your Investment
Pricing Fund Shares
The Fund prices its investments for which market quotations are readily
available at market value. Short-term investments are priced at amortized cost,
which approximates market value. All other investments are priced at fair value
as determined in good faith by the Fund's Board of Directors. If the Fund holds
securities quoted in foreign currencies, it translates that price into U.S.
dollars at current exchange rates. Because foreign markets may be open at
different times than the New York Stock Exchange, the price of the Fund's shares
may change on days when its shares are not available for purchase or sale.
Net Asset Value (NAV)
The price of the Fund's shares is based on its net asset value (NAV). The Fund's
NAV equals the value of its assets, less its liabilities, divided by the number
of its outstanding shares. Fund shares are priced every day at the close of
regular trading on the New York Stock Exchange. Fund shares are not priced on
days that the New York Stock Exchange is closed.
Buying Shares
You may purchase shares of each fund directly through the Fund's transfer agent.
The price per share you will pay to invest in the Fund is its net asset value
per share (NAV) next calculated after the transfer agent or other authorized
representative accepts your order. The Fund's NAV is calculated at the close of
trading on the New York Stock Exchange, normally 4:00 p.m. Eastern time, each
day the exchange is open for business. The Fund's assets are generally valued at
their market price. However, if a market price is unavailable or if the assets
have been affected by events occurring after the close of trading, the Fund's
board of directors may use another method that it believes reflects fair value.
You may also purchase shares of the Fund through certain broker-dealers or other
financial institutions that are authorized to sell you Fund shares. These
financial institutions may charge you a fee for this service in addition to the
Fund's NAV.
Minimum Investments
Initial Additional
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Regular accounts $2,500 no minimum
Uniform Gifts/Transfer
to Minor Accounts $ 500 no minimum
Traditional IRAs $2,000 no minimum
Roth IRAs $2,000 no minimum
Educational IRAs $ 500 no minimum
Systematic Investment $ 500 $25
Plans1 (SIP)
1 Provided a SIP is established, the minimum initial investment for the Fund is
$500 along with a monthly systematic investment of $25 or more.
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Concepts to understand
Traditional IRA: an individual retirement account. Your contributions may or may
not be deductible depending on your circumstances. Assets grow tax-deferred;
withdrawals and distributions are taxable in the year made.
Spousal IRA: an IRA funded by a working spouse in the name of a nonworking
spouse.
Roth IRA: an IRA with non-deductible contributions, and tax-free growth of
assets and distributions to pay retirement expenses, provided certain conditions
are met.
Education IRA: an IRA with nondeductible contributions, and tax-free growth of
assets and distributions, if used to pay certain educational expenses.
For more complete IRA information, consult a PBHG Shareholder Services
Representative or a tax advisor.
Selling Shares
You may sell your Fund shares at NAV any day the New York Stock Exchange is open
for business. Sale orders received by the Fund's transfer agent or other
authorized representatives by 4:00 p.m. Eastern time will be priced at the
Fund's next calculated NAV. The Fund generally sends payment for your shares the
business day after your order is accepted. Under unusual circumstances, the Fund
may suspend redemptions or postpone payment for up to seven days. Also, if the
Fund has not yet collected payment for the shares you are selling, it may delay
paying out the proceeds on your sale until payment has been collected up to 15
days from the date of purchase. You may also sell shares of the Fund through
certain broker-dealers or other financial institutions at which you maintain an
account. These financial institutions may charge you a fee for this service.
Limitations on selling shares by phone
Proceeds
sent by Minimum Maximum
Check no minimum $50,000 per day
Wire* no minimum no maximum
ACH no minimum no maximum
Please note that the banking instructions to be used for wire and ACH
redemptions must be established on your account in advance of placing your sell
order.
* Wire fee is $10 per Federal Reserve Wire
Written Redemption Orders
Some circumstances require written sell orders along with signature guarantees.
These include:
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o Redemptions in excess of $50,000
o Requests to send proceeds to a different address or payee
o Requests to send proceeds to an address that has been changed within the last
30 days
o Requests to wire proceeds to a different bank account
A signature guarantee helps to protect you against fraud. You can obtain one
from most banks or securities dealers, but not from a notary public. For joint
accounts, each signature must be guaranteed. Please call us to ensure that your
signature guarantee is authentic.
General Policies
o The Fund may reject or suspend acceptance of purchase orders.
o The Fund reserves the right to make redemptions in securities rather than in
cash if the redemption amount exceeds $250,000 or 1% of the NAV of the Fund.
o Payment for telephone purchases must be received by the Fund's transfer agent
within seven days or you may be liable for any losses the Fund incurs as a
result of the cancellation of your purchase order.
o When placing a purchase, sale or exchange order through an authorized
representative, it is the representative's responsibility to promptly transmit
your order to the Fund's transfer agent so that you may receive that same day's
NAV.
o SEI Trust Company, the custodian for PBHG Traditional, Roth and Education IRA
accounts, currently charges a $10 annual custodial fee to Traditional and Roth
IRA accounts and a $7 annual custodial fee to Educational IRA accounts. This fee
will be automatically charged to your account if not received by the announced
due date, usually in mid-August.
o Because of the relatively high cost of maintaining smaller accounts, the Fund
charges an annual fee of $12 if your account balance drops below the minimum
investment amount because of redemptions. Minimum investment amounts are
identified in the table on page ___. For non-retirement accounts, the Fund may
close your account and send you the proceeds if your account balance remains
below the minimum investment amount for over 60 days.
Exchanges Between Other Funds in PBHG Funds(R)
You may exchange some or all of your Fund shares with certain other funds in
PBHG Funds(R). To obtain a prospectus for these other funds, please call the
telephone number, write the address or access the website located on the back
cover of this prospectus. You may mail, telephone or use the Fund's website to
provide your exchange instructions to the transfer agent. There is currently no
fee for exchanges, however, the Fund may change or terminate this privilege on
60 days notice.
To Open An Account
In Writing
Complete the application.
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Mail your completed application
and a check to:
The PBHG Funds, Inc.
P.O. Box 219534
Kansas City, Missouri 64121-9534
By Telephone
Call us at 1-800-433-0051 to receive an account application and receive an
account number.
Wire Have your bank send your investment to:
o United Missouri Bank of Kansas City, N.A.
o ABA# 10-10-00695
o Account # 98705-23469
o Fund Name
o Your name
o Your Social Security or tax ID number
o Your account number
Return the original account application via mail.
Via the Internet
o Visit the PBHG Funds website at http://www.pbhgfunds.com.
o Enter the "open account" screen, download, print and follow the instructions
for completing an account application.
To Add To An Account
In Writing Fill out an investment slip:
Mail the slip and the check to:
The PBHG Funds, Inc.
P.O. Box 219534
Kansas City, Missouri 64121-9534
If you maintain multiple PBHG Fund accounts, please ensure that the fund name
and account number of any account you wish to purchase additional shares of is
preprinted on the stub you remit.
By Telephone
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Wire Have your bank send your investment to:
o United Missouri Bank of Kansas City, N.A.
o ABA #10-10-00695
o Account #98705-23469
o Fund Name
o Your name
o Your Social Security or tax ID number
o Your account number
By Automated Clearing House
o Complete the bank information section on the account application.
o Attach a voided check or deposit slip to the account application.
o The maximum purchase allowed through ACH is $100,000 and this option must be
established on your account 15 days prior to initiating a transaction.
Via the Internet
o Complete the bank information section on the account application.
o Enter the "Your Account" section of the website and follow the instructions
for purchasing shares.
To Sell Shares
By Mail
Write a letter of instruction that includes:
o your name(s) and signature(s)
o your account number
o the fund name o the dollar amount your wish to sell
o how and where to send the proceeds
If required, obtain a signature guarantee (see "Selling Shares")
Mail your request to:
The PBHG Funds, Inc.
P.O. Box 219534
Kansas City, Missouri 64121-9534
Systematic Withdraw Plan
Permits you to have payments of $50 or more mailed or automatically transferred
from your Fund accounts to your designated checking or savings account
o Complete the applicable section on the account application
Note: Must maintain a minimum account balance of $5,000 or more.
By Telephone
Sales orders may be placed by telephone provided this option was selected on
your account application.
Please call 1-800-433-0051.
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<PAGE>
Note: sales from IRA accounts may not be made by telephone and must be made in
writing.
ACH
o Complete the bank information section on the account application.
o Attach a voided check or deposit slip to the account application.
Note: sale proceeds sent via ACH will not be posted to your bank account until
the second business day following the transaction.
Wire
Sale proceeds may be wired at your request. Be sure the Fund has your wire
instructions on file.
There is a $10 charge for each wire sent by the Fund.
Distribution And Taxes
The Fund pays shareholders dividends from its net investment income and
distributions from its net realized capital gains at least once a year, if
available. These dividends and distributions will be reinvested in the Fund
unless you instruct the Fund otherwise. There are no fees on reinvestments.
Alternatively, you may elect to receive your dividends and distributions in cash
in the form of a check, wire or ACH.
Unless your investment is in an IRA or other tax-exempt account, your dividends
and distributions will be taxable whether you receive them in cash or reinvest
them. Dividends (including short-term capital gains distributions) are taxed at
the ordinary income rate. Distributions of long-term capital gains are taxable
at the long-term capital gains rate, regardless of how long you have been in the
Fund. Long-term capital gains tax rates are described in the table below.
A sale or exchange of the Fund may also generate a tax liability unless your
account is tax-exempt. There are two types of tax liabilities you may incur from
a sale or exchange. (1) Short-term capital gains will apply if you sell or
exchange the Fund up to 12 months after buying it. (2) Long-term capital gains
will apply to the Fund if sold or exchanged after 12 months. The table below
describes the tax rates for each.
Taxability of Distributions
Type of Tax rate for Tax rate for
Distribution 15% bracket 28% bracket
------------ ------------ ------------
Dividends Ordinary income rate Ordinary income rate
Short-term
Capital Gains Ordinary income rate Ordinary income rate
Long-term
Capital Gains 10% 20%
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<PAGE>
Taxes on Transactions
The tax status of your distributions for each calendar year will be detailed in
your annual tax statement from the Fund. Because everyone's tax situation is
unique, always consult your tax professional about federal, state and local tax
consequences.
For More Information
The PBHG Funds, Inc.
SEC file number 811-04391
For investors who want more information about the Fund, the following documents
are available free upon request:
Statement of Additional Information (SAI)
Provides more information about the funds and is incorporated into this
Prospectus by reference.
Annual/Semi-annual Reports
Provides financial and performance information about the Fund and its
investments and a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during the last fiscal year
or half-year.
To obtain information
By telephone
Call 1-800-433-0051
By mail
The PBHG Funds, Inc.
P.O. Box 219534
Kansas City, MO 64121-9534
Via the Internet
www.pbhgfunds.com
These reports and other information about The PBHG Funds, Inc. are available on
the EDGAR database on the SEC's Internet site at http://www.sec.gov, or by
visiting the SEC's Public Reference Room in Washington, D.C. (1-800-SEC-0330).
Copies of this information may be obtained, for a duplicating fee, by sending
your written request to the SEC's Public Reference Section, Washington, D.C.
20549-0102, or by electronic request at [email protected].
Investment Adviser
Pilgrim Baxter & Associates, Ltd.
Distributor
20
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SEI Investments Distribution Co.
PBHG Global Technology & Communications Prospectus -- 6/00
21
<PAGE>
The information in this Statement of Additional Information is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
Statement of Additional Information is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
STATEMENT OF ADDITIONAL INFORMATION
DATED June __, 2000
Fund:
THE PBHG FUNDS, INC.
Portfolio:
PBHG GLOBAL TECHNOLOGY FUND
Investment Adviser:
PILGRIM BAXTER & ASSOCIATES, LTD.
This Statement of Additional Information is not a prospectus. It is intended to
provide additional information regarding the activities and operations of The
PBHG Funds, Inc. (the "Fund" or "Registrant") and the Portfolio named above. It
should be read in conjunction with the Prospectus for the Portfolio's PBHG Class
shares dated June __, 2000. The Prospectus may be obtained without charge by
calling 1-800-433-0051.
<PAGE>
TABLE OF CONTENTS
Page
----
THE FUND................................................................... 3
DESCRIPTION OF PERMITTED INVESTMENTS....................................... 3
INVESTMENT LIMITATIONS..................................................... 16
DIRECTORS AND OFFICERS OF THE FUND......................................... 18
5% AND 25% SHAREHOLDERS.................................................... 21
THE ADVISER................................................................ 27
THE DISTRIBUTOR............................................................ 28
THE ADMINISTRATOR AND SUB-ADMINISTRATOR.................................... 28
OTHER SERVICE PROVIDERS.................................................... 29
PORTFOLIO TRANSACTIONS..................................................... 30
DESCRIPTION OF SHARES...................................................... 31
PURCHASES AND REDEMPTIONS OF SHARES........................................ 32
DETERMINATION OF NET ASSET VALUE........................................... 39
TAXES...................................................................... 39
PERFORMANCE ADVERTISING.................................................... 45
CALCULATION OF TOTAL RETURN................................................ 45
FINANCIAL STATEMENTS....................................................... 46
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THE FUND
The Fund is an open-end management investment company which was originally
incorporated in Delaware on August 2, 1985 under the name PBHG Growth Fund, Inc.
and commenced business shortly thereafter as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act").
On July 21, 1992, shareholders of the Fund approved an Agreement and Articles of
Merger pursuant to which the Fund was reorganized and merged into a new Maryland
corporation, also named PBHG Growth Fund, Inc. On September 8, 1993, the
shareholders of the Fund voted to change the name of the Fund to The Advisors'
Inner Circle Fund II, Inc. On May 2, 1994, the shareholders voted to change the
Fund's name to The PBHG Funds, Inc.
This Statement of Additional Information relates to only the PBHG Global
Technology Fund (the "Portfolio") of the Fund. The Portfolio has two separate
classes of shares, the PBHG Class and the Advisor Class (formerly the Trust
Class). PBHG Class shares provide different distribution costs, voting rights
and dividends than Advisor Class shares. Except for these differences, each PBHG
Class share and each Advisor Class share of the Portfolio represents an equal
proportionate interest in the Portfolio. See "Description of Shares." This
Statement of Additional Information relates to both classes of shares of the
Portfolio, however, shareholders may currently purchase only PBHG Class shares
of the Portfolio. No investment in shares of the Portfolio should be made
without first reading the Portfolio's Prospectus. Capitalized terms not defined
in this Statement of Additional Information are defined in the Prospectus
offering shares of the Portfolio.
Pilgrim Baxter & Associates, Ltd. ("Adviser") serves as the investment adviser
to the Portfolio.
DESCRIPTION OF PERMITTED INVESTMENTS
Repurchase Agreements
Repurchase agreements are agreements by which a person (e.g., a portfolio)
obtains a security and simultaneously commits to return the security to the
seller (a member bank of the Federal Reserve System or primary securities dealer
as recognized by the Federal Reserve Bank of New York) at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days (usually not more than seven) from the date of purchase. The resale price
reflects the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or maturity of the underlying security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price, which obligation is in effect secured by the value of the underlying
security.
Repurchase agreements are considered to be loans by the Portfolio for purposes
of its investment limitations. The repurchase agreements entered into by the
Portfolio will provide that the underlying security at all times shall have a
value at least equal to 102% of the resale price stated in the agreement. With
respect to all repurchase agreements entered into by the Portfolio, the Fund's
custodian or its agents must take possession of the underlying collateral.
However, if the seller defaults, the Portfolio could realize a loss on the sale
of the underlying security to the extent that the proceeds of the sale,
including accrued interest, are less than the resale price provided in the
agreement including interest. In addition, even though the Bankruptcy Code
provides protection for most repurchase agreements, if the seller should be
involved in bankruptcy or insolvency proceedings, the Portfolio may incur delay
and costs in selling the underlying security or may suffer a loss of principal
and interest if the Portfolio is treated as an unsecured creditor of the seller
and is required to return the
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underlying security to the seller's estate.
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, the Portfolio upon entering into a futures contract (and to maintain
the Portfolio's open positions in futures contracts) would be required to
deposit with its custodian in a segregated account in the name of the futures
broker an amount of cash, or other assets, known as "initial margin." The margin
required for a particular futures contract is set by the exchange on which the
contract is traded, and may be significantly modified from time to time by the
exchange during the term of the contract. Futures contracts are customarily
purchased and sold on margin that may range upward from less than 5% of the
value of the contract being traded. By using futures contracts as a risk
management technique, given the greater liquidity in the futures market than in
the cash market, it may be possible to accomplish certain results more quickly
and with lower transaction costs.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
pay the excess to the Portfolio. These subsequent payments called "variation
margin," to and from the futures broker, are made on a daily basis as the price
of the underlying assets fluctuate making the long and short positions in the
futures contract more or less valuable, a process known as "marking to the
market." The Portfolio expects to earn interest income on its initial and
variation margin deposits.
The Portfolio will incur brokerage fees when it purchases and sells futures
contracts. Positions taken in the futures markets are not normally held until
delivery or cash settlement is required, but are instead liquidated through
offsetting transactions which may result in a gain or a loss. While futures
positions taken by the Portfolio will usually be liquidated in this manner, the
Portfolio may instead make or take delivery of underlying securities whenever it
appears economically advantageous to the Portfolio to do so. A clearing
organization associated with the exchange on which futures are traded assumes
responsibility for closing out transactions and guarantees that as between the
clearing members of an exchange, the sale and purchase obligations will be
performed with regard to all positions that remain open at the termination of
the contract.
Securities Index Futures Contracts. Purchases or sales of securities index
futures contracts may be used in an attempt to protect each of the Portfolio's
current or intended investments from broad fluctuations in securities prices. A
securities index futures contract does not require the physical delivery of
securities, but merely provides for profits and losses resulting from changes in
the market value of the contract to be credited or debited at the close of each
trading day to the respective accounts of the parties to the contract. On the
contract's expiration date a final cash settlement occurs and the futures
positions are simply closed out. Changes in the market value of a particular
index futures contract reflect changes in the specified index of securities on
which the future is based.
By establishing an appropriate "short" position in index futures, the Portfolio
may also seek to protect the value of its portfolio against an overall decline
in the market for such securities. Alternatively, in anticipation of a
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<PAGE>
generally rising market, the Portfolio can seek to avoid losing the benefit of
apparently low current prices by establishing a "long" position in securities
index futures and later liquidating that position as particular securities are
in fact acquired. To the extent that these hedging strategies are successful,
the Portfolio will be affected to a lesser degree by adverse overall market
price movements than would otherwise be the case.
Limitations on Purchase and Sale of Futures Contracts. The Portfolio will not
purchase or sell futures contracts unless either (i) the futures contracts are
purchased for "bona fide hedging" purposes (as that term is defined under the
CFTC regulations) or (ii) if purchased for other than "bona fide hedging"
purposes, the sum of the amounts of initial margin deposits on the Portfolio's
existing futures contracts and premiums required to establish non-hedging
positions would not exceed 5% of the liquidation value of the Portfolio's total
assets. In instances involving the purchase of futures contracts by the
Portfolio, an amount of cash or other liquid assets, equal to the cost of such
futures contracts (less any related margin deposits), will be deposited in a
segregated account with its custodian, thereby insuring that the use of such
futures contracts is unleveraged. In instances involving the sale of futures
contracts by the Portfolio, the securities underlying such futures contracts or
options will at all times be maintained by the Portfolio or, in the case of
index futures contracts, the Portfolio will own securities the price changes of
which are, in the opinion of its Adviser expected to replicate substantially the
movement of the index upon which the futures contract is based.
For information concerning the risks associated with utilizing futures
contracts, please see "Risks of Transactions in Futures Contracts Options"
below.
Options
Options are contracts that give one of the parties to the contract the right to
buy or sell the security that is subject to the option at a stated price during
the option period, and obligates the other party to the contract to buy or sell
such security at the stated price during the option period. The types of options
transactions that the Portfolio may utilize are discussed below.
Writing Call Options. A call option is a contract which gives the purchaser of
the option (in return for a premium paid) the right to buy, and the writer of
the option (in return for a premium received) the obligation to sell, the
underlying security at the exercise price at any time prior to the expiration of
the option, regardless of the market price of the security during the option
period. A call option on a security is covered, for example, when the writer of
the call option owns the security on which the option is written (or on a
security convertible into such a security without additional consideration)
throughout the option period.
The Portfolio will write covered call options both to reduce the risks
associated with certain of its investments and to increase total investment
return through the receipt of premiums. In return for the premium income, the
Portfolio will give up the opportunity to profit from an increase in the market
price of the underlying security above the exercise price so long as its
obligations under the contract continue, except insofar as the premium
represents a profit. Moreover, in writing the call option, the Portfolio will
retain the risk of loss should the price of the security decline. The premium is
intended to offset that loss in whole or in part. Unlike the situation in which
the Portfolio owns securities not subject to a call option, the Portfolio, in
writing call options, must assume that the call may be exercised at any time
prior to the expiration of its obligation as a writer, and that in such
circumstances the net proceeds realized from the sale of the underlying
securities pursuant to the call may be substantially below the prevailing market
price.
The Portfolio may terminate its obligation under an option it has written by
buying an identical option. Such a transaction is called a "closing purchase
transaction." The Portfolio will realize a gain or loss from a closing
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<PAGE>
purchase transaction if the amount paid to purchase a call option is less or
more than the amount received from the sale of the corresponding call option.
Also, because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the exercise or closing out of a call option is likely to be
offset in whole or part by unrealized appreciation of the underlying security
owned by the Portfolio. When an underlying security is sold from the Portfolio's
securities portfolio, the Portfolio will effect a closing purchase transaction
so as to close out any existing covered call option on that underlying security.
Writing Put Options. The writer of a put option becomes obligated to purchase
the underlying security at a specified price during the option period if the
buyer elects to exercise the option before its expiration date. The Portfolio
when it writes a put option will be required to "cover" it, for example, by
depositing and maintaining in a segregated account with its custodian cash, or
other liquid obligations having a value equal to or greater than the exercise
price of the option.
The Portfolio may write put options either to earn additional income in the form
of option premiums (anticipating that the price of the underlying security will
remain stable or rise during the option period and the option will therefore not
be exercised) or to acquire the underlying security at a net cost below the
current value (e.g., the option is exercised because of a decline in the price
of the underlying security, but the amount paid by the Portfolio, offset by the
option premium, is less than the current price). The risk of either strategy is
that the price of the underlying security may decline by an amount greater than
the premium received. The premium which the Portfolio receives from writing a
put option will reflect, among other things, the current market price of the
underlying security, the relationship of the exercise price to that market
price, the historical price volatility of the underlying security, the option
period, supply and demand and interest rates.
The Portfolio may effect a closing purchase transaction to realize a profit on
an outstanding put option or to prevent an outstanding put option from being
exercised.
Purchasing Put and Call Options. The Portfolio may purchase put options on
securities to protect its holdings against a substantial decline in market
value. The purchase of put options on securities will enable the Portfolio to
preserve, at least partially, unrealized gains in an appreciated security in its
portfolio without actually selling the security. In addition, the Portfolio will
continue to receive interest or dividend income on the security. The Portfolio
may also purchase call options on securities to protect against substantial
increases in prices of securities that the Portfolio intend to purchase pending
its ability to invest in an orderly manner in those securities. The Portfolio
may sell put or call options it has previously purchased, which could result in
a net gain or loss depending on whether the amount received on the sale is more
or less than the premium and other transaction cost paid on the put or call
option which was bought.
Securities Index Options. The Portfolio may write covered put and call options
and purchase call and put options on securities indexes for the purpose of
hedging against the risk of unfavorable price movements adversely affecting the
value of the Portfolio's securities or securities it intends to purchase. The
Portfolio will only write "covered" options. A call option on a securities index
is considered covered, for example, if, so long as the Portfolio is obligated as
the writer of the call, it holds securities the price changes of which are, in
the opinion of the Adviser, expected to replicate substantially the movement of
the index or indexes upon which the options written by the Portfolio are based.
A put on a securities index written by the Portfolio will be considered covered
if, so long as it is obligated as the writer of the put, the Portfolio
segregates with its custodian cash or other liquid obligations having a value
equal to or greater than the exercise price of the option. Unlike a stock
option, which gives the holder the right to purchase or sell a specified stock
at a specified price, an option on a securities index gives the holder the right
to receive a cash "exercise settlement amount" equal to (i) the
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<PAGE>
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. The Portfolio may enter into contracts with primary
dealers with whom it may write over-the-counter options. Such contracts will
provide that the Portfolio has the absolute right to repurchase an option it
writes at any time at a repurchase price which represents the fair market value,
as determined in good faith through negotiation between the parties, but which
in no event will exceed a price determined pursuant to a formula contained in
the contract. Although the specific details of the formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by the Portfolio for writing the option, plus
the amount, if any, of the option's intrinsic value (i.e., the amount the option
is "in-the-money"). The formula will also include a factor to account for the
difference between the price of the security and the strike price of the option
if the option is written "out-of-the-money." The Portfolio has established
standards of creditworthiness for these primary dealers, although the Portfolio
may still be subject to the risk that firms participating in such transactions
will fail to meet their obligations. In instances in which the Portfolio has
entered into agreements with respect to the over-the-counter options it has
written, and such agreements would enable the Portfolio to have an absolute
right to repurchase at a pre-established formula price the over-the-counter
option written by it, the Portfolio would treat as illiquid only securities
equal in amount to the formula price described above less the amount by which
the option is "in-the-money," i.e., the amount by which the price of the option
exceeds the exercise price.
For information concerning the risks associated with utilizing options and
futures contracts, please see "Risks of Transactions in Futures Contracts and
Options" below.
Risks of Transactions in Futures Contracts and Options
Futures. The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in the market and interest
rates, which in turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of 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%
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<PAGE>
decrease would result in a loss equal to 150% of the original margin deposit, if
the futures contract were closed out. Thus, a purchase or sale of a futures
contract may result in losses in excess of the amount invested in the futures
contract.
A decision of whether, when, and how to hedge involves skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior, market trends or interest rate trends. There are
several risks in connection with the use by the Portfolio of futures contracts
as a hedging device. One risk arises because of the imperfect correlation
between movements in the prices of the futures contracts and movements in the
prices of the underlying instruments which are the subject of the hedge. The
Adviser will, however, attempt to reduce this risk by entering into futures
contracts whose movements, in its judgment, will have a significant correlation
with movements in the prices of the Portfolio's underlying instruments sought to
be hedged.
Successful use of futures contracts by the Portfolio for hedging purposes is
also subject to the Portfolio's ability to correctly predict movements in the
direction of the market. It is possible that, when the Portfolio has sold
futures to hedge its portfolio against a decline in the market, the index,
indices, or instruments underlying futures might advance and the value of the
underlying instruments held in the Portfolio's portfolio might decline. If this
were to occur, the Portfolio would lose money on the futures and also would
experience a decline in value in its underlying instruments.
Positions in futures contracts may be closed out only on an exchange or a board
of trade which provides the market for such futures. Although the Portfolio
intends to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active market, there is no guarantee that such will exist
for any particular contract or at any particular time. If there is not a liquid
market at a particular time, it may not be possible to close a futures position
at such time, and, in the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin.
However, in the event futures positions are used to hedge portfolio securities,
the securities will not be sold until the futures 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 the Portfolio is unable to effect
a closing purchase transaction, the Portfolio will not sell the underlying
security until the option expires or the Portfolio delivers the underlying
security upon exercise.
Options traded in the over-the-counter market may not be as actively traded as
those on an exchange. Accordingly, it may be more difficult to value such
options. In addition, it may be difficult to enter into closing transactions
with respect to options traded over-the-counter. The Portfolio will engage in
such transactions only with firms of sufficient credit so as to minimize these
risks. Such options and the securities used as "cover" for such options may be
considered illiquid securities.
The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the selected
securities index. Perfect correlation is not possible because the securities
held or to be acquired by the Portfolio will not exactly match the composition
of the securities indexes on which options are written. In the purchase of
securities index options the principal risk is that the premium and transaction
costs paid by the
8
<PAGE>
Portfolio in purchasing an option will be lost if the changes (increase in the
case of a call, decrease in the case of a put) in the level of the index do not
exceed the cost of the option.
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
Portfolio 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 the Portfolio can write on a particular
security.
Investment Company Shares
The Portfolio may invest in securities of other investment companies, including
Standard & Poor's Depository Receipts ("SPDRs"). SPDRs are investment companies
whose portfolios mirror the compositions of specific S&P indicies, such as the
S&P 500 and the S&P 400. SPDRs are traded on the American Stock Exchange. SPDR
holders, such as the Portfolio, are paid a "Dividend Equivalent Amount" that
corresponds to the amount of cash dividends accruing to the securities held by
the SPDR Trust, net of certain fees and expenses. Since investment companies pay
management fees and other expenses, shareholders of the Portfolio would
indirectly pay both Portfolio expenses and the expenses of underlying funds with
respect to Portfolio assets invested therein. Applicable regulations prohibit
the Portfolio from acquiring the securities of other investment companies that
are not "part of the same group of investment companies" if, as a result of such
acquisition; (i) the Portfolio owns more than 3% of the total voting stock of
the company; (ii) more than 5% of the Portfolio's total assets are invested in
securities of any one investment company; or (iii) more than 10% of the total
assets of the Portfolio are invested in securities (other than treasury stock)
issued by all investment companies. The Portfolio has no current intention, in
the foreseeable future, of investing more than 5% of its assets in investment
company securities. The Portfolio may, however, invest in The 1940 Act limits
investments
Illiquid Investments
Illiquid investments are investments that cannot be sold or disposed of in the
ordinary course of business within seven (7) days at approximately the prices at
which they are valued. Under the supervision of the Board of Directors, the
Adviser determines the liquidity of the Portfolio's investments and, through
reports from the Adviser, the Board monitors investments in illiquid
instruments. In determining the liquidity of the Portfolio'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
market place for trades (including the ability to assign or offset the
Portfolio's rights and obligations relating to the investment). Investments
currently considered by the Portfolio to be illiquid include repurchase
agreements not entitling the holder to payment of principal and interest within
seven days, over-the-counter options, and non-government stripped fixed-rate
mortgage backed securities. Also, the Adviser may determine some
government-stripped fixed-rate mortgage backed securities, loans and other
direct debt instruments, and swap agreements to be illiquid. However, with
respect to over-the-counter options the Portfolio writes, all or a portion of
the value of the underlying instrument may be illiquid depending on the assets
held to cover the option and the nature and terms of any agreement the Portfolio
may have to close out the option before expiration. In the absence of market
quotations, illiquid investments are priced at fair value as determined in good
faith by a committee appointed by the Board of Directors. If, through a change
in values, net assets or other circumstances, the Portfolio was in a position
where more than 15% of its net assets were invested in illiquid securities, it
would
9
<PAGE>
seek to take appropriate steps to protect liquidity.
Restricted Securities
Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, as amended (the "1933 Act"), or in a registered public offering.
Where registration is required, the Portfolio may be obligated to pay all or
part of the registration expense and a considerable period may elapse between
the time it decides to seek registration and the time the Portfolio may be
permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, the Portfolio
might obtain a less favorable price than prevailed when it decided to seek
registration of the security. Moreover, investing in Rule 144A securities (i.e.,
securities that qualify for resale under Rule 144A under the Securities Act of
1933) would have the effect of increasing the level of the Portfolio's
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing these securities.
Foreign Currency Transactions
The Portfolio may hold foreign currency deposits from time to time, and may
convert dollars and foreign currencies in the foreign exchange markets. Currency
conversion involves dealer spreads and other costs, although commissions usually
are not charged. Currencies may be exchanged on a spot (i.e., cash) basis, or by
entering into forward contracts to purchase or sell foreign currencies at a
future date and price. Forward contracts generally are traded in an interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. The parties to a forward contract may agree to
offset or terminate the contract before maturity, or may hold the contract to
maturity and complete the contemplated currency exchange.
The Portfolio may use currency forward contracts to manage currency risks and to
facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by the Portfolio.
In connection with purchases and sales of securities denominated in foreign
currencies, the Portfolio may enter into currency forward contracts to fix a
definite price for the purchase or sale in advance of the trade's settlement
date. This technique is sometimes referred to as a "settlement hedge" or
"transaction hedge." The Adviser may enter into settlement hedges in the normal
course of managing the Portfolio's foreign investments. The Portfolio 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.
The Portfolio may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example, if
the Portfolio owned securities denominated in pounds sterling, it could enter
into a forward contract to sell pounds sterling in return for U.S. dollars to
hedge against possible declines in the pound's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. The Portfolio could also hedge the position by selling
another currency expected to perform similarly to the pound sterling - for
example, by entering into a forward contract to sell Deutschemark or European
Currency Units in return for U.S. dollars. This type of hedge, sometimes
referred to as a "proxy hedge," could offer advantages in terms of cost, yield,
or efficiency, but generally would not hedge currency exposure as effectively as
a simple hedge into U.S. dollars. Proxy hedges may result in losses if the
currency used to hedge does not
10
<PAGE>
perform similarly to the currency in which the hedged securities are
denominated.
Under certain conditions, guidelines of the Securities 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, the Portfolio will segregate assets to cover currency forward
contracts, if any, whose purpose is essentially speculative. The Portfolio will
not segregate assets to cover forward contracts entered into for hedging
purposes, including settlement hedges, position hedges, and proxy hedges.
Successful use of forward currency contracts will depend on the skill of the
Adviser in analyzing and predicting currency values. Forward contracts may
substantially change the Portfolio's investment exposure to changes in currency
exchange rates, and could result in losses to the Portfolio if currencies do not
perform as the Adviser anticipates. For example, if a currency's value rose at a
time when the Adviser had hedged the Portfolio by selling that currency in
exchange for dollars, the Portfolio would be unable to participate in the
currency's appreciation. If the Adviser hedges the Portfolio's currency exposure
through proxy hedges, the Portfolio could realize currency losses from the hedge
and the security position at the same time if the two currencies do not move in
tandem. Similarly, if the Adviser increases the Portfolio's exposure to a
foreign currency and that currency's value declines, the Portfolio will realize
a loss. There is no assurance that the use of forward currency contracts by the
Adviser will be advantageous to the Portfolio or that it will hedge at an
appropriate time.
American Depositary Receipts ("ADRs"), European Depository Receipts ("EDRs")
and Global Depositary Receipts ("GDRs")
ADRs are securities, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. EDRs
are receipts issued by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of the underlying foreign securities. GDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, EDRs, GDRs and CDRs may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depositary receipt generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through to the holders of the
receipts voting rights with respect to the deposited securities.
Bankers' Acceptance
A bill of exchange or time draft drawn on and accepted by a commercial bank. It
is used by corporations to finance the shipment and storage of goods and to
furnish dollar exchange. Maturities are generally six months or less.
Certificate of Deposit
A negotiable interest bearing instrument with a specific maturity. Certificates
of deposit are issued by banks and savings and loan institutions in exchange for
the deposit of funds and normally can be traded in the secondary market prior to
maturity. Certificates of deposit generally carry penalties for early
withdrawal.
11
<PAGE>
Commercial Paper
The term used to designate unsecured short-term promissory notes issued by
corporations and other entities. Maturities on these issues typically vary from
a few days to nine months.
Convertible Securities
Securities such as rights, bonds, notes and preferred stocks which are
convertible into or exchangeable for common stocks. Convertible securities have
characteristics similar to both fixed income and equity securities. Because of
the conversion feature, the market value of convertible securities tends to move
together with the market value of the underlying common stock. As a result, the
Portfolio's selection of convertible securities is based, to a great extent, on
the potential for capital appreciation that may exist in the underlying stock.
The value of convertible securities is also affected by prevailing interest
rates, the credit quality of the issuer, and any call provisions.
Demand Instruments
Certain instruments may involve a conditional or unconditional demand feature
which permits the holder to demand payment of the principal amount of the
instrument. Demand instruments may include variable amount master demand notes.
Mortgage-Backed Securities
Securities that include interests in pools of lower-rated debt securities, or
consumer loans or mortgages, or complex instruments such as collateralized
mortgage obligations and stripped mortgage-backed securities. The value of these
securities may be significantly affected by changes in interest rates, the
market's perception of the issuers, and the creditworthiness of the parties
involved. Some securities may have a structure that makes their reaction to
interest rates and other factors difficult to predict, making their value highly
volatile. These securities may also be subject to prepayment risk.
Receipts
Separately traded interest and principal component parts of U.S. Treasury
obligations that are issued by banks or brokerage firms and are created by
depositing U.S. Treasury obligations into a special account at a custodian bank.
The custodian bank holds the interest and principal payments for the benefit of
the registered owners of the receipts. The custodian bank arranges for the
issuance of the receipts evidencing ownership and maintains the register.
Time Deposit
A non-negotiable receipt issued by a bank in exchange for the deposit of funds.
Like a certificate of deposit, it earns a specified rate of interest over a
definite period of time; however, it cannot be traded in the secondary market.
Time deposits with a withdrawal penalty are considered to be illiquid
securities.
U.S. Government Agency Obligations
Certain Federal agencies such as the Government National Mortgage Association
("GNMA") have been established as instrumentalities of the United States
Government to supervise and finance certain types of
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<PAGE>
activities. Securities issued by these agencies, while not direct obligations of
the United States Government, are either backed by the full faith and credit of
the United States (e.g., GNMA securities) or supported by the issuing agencies'
right to borrow from the Treasury. The securities issued by other agencies are
supported only by the credit of the instrumentality (e.g., Tennessee Valley
Authority securities).
U.S. Government Securities
Bills, notes and bonds issued by the U.S. Government and backed by the full
faith and credit of the United States.
U.S. Treasury Obligations
Bills, notes and bonds issued by the U.S. Treasury, and separately traded
interest and principal component parts of such obligations that are transferable
through the Federal book-entry system known as Separately Traded Registered
Interest and Principal Securities ("STRIPS"). Under the STRIPS program, the
Portfolio will be able to have its beneficial ownership of securities recorded
directly in the book-entry record-keeping system in lieu of having to hold
certificates or other evidences of ownership of the underlying U.S. Treasury
securities. When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the stripped coupons are sold separately or
grouped with other coupons with like maturity dates and sold in such bundled
form. The principal or corpus is sold at a deep discount because the buyer
receives only the right to receive a future fixed payment on the security and
does not receive any rights to periodic interest (cash) payments. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the securities that the Treasury sells itself. Other
facilities are available to facilitate the transfer of ownership of non-Treasury
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on such securities through a book-entry
record-keeping system.
Variable and Floating Rate Instruments
Certain of the obligations purchased by the Portfolio may carry variable or
floating rates of interest, may involve a conditional or unconditional demand
feature and may include variable amount master demand notes. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index.
The interest rates on these securities may be reset daily, weekly, quarterly or
some other reset period, and may have a floor or ceiling on interest rate
changes. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates. A demand instrument with
a demand notice exceeding seven days may be considered illiquid if there is no
secondary market for such securities.
Warrants
Instruments giving holders the right, but not the obligation, to buy shares of a
company at a given price during a specified period.
When-Issued and Delayed-Delivery Securities
When-issued and delayed-delivery securities are securities subject to settlement
on a future date. For fixed income securities, the interest rate realized on
when-issued or delayed-delivery securities is fixed as of the purchase date and
no interest accrues to the Portfolio before settlement. These securities are
subject to market fluctuation due to changes in market interest rates and will
have the effect of leveraging the Portfolio's assets.
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<PAGE>
The Portfolio is permitted to invest in forward commitments or when-issued
securities where such purchases are for investment and not for leveraging
purposes. One or more segregated accounts will be established with the
Custodian, and the Portfolio will maintain liquid assets in such accounts in an
amount at least equal in value to the Portfolio's commitments to purchase
when-issued securities.
Small and Medium Capitalization Stocks
Investments in common stocks in general are subject to market risks that may
cause their prices to fluctuate over time. Therefore, an investment in the
Portfolio may be more suitable for long-term investors who can bear the risk of
these fluctuations. The Portfolio may invest in securities of issuers with small
or medium market capitalizations. While the Adviser intends to invest in small
and medium capitalization companies that have strong balance sheets and
favorable business prospects, any investment in small and medium capitalization
companies involves greater risk and price volatility than that customarily
associated with investments in larger, more established companies. This
increased risk may be due to the greater business risks of their small 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 Market
The Portfolio 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 the
Portfolio invests may not be as great as that of other securities and, if the
Portfolio was 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.
Foreign Securities and Emerging Markets
The Portfolio will invest in foreign securities. Investing in the securities of
foreign issuers involves special risks and considerations not typically
associated with investing in U.S. companies. These risks and considerations
include differences in accounting, auditing and financial reporting standards,
generally higher commission rates on foreign portfolio transactions, the
possibility of expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations, political instability which could
affect U.S. investment in foreign countries and potential restrictions on the
flow of international capital and currencies. Foreign issuers may also be
subject to less government regulation than U.S. companies. Moreover, the
dividends and interest payable on foreign securities may be subject to foreign
withholding taxes, thus reducing the net amount of income available for
distribution to the Portfolio's shareholders. Further, foreign securities often
trade with less frequency and volume than domestic securities and, therefore,
may exhibit greater price volatility. Changes in foreign exchange rates will
affect, favorably or unfavorably, the value of those securities which are
denominated or quoted in currencies other than the U.S. dollar.
The Portfolio's investments in emerging markets may be considered speculative,
and therefore may offer higher potential for gains and losses than investments
in developed markets of the world. With respect to any emerging country, there
may be greater potential for nationalization, expropriation or confiscatory
taxation, political
10
<PAGE>
changes, government regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of the Portfolio's investments in those countries. In addition, it may
be difficult to obtain and enforce a judgment in the courts of such countries.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been and may continue to be
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade.
Investments in Technology Companies
The Portfolio will invest in equity 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.
Because the Portfolio is non-diversified, it will invest a higher percentage of
its assets in a limited number of technology stocks. As a result, the price
change of a single security, positive or negative, will have a greater impact on
the Fund's net asset value and will cause its shares to fluctuate in value more
than it would in a more widely diversified fund. In addition, the Portfolio is
concentrated, which means it will invest 25% or more of its total assets in one
or more of the industries within the technology and communications sectors. Many
of these industries share common characteristics. Therefore, an event or issue
affecting one such industry may have a significant impact on these other,
related industries and, thus, may affect the value of the Portfolio's
investments in technology companies. For example, the technology companies in
which the Portfolio invests may be strongly affected by worldwide scientific or
technological developments and their products and services may be subject to
governmental regulation or adversely affected by governmental policies.
European Economic and Monetary Union
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The
Netherlands, Portugal and Spain are presently members of the European Economic
and Monetary Union (the "EMU"). The EMU adopted the "euro" as a common currency
on January 1, 1999 and subordinated the national currencies of each country to
the euro until July 1, 2000, at which time the national currencies will be
phased out entirely. The euro could adversely affect the value of securities
held by the Portfolio because as the euro is implemented as the common currency,
there may be changes in the relative value of the U.S. dollar and other major
currencies, as well as possible adverse tax consequences. In addition, the
introduction of the euro may affect the fiscal and monetary levels of
participating EMU countries and may also increase price competition among
business firms within EMU countries and between businesses in EMU and non-EMU
countries. These uncertainties raise the possibility of increased volatility in
the financial markets of the affected countries.
INVESTMENT LIMITATIONS
Fundamental Policies
The Portfolio has adopted certain investment restrictions which, in addition to
those restrictions in the Prospectus, are fundamental and may not be changed
without approval by a majority vote of the Portfolio's shareholders. Such
majority is defined in the 1940 Act as the lesser of (i) 67% or more of the
voting securities of the Portfolio present in person or by proxy at a meeting,
if the holders of more than 50% of the outstanding voting securities are present
or represented by proxy; or (ii) more than 50% of the outstanding voting
securities of the Portfolio.
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<PAGE>
The Portfolio may not:
1. Make loans, except that the Portfolio, in accordance with the Portfolio's
investment objectives and policies, may (i) purchase or hold debt instruments,
and (ii) enter into repurchase agreements. In addition, the Portfolio may lend
its portfolio securities in an amount not exceeding one-third the value of its
total assets.
2. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter under the 1933 Act in connection with the purchase and
sale of portfolio securities.
3. Purchase or sell commodities or commodity contracts, except that the
Portfolio, in accordance with its objectives and policies, may: (i) invest in
readily marketable securities of issuers which invest or engage in such
activities; and (ii) enter into futures contracts and options thereon.
4. Purchase or sell real estate or real estate partnership interests, except
that this limitation shall not prevent the Portfolio from investing directly or
indirectly in readily marketable securities of issuers which can invest in real
estate, institutions that issue mortgages, or real estate investment trusts that
deal with real estate or interests therein.
5. Issue senior securities (as defined in the 1940 Act) except as permitted in
connection with the Portfolio's policies on borrowing and pledging, or as
permitted by rule, regulation or order of the SEC.
6. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of total assets. This borrowing provision
is included solely to facilitate the orderly sale of portfolio securities to
accommodate substantial redemption requests if they should occur and is not for
investment purposes. All borrowings in excess of 5% of the Portfolio's total
assets will be repaid before making investments.
9. Invest in companies for the purpose of exercising control.
10. Pledge, mortgage or hypothecate assets, except: (i) to secure temporary
borrowings permitted by the Portfolio's limitation on permitted borrowings; or
(ii) in connection with permitted transactions regarding options and futures
contracts and in aggregate amounts not to exceed 10% of total assets taken at
current value at the time of the occurrence of such pledge, mortgage or
hypothecation.
11. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Portfolio may: (i) obtain short-term
credits as necessary for the clearance of security transactions; and (ii)
establish margin accounts as may be necessary in connection with the Portfolio's
use of options and futures contracts.
12. Purchase securities of other investment companies except as permitted by the
1940 Act and the rules and regulations thereunder.
13. Invest in interests in oil, gas or other mineral exploration or development
programs and invest in oil, gas or mineral leases.
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<PAGE>
Non-fundamental Policies
In addition to the foregoing, and the policies set forth in the Portfolio's
Prospectus, the Portfolio has adopted additional investment restrictions which
may be amended by the Board of Directors without a vote of shareholders.
The Portfolio may not:
1. Invest in illiquid securities in an amount exceeding, in the aggregate, 15%
of its net assets. This limitation does not include any Rule 144A restricted
security that has been determined by, or pursuant to procedures established by,
the Board of Directors, based on trading markets for such security, to be
liquid.
2. Purchase puts, calls, straddles, spreads, and any combination thereof, except
to the extent permitted by the 1940 Act or the rules or regulations thereunder.
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).
Senior Securities
The term "senior security", as defined in Section 18(g) of the Investment
Company Act of 1940, means any bond, debenture, note, or similar obligation or
instrument constituting a security and evidencing indebtedness, and any stock of
a class having priority over any other class as to distribution of assets or
payment of dividends; and "senior security representing indebtedness" means any
senior security other than stock.
The term "senior security" shall not include any promissory note or other
evidence of indebtedness issued in consideration of any loan, extension, or
renewal thereof, made by a bank or other person and privately arranged, and not
intended to be publicly distributed; nor shall such term include any such
promissory note or other evidence of indebtedness in any case where such a loan
is for temporary purposes only and in an amount not exceeding 5 percent of the
value of the total assets of the issuer at the time when the loan is made. A
loan shall be presumed to be for temporary purposes if it is repaid within sixty
days and is not extended or renewed; otherwise it shall be presumed not to be
for temporary purposes. Any such presumption may be rebutted by evidence.
Temporary Defensive Positions
Under normal market conditions, the Portfolio expects to be fully invested in
its primary investments, as described above. However, for temporary defensive
purposes, when the Adviser determines that market conditions warrant, the
Portfolio may invest up to 100% of its assets in cash and money market
instruments (consisting of securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; certificates of deposit, time
deposits and bankers' acceptances issued by banks or savings and loan
associations having net assets of at least $500 million as stated on their most
recently published financial statements; commercial paper rated in one of the
two highest rating categories by at least one NRSRO; repurchase agreements
involving such securities; and, to the extent permitted by applicable law and
the Portfolio's investment restrictions, shares of other investment companies
investing solely in money market securities). To the extent the Portfolio is
invested in temporary defensive instruments, it will not be pursuing its
investment objective.
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Portfolio Turnover
Portfolio turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. A higher turnover rate (100% or more)
increases transaction costs (e.g., brokerage commissions) and increases realized
gains and losses. High rates of portfolio turnover necessarily result in
correspondingly greater brokerage and portfolio trading costs, which are paid by
the Portfolio. Trading in fixed-income securities does not generally involve the
payment of brokerage commissions, but does involve indirect transaction costs.
In addition to portfolio trading costs, higher rates of portfolio turnover may
result in the realization of capital gains. To the extent net short-term capital
gains are realized, any distributions resulting from such gains are considered
ordinary income for federal income tax purposes.
DIRECTORS AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Directors under the
laws of the State of Maryland. The Directors have approved contracts under
which, as described above, certain companies provide essential management
services to the Fund. The Directors and executive officers of the Fund and the
principal occupations for the last five years are set forth below. Each may have
held other positions with the named companies during that period. Each Director
serves as a Director and each officer serves as an officer in a similar capacity
for The PBHG Insurance Series Fund, Inc., a registered investment company
advised by the Adviser.
<TABLE>
<CAPTION>
Position Held
Name , Address, and Age with the Fund Principal Occupation(s) During Past 5 Years
- ----------------------- ------------- -------------------------------------------
<S> <C> <C>
John R. Bartholdson, Director Chief Financial Officer and Director, the Triumph
1255 Drummers Lane, Suite 200, Group, Inc. (manufacturing) since 1992.
Wayne, PA 19087
(55)
Harold J. Baxter* Chairman of the Chairman, Chief Executive Officer and Director, the
825 Duportail Road, Wayne, Board and Adviser since 1982. Trustee, the Administrator since
PA 19087, Director May 1996. Chairman, Chief Executive Officer and
(53) Director, Value Investors, since June 1996. Trustee,
PBHG Fund Distributors since January 1998. Director,
UAM since 1996.
Jettie M. Edwards, Director Consultant, Syrus Associates since 1986. Trustee,
76 Seaview Drive, Santa Provident Investment Counsel Trust (investment
Barbara, California 93108, company) since 1992. Trustee, EQ Advisors Trust
(53) (investment company) since 1997.
Albert A. Miller, Director Principal and Treasurer, JK Equipment Exporters since 1995.
7 Jennifer Drive, Holmdel, New Senior Vice President, Cherry & Webb, CWT Specialty Stores
Jersey 07733, since 1995, Advisor and Secretary, the Underwoman Shoppes
(65) Inc. (retail clothing stores) since 1980. Merchandising
Group Vice President, R.H. Macy & Co., 1958-1995 (retired).
Gary L. Pilgrim, President President, Chief Investment Officer and Director, the
825 Duportail Road, Wayne, PA 19087, Adviser since 1982. Trustee, the Administrator since
(59) May 1996. President and Director, Value Investors
since June 1996.
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C>
Lee T. Cummings Treasurer, Chief Director of Mutual Fund Operations, the Adviser since
825 Duportail Road, Wayne, PA Financial 1996. Treasurer, the Administrator since May 1996.
19087, Officer, President, the Distributor since December 1998.
(36) Controller Investment Accounting Officer, Delaware Group of Funds,
1994-1996. Vice President, Fund/Plan Services, Inc.,
1992-1994
Matthew R. DiClemente Assistant Legal Assistant, the Adviser since 1998. Fund
825 Duportail Road, Wayne, Secretary Accountant, the Adviser, 1996-1998. Fund
PA 19087, Accountant, J.P. Morgan & Co., Inc., 1993-1996.
John M. Zerr Vice-President General Counsel and Secretary, the Adviser since
825 Duportail Road, Wayne, and Secretary November 1996. General Counsel and Secretary,
PA 19087, Value Investors since November 1996. General
(37) Counsel and Secretary, the Administrator since
January 1998. General Counsel and Secretary,
the Distributor since January 1998. Vice
President and Assistant Secretary, Delaware
Management Company, Inc. and the Delaware
Group of Funds, 1995-1996. Associate, Ballard
Spahr Andrews & Ingersoll (law firm), 1987-1995.
Meghan M. Mahon Vice-President Counsel, the Adviser since April 1998. Assistant Vice
825 Duportail Road, Wayne, and Assistant President, Assistant Secretary and Counsel, Delaware
PA 19087, Secretary Management Company Inc. and the Delaware Group of
(32) Funds, 1997-1998. Associate, Drinker Biddle & Reath,
LLP (law firm) 1994-1997. Associate, McAleese,
McGoldrick & Susanin (law firm) 1993-1994.
James R. Foggo Vice President Vice President and Assistant Secretary of the
One Freedom Valley Road and Assistant Sub-Administrator and the Distributor since
Oaks, PA 19456 Secretary 1998. Associate, Paul Weiss, Rifkind, Wharton
(36) & Garrison, 1998. Associate, Baker & McKenzie,
1995-1998. Associate, Battle Fowler L.L.P.,
1993-1995.
Timothy D. Barto
One Freedom Valley Road Oaks, PA
19456
Lynda J. Striegel Vice President Vice President and Assistant Secretary of SEI Fund
One Freedom Valley Road and Assistant Services and SEI Investments Distribution Co.
Oaks, PA 19456 Secretary since 1998. Senior Asset Management Counsel,
(50) Barnett Banks, Inc. 1997-1998. Partner, Groom
and Nordberg, Chartered 1996-1997. Associate
General Counsel, Riggs bank, N.A. 1991-1995.
</TABLE>
19
<PAGE>
Each current Director of the Company received the following compensation during
the fiscal year ended March 31, 2000:
<TABLE>
<CAPTION>
Pension or
Retirement Total
Aggregate Benefits Estimated Compensation
Compensation Accrued as Part Annual from Company
Name of Person, from of Company Benefits Upon and Company Complex
Position Company Expenses Retirement Paid to Directors
- --------------- ------------ --------------- ------------- -------------------
<S> <C> <C> <C> <C>
John R. Bartholdson, $40,000 N/A N/A $91,000
Director for services on three
boards
Harold J. Baxter, N/A N/A N/A N/A
Director*
Jettie M. Edwards, $40,000 N/A N/A $91,000
Director for services on three
boards
Albert A. Miller, $40,000 N/A N/A $91,00
Director for services on three
boards
</TABLE>
* Mr. Baxter is a Director who may be deemed to be an "interested person" of
the Company, as that term is defined in the 1940 Act, and consequently will
be receiving no compensation from the Company.
5% AND 25% SHAREHOLDERS
As of March 29, 2000, the following persons were the only persons who were
record owners (or to the knowledge of the Fund, beneficial owners) of 5% or more
of the shares of the Portfolio. Persons owning of record or beneficially 25% or
more of the outstanding share class of the Portfolio may be deemed to be a
controlling person of the Portfolio for purposes of the 1940 Act.
PBHG Core Growth Fund - PBHG Class
Charles Schwab & Co., Inc. 14.68%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 15.97%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Emerging Growth Fund - PBHG Class
20
<PAGE>
Charles Schwab & Co. Inc. 9.54%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 7.30%
P.O. Box 3908
Church Street Station
New York, New York 10008-3908
Fidelity Investments Institutional Operations Co. 10.58
100 Magellan Way
Covington, KY 41015
Putnam Fiduciary Trust Company 9.89%
P.O. Box 9740
Providence, RI 02940
Chase Manhattan Bank 7.40%
4 New York Plaza, Floor 2
New York, NY 10004
PBHG Growth Fund - PBHG Class
Charles Schwab & Co. Inc. 11.34%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 6.28%
P.O. 3908
Church Street Station
New York, New York 10008-3908
Fidelity Investments Institutional 12.40%
Operations Co.
100 Magellan Way
Covington, KY 41015-3987
Connecticut General Life Insurance 8.40%
350 Church Street
PO Box 2975
Hartford, CT 06104
PBHG Growth Fund - Advisor Class
21
<PAGE>
The Travelers Insurance Company 72.05%
ATTN: Roger Ferland
1 Tower Square
Hartford, CT 06183-9001
Wilmington Trust Company 12.40%
FBO Allied Waste 401(k) Plan
1100 N. Market Street
Wilmington, DE 19801-3029
Reliance Trust Co. TTEE 12.39%
General Cable Corp
FBO Retirement & Savings Plan
4 Tessennee Dr.
Highland Hights KY 41076
PBHG Large Cap Growth Fund - PBHG Class
Charles Schwab & Co. Inc. 24.43%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp 15.39%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Limited Fund - PBHG Class
Charles Schwab & Co., Inc. 8.73%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
PBHG Large Cap 20 Fund - PBHG Class
Charles Schwab & Co., Inc. 22.46%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 15.29%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
22
<PAGE>
PBHG Select Equity Fund - PBHG Class
Charles Schwab & Co. Inc. 26.01%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 26.98%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
National Investors Services Corp 6.86%
55 Water Street, 32nd Floor
New York, NY 10041
PBHG Large Cap Value Fund - PBHG Class
Charles Schwab & Co., Inc. 10.52%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104
National Financial Services Corp. 10.58%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Bryce Douglas Investment LP 12.25%
P.O. Box 672
Kimberton, PA 19442-0672
PBHG Mid-Cap Value - PBHG Class
National Financial Services Corp. 17.36%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Charles Schwab & Co, Inc. 35.48%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
23
<PAGE>
National Investor Services Corp. 7.37%
55 Water Street, 32nd Fl.
New York, NY 10041-3299
PBHG Small Cap Value - PBHG Class
National Financial Services Corp. 5.47%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Charles Schwab & Co., Inc. 21.76%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
The Northern Trust Co., Custodian 43.86%
FBO Arthur Andersen
P.O. Box 92956
Chicago, IL 60675-2956
PBHG Focused Value Fund- PBHG Class
FTC & Co. 20.12%
P.O. Box 173736
Denver, CO 80217
National Financial Services Corp. 10.94%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
UAM Investment Corporation 10.47%
PO Box 7048
Wilmington, DE 19803-0048
Charles Schwab & Co, Inc. 5.01%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Investor Services Corp. 5.63%
55 Water Street, 32nd Fl.
New York, NY 10041-3299
PBHG New Opportunities Fund - PBHG Class
24
<PAGE>
National Financial Services Corp. 14.99%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Charles Schwab & Co, Inc. 12.17%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Investor Services Corp. 8.11%
55 Water Street, 32nd Fl.
New York, NY 10041-3299
PBHG International Fund - PBHG Class
Charles Schwab & Co., Inc. 11.08%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 8.38%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Strategic Small Company Fund
Charles Schwab & Co., Inc. 14.64%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 24.41%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Technology & Communications Fund - PBHG Class
Charles Schwab & Co., Inc. 23.84%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
25
<PAGE>
National Financial Services Corp. 26.26%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Cash Reserves Fund - PBHG Class
Citicorp USA Inc. 6.52%
One Sansome St, 24th Floor
San Francisco, CA 94104
The Directors and Officers of the Fund collectively owned less than 1% of the
outstanding shares of each portfolio at July 15, 1999, except that the Directors
and Officers collectively owned 4.9% of the PBHG Cash Reserves Fund, and 1.24%
of the PBHG New Opportunities Fund, 5.47% of the PBHG Focused Value Fund, 1.86%
of the Small Cap Value Fund and 2.10% of the Large Cap Value Fund at March 28,
2000.
THE ADVISER
The Fund and Pilgrim Baxter & Associates, Ltd. have entered into an advisory
agreement with respect to the Portfolio (the "Advisory Agreement"). The Advisory
Agreement provides certain limitations on the Adviser's liability, but also
provides that the Adviser shall not be protected against any liability to the
Fund or the Portfolios or its shareholders by reason of willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard of its obligations or duties thereunder.
The sole shareholder of the Adviser is United Asset Management Corporation
("UAM"), a New York Stock Exchange listed holding company principally engaged,
through affiliated firms, in providing institutional investment management
services and acquiring institutional investment management firms. UAM's
corporate headquarters are located at One International Place, Boston,
Massachusetts 02110. PBHG Fund Services, the Fund's Administrator, is a wholly
owned subsidiary of the Adviser (See "The Administrator" for more detail on PBHG
Fund Services). PBHG Fund Services also serves as administrator to PBHG
Insurance Series Fund, Inc., an investment company also managed by the Adviser.
The Adviser currently has discretionary management authority with respect to
over $28 billion in assets. In addition to advising the Portfolio, the Adviser
provides advisory services to pension and profit-sharing plans, charitable
institutions, corporations, trusts and estates, and other investment companies.
The principal business address of the Adviser is 825 Duportail Road, Wayne,
Pennsylvania 19087.
The Advisory Agreement obligates the Adviser to: (i) provide a program of
continuous investment management for the Fund in accordance with the Fund's
investment objectives, policies and limitations; (ii) make investment decisions
for the Fund; and (iii) place orders to purchase and sell securities for the
Fund, subject to the supervision of the Board of Directors. The Advisory
Agreement also requires the Adviser to pay its overhead and employee costs and
the compensation and expenses of all its partners, officers and employees who
serve as officers and executive employees of the Fund. The Advisory Agreement
provides that the Adviser is not responsible for other expenses of operating the
Fund (See the Prospectuses for a description of expenses borne by the Fund).
From time to time, the Adviser or a company under common control with the
Adviser may make payments to broker-dealers for the promotion of the sale of
Fund shares or for their own company-sponsored sales programs.
26
<PAGE>
The continuance of the Advisory Agreement after the first two years must be
specifically approved at least annually (i) by the Fund's Board of Directors or
by vote of a majority of the Fund's outstanding voting securities and (ii) by
the affirmative vote of a majority of the directors who are not parties to the
agreement or interested persons of any such party by votes cast in person at a
meeting called for such purpose. The Advisory Agreement may be terminated (i) at
any time without penalty by the Fund upon the vote of a majority of the
directors or by vote of the majority of the Fund's outstanding voting securities
upon 60 days' written notice to the Adviser or (ii) by the Adviser at any time
without penalty upon 60 days' written notice to the Fund. The Advisory Agreement
will also terminate automatically in the event of its assignment (as defined in
the 1940 Act).
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of 1.50% of the Portfolio's average daily
net assets. The investment advisory fees paid by the Portfolio is higher than
those paid by most investment companies, although the Adviser believes the fees
to be comparable to those paid by investment companies with similar investment
objectives and policies.
In the interest of limiting the expenses of the Portfolio, the Adviser has
voluntarily entered into an expense limitation agreement with the Fund ("Expense
Limitation Agreement") pursuant to which the Adviser has agreed to waive or
limit a portion of its fee and to assume other expenses in an amount necessary
to limit total annual operating expenses to not more than 2.15% of the average
daily net assets of the Portfolio. Reimbursement by the Portfolio of the
advisory fees waived or limited and other expenses paid by the Adviser pursuant
to the Expense Limitation Agreement may be made at a later date when the
Portfolio has reached a sufficient asset size to permit reimbursement to be made
without causing the total annual expense rate of the Portfolio to exceed 2.15%.
Consequently, no reimbursement by the Portfolio will be made unless: (i) the
Portfolio's assets exceed $75 million; (ii) the Portfolio's total annual expense
ratio is less than 2.15%; and (iii) the payment of such reimbursement was
approved by the Board of Directors on a quarterly basis.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), One Freedom Valley Road,
Oaks, PA 19456, a wholly owned subsidiary of SEI, and the Fund are parties to a
distribution agreement (the "Distribution Agreement"). The Distributor does not
receive any compensation for the distribution services it provides with respect
to the Portfolio.
Under the Distribution Agreement, the Distributor is contractually required to
continuously distribute the securities of the Fund. The Distribution Agreement
is renewable annually. The Distribution Agreement may be terminated by the
Distributor, by a majority vote of the Directors who are not interested persons
and have no financial interest in the Distribution Agreement or by a majority
vote of the outstanding securities of the Fund upon not more than 60 days'
written notice by either party or upon assignment by the Distributor.
THE ADMINISTRATOR AND SUB-ADMINISTRATOR
The Fund and PBHG Fund Services (the "Administrator") entered into the
Administrative Services Agreement (the "Administrative Agreement") pursuant to
which the Administrator oversees the administration of the Fund's and the
Portfolio's business and affairs, including regulatory reporting and all
necessary office space, equipment, personnel and facilities, as well as services
performed by various third parties. The Administrator, a wholly-owned subsidiary
of the Adviser, was organized as a Pennsylvania business trust and has its
principal place of
27
<PAGE>
business at 825 Duportail Road, Wayne, Pennsylvania 19087. The Administrator is
entitled to a fee from the Fund, which is calculated daily and paid monthly at
an annual rate of 0.15% of the average daily net assets of the Portfolio. The
Administrative Agreement provides that the Administrator shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which the Administrative Agreement relates,
except a loss resulting from willful misfeasance, bad faith or negligence on the
part of the Administrator in the performance of its duties. The Administrative
Agreement shall remain in effect until December 31, 2000, and shall thereafter
continue in successive periods of one year, unless terminated by either party
upon not less than 90 days' prior written notice to the other party.
The Fund, the Administrator and SEI Fund Resources (the "Sub-Administrator")
entered into the Sub-Administrative Services Agreement on pursuant to which the
Sub-Administrator assists the Administrator in connection with the
administration of the business and affairs of the Fund. The Sub-Administrator is
an indirect wholly-owned subsidiary of SEI Investments Company ("SEI"). The
Sub-Administrator was organized as a Delaware business trust, and has its
principal business offices at One Freedom Valley Road, Oaks, Pennsylvania 19456.
The Sub-Administrative Services Agreement provides that the Sub-Administrator
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which the
Sub-Administrative Agreement relates, except a loss resulting from willful
misfeasance, bad faith or negligence on the part of the Sub-Administrator in the
performance of its duties. The Sub-Administrative Agreement shall remain in
effect until December 31, 2000, and shall continue in successive periods of one
year, unless terminated by either party upon not less than 90 days' prior
written notice to the other party.
Under the Sub-Administrative Services Agreement, the Administrator pays the
Sub-Administrator fees at an annual rate based on the combined average daily net
assets of the Fund and PBHG Insurance Series Fund, Inc., calculated as follows:
(i) 0.040% of the first $2.5 billion, plus (ii) 0.025% of the next $7.5 billion,
plus (iii) 0.020% of the excess over $10 billion.
OTHER SERVICE PROVIDERS
The Transfer Agent and Shareholder Servicing Agents
DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri 64141-6534 serves as
the transfer agent and dividend disbursing agent for the Fund under a transfer
agency agreement with the Fund. The Administrator serves as shareholder
servicing agent for the Fund under a shareholder servicing agreement with the
Fund. UAM Shareholder Service Center, Inc. ("UAM SSC"), an affiliate of the
Adviser, serves as sub-shareholder servicing agent for the Fund under a
sub-shareholder servicing agreement between UAM SSC and the Administrator. The
principal place of business of UAM SSC is 825 Duportail Road, Wayne,
Pennsylvania 19087. The Administrator also provides development and maintenance
services for the Fund's web site, pursuant to a Web-Services Agreement. From
time to time, the Fund may pay amounts to third parties that provide
sub-transfer agency and other administrative services relating to the Fund to
persons who beneficially own interests in the Fund, such as participants in
401(k) plans. These services may include, among other things, sub-accounting
services, answering inquiries relating to the Fund, delivering, on behalf of the
Fund, proxy statements, annual reports, updated Prospectuses, other
communications regarding the Fund, and related services as the Fund or the
beneficial owners may reasonably request. In such cases, the Fund will not
compensate such third parties at a rate that is greater than the rate the Fund
is currently paying the Fund's Transfer Agent for providing these services to
shareholders investing directly in the Fund.
Custodians
28
<PAGE>
The Northern Trust Company (the "Custodian"), 50 South LaSalle Street, Chicago,
Illinois 60675, serves as the custodian for the Portfolio. The Custodian holds
cash, securities and other assets of the Portfolio as required by the 1940 Act.
Counsel and Independent Accountants
Ballard Spahr Andrews & Ingersoll, LLP serves as counsel to the Fund.
________________ serves as the independent accountants of the Fund.
PORTFOLIO TRANSACTIONS
The Adviser is authorized to select brokers and dealers to effect securities
transactions for the Portfolio. The Adviser will seek to obtain the most
favorable net results by taking into account various factors, including price,
commission, if any, size of the transactions and difficulty of executions, the
firm's general execution and operational facilities and the firm's risk in
positioning the securities involved. While the Adviser generally seeks
reasonably competitive spreads or commissions, the Fund will not necessarily be
paying the lowest spread or commission available. The Adviser seeks to select
brokers or dealers that offer the Portfolio best price and execution or other
services which are of benefit to the Portfolio. Certain brokers or dealers
assist their clients in the purchase of shares from the Distributor and charge a
fee for this service in addition to the Portfolio's public offering price. In
the case of securities traded in the over-the-counter market, the Adviser expect
normally to seek to select primary market makers.
The Adviser may, consistent with the interests of the Portfolio, select brokers
on the basis of the research services they provide to the Adviser. Such services
may include analyses of the business or prospects of a company, industry or
economic sector, or statistical and pricing services. Information so received by
the Adviser will be in addition to and not in lieu of the services required to
be performed by the Adviser under the Advisory Agreement. If, in the judgment of
the Adviser, the Portfolio or other accounts managed by the Adviser will be
benefited by supplemental research services, the Adviser is authorized to pay
brokerage commissions to a broker furnishing such services which are in excess
of commissions which another broker may have charged for effecting the same
transaction. These research services include advice, either directly or through
publications or writings, as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing of analyses and
reports concerning issuers, securities or industries; providing information on
economic factors and trends; assisting in determining portfolio strategy;
providing computer software used in security analyses; and providing portfolio
performance evaluation and technical market analyses. The expenses of the
Adviser will not necessarily be reduced as a result of the receipt of such
information, and such services may not be used exclusively, or at all, with
respect to the Portfolio or account generating the brokerage, and there can be
no guarantee that the Adviser will find all of such services of value in
advising the Portfolio.
It is expected that the Portfolio may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934,
as amended, and rules promulgated by the SEC. Under these provisions, the
Distributor is permitted to receive and retain compensation for effecting
portfolio transactions for the Portfolio on an exchange if a written contract is
in effect between the Distributor and the Portfolio expressly permitting the
Distributor to receive and retain such compensation. These rules further require
that commissions paid to the Distributor by the Portfolio for exchange
transactions not exceed "usual and customary" brokerage
29
<PAGE>
commissions. The rules define "usual and customary" commissions to include
amounts which are "reasonable and fair compared to the commission, fee or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
a securities exchange during a comparable period of time." In addition, the
Adviser may direct commission business to one or more designated broker-dealers,
including the Distributor, in connection with such broker-dealer's payment of
certain of the Portfolio's or the Fund's expenses. In addition, the Adviser may
place orders for the purchase or sale of Portfolio securities with qualified
broker-dealers that refer prospective shareholders to the Portfolio. The
Directors, including those who are not "interested persons" of the Fund, have
adopted procedures for evaluating the reasonableness of commissions paid to the
Distributor and will review these procedures periodically.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD") and subject to seeking best execution and such other
policies as the Board of Directors may determine, the Adviser may consider sales
of the Portfolio's shares as a factor in the selection of broker-dealers to
execute portfolio transactions for the Portfolio.
The Fund's Board of Directors has adopted a Code of Ethics governing personal
trading by persons who manage, or who have access to trading activity by the
Portfolio. The Code of Ethics allows trades to be made in securities that may be
held by the Portfolio, however, it prohibits a person from taking advantage of
Portfolio trades or from acting on inside information. In addition, the Fund's
Board of Directors reviews and approves the codes of ethics of the Adviser and
Distributor and any material amendments thereto. The Board also reviews annually
reports on issues raised under the Adviser and Distributor's codes of ethics
during the previous year.
DESCRIPTION OF SHARES
The Fund may increase the number of shares which the Portfolio is authorized to
issue and may create additional portfolios of the Fund. Each share of the
Portfolio represents an equal proportionate interest in the Portfolio with each
other share. Shares are entitled upon liquidation to a pro rata share in the net
assets of the Portfolio available for distribution to shareholders. Shareholders
have no preemptive rights. All consideration received by the Fund for shares of
the Portfolio and all assets in which such consideration is invested would
belong to the Portfolio and would be subject to the liabilities related thereto.
Voting Rights
Each share held entitles the shareholder of record to one vote. Shareholders of
the Portfolio will vote separately on matters relating solely to it, such as
approval of advisory agreements and changes in fundamental policies, and matters
affecting some but not all portfolios of the Fund will be voted on only by
shareholders of the affected series. Shareholders of all series of the Fund will
vote together in matters affecting the Fund generally, such as the election of
Directors or selection of independent accountants. Shareholders of the PBHG
Class of the Fund will vote separately on matters relating solely to the PBHG
Class and not on matters relating solely to the Advisor Class of the Fund. As a
Maryland corporation, the Fund is not required to hold annual meetings of
shareholders but shareholder approval will be sought for certain changes in the
operation of the Fund and for the election of directors under certain
circumstances. In addition, a director may be removed by the remaining directors
or by shareholders at a special meeting called upon written request of
shareholders owning at least 10% of the outstanding shares of the Fund. In the
event that such a meeting is requested, the Fund will provide appropriate
assistance and information to the shareholders requesting the meeting.
30
<PAGE>
PURCHASES AND REDEMPTIONS OF SHARES
Purchases and redemptions may be made on any day on which the New York Stock
Exchange is open for business. Currently, the following holidays are observed by
the Fund: New Year's Day, Presidents' Day, Martin Luther King, Jr.'s Birthday,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Shares of the Portfolio are offered on a continuous basis.
Purchases
You may purchase shares of the Portfolio directly through DST Systems, Inc., the
Fund's Transfer Agent. Shares of the Portfolio are offered only to residents of
states in which such shares are eligible for purchase.
You may place orders by mail, wire or telephone. If market conditions are
extraordinarily active, or if severe weather or other emergencies exist, and you
experience difficulties placing orders by telephone, you may wish to consider
placing your order by other means, such as mail or overnight delivery.
You may also purchase shares of the Portfolio through certain broker-dealers or
other financial institutions that are authorized to sell you shares of the
Portfolios. Such financial institutions may charge you a fee for this service in
addition to the Portfolio's public offering price.
Neither the Fund nor the Transfer Agent will be responsible for any loss,
liability, cost or expenses for acting upon wire instructions, or telephone
instructions that it reasonably believes to be genuine. The Fund and the
Transfer Agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine including requiring a form of
personal identification prior to acting upon instructions received by telephone
and recording telephone instructions.
The Portfolio reserves the right to reject any purchase order or to suspend or
modify the continuous offering of its shares. For example, the investment
opportunities for small or medium capitalization companies may from time to time
be more limited than those in other sectors of the stock market. Therefore, in
order to retain adequate investment flexibility, the Adviser may from time to
time recommend to the Board of Directors of the Fund that the Portfolio, to the
extent it invests extensively in such companies, indefinitely discontinue the
sale of its shares to new investors (other than directors, officers and
employees of the Adviser and its affiliated companies). In such event, the Board
of Directors would determine whether such discontinuance is in the best
interests of the Portfolio and its shareholders.
Minimum Investment
The minimum initial investment in the Portfolio is $2,500 for regular accounts
and $2,000 for traditional or Roth IRAs. However, investors who establish a
Systematic Investment Plan, as described below, with a minimum investment of $25
per month may at the same time open a regular account or traditional or Roth IRA
with any Portfolio with a minimum initial investment of $500. There is no
minimum for subsequent investments. The Distributor may waive the minimum
initial investment amount at its discretion. No minimum applies to subsequent
purchases effected by dividend reinvestment. As described below, subsequent
purchases through the Fund's Systematic Investment Plan must be at least $25.
Initial Purchase by Mail
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An account may be opened by mailing a check or other negotiable bank draft
payable to The PBHG Funds, Inc. for at least the minimum initial amount
specified above for regular and IRA accounts, and a completed Account
Application to The PBHG Funds, Inc. c/o DST Systems, Inc., P.O. Box 419534,
Kansas City, Missouri 64141-6534. The Fund will not accept third-party checks,
i.e., a check not payable to The PBHG Funds, Inc. or the Portfolio for initial
or subsequent investments.
Additional Purchases By Phone (Telephone Purchase)
You may purchase additional shares by telephoning the Transfer Agent at
1-800-433-0051. The minimum telephone purchase is $1,000, and the maximum is
five times the net asset value of shares held by the shareholder on the day
preceding such telephone purchase for which payment has been received. The
telephone purchase will be made at the offering price next computed after the
receipt of the call by the Transfer Agent. Payment for the telephone purchase
must be received by the Transfer Agent within seven days. If payment is not
received within seven days, you will be liable for all losses incurred by the
Fund as a result of the cancellation of such purchase.
Initial Purchase By Wire
If you have an account with a commercial bank that is a member of the Federal
Reserve System, you may purchase shares of the Portfolio by requesting your bank
to transmit funds by wire. Before making an initial investment by wire, you must
first telephone 1-800-433-0051 to receive an Account Application and be assigned
an account number. The Account Application must be received prior to receipt of
the wire. Your name, account number, taxpayer identification number or Social
Security Number, and address must be specified in the wire. All wires must be
received by 4:00 p.m. Eastern time to be effective on that day. In addition, an
original Account Application should be promptly forwarded to: The PBHG Funds,
Inc. c/o DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri 64141-6534.
All wires must be sent as follows: United Missouri Bank of Kansas City, N.A.;
ABA #10-10-00695; for Account Number 98705-23469; Further Credit: [name of
Portfolio and your assigned account number].
Additional Purchases by Wire
Additional investments may be made at any time through the wire procedures
described above, which must include your name and account number. Your bank may
impose a fee for investments by wire.
Purchase by ACH
If you have made this election, shares of the Portfolio may be purchased via
Automated Clearing House ("ACH"). Investors purchasing via ACH should complete
the bank information section on the Account Application and attach a voided
check or deposit slip to the Account Application. This option must be
established on your account at least 15 days prior to your initiating an ACH
transaction. The maximum purchase allowed through ACH is $100,000.
General Information Regarding Purchases
A purchase order will be effective as of the day received by the Transfer Agent
if the Transfer Agent receives sufficient information to execute the order and
receives payment before 4:00 p.m. Eastern time. Payment may be made by check or
readily available funds. The purchase price of shares of the Portfolio is the
net asset value per
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share next determined after a purchase order is effective. Purchases will be
made in full and fractional shares of the Portfolio calculated to three decimal
places. The Fund will not issue certificates representing shares of the
Portfolio.
In order for your purchase order to be effective on the day you place your order
with your broker-dealer or other financial institution, such broker-dealer or
financial institution must (i) receive your order before 4:00 p.m. Eastern time
and (ii) promptly transmit the order to the Transfer Agent. See "Determination
of Net Asset Value" below. The broker-dealer or financial institution is
responsible for promptly transmitting purchase orders to the Transfer Agent so
that you may receive the same day's net asset value.
If a check received for the purchase of shares does not clear, the purchase will
be canceled, and you could be liable for any losses or fees incurred by the
Fund. The Fund reserves the right to reject a purchase order when the Fund
determines that it is not in the best interests of the Fund or its shareholders
to accept such an order.
Redemptions
Redemption orders received by the Transfer Agent prior to 4:00 p.m. Eastern time
for the Portfolio on any Business Day will be effective that day. The redemption
price of shares is the net asset value per share of the Portfolio next
determined after the redemption order is effective. Payment of redemption
proceeds will be made as promptly as possible and, in any event, within seven
days after the redemption order is received, provided, however, that redemption
proceeds for shares purchased by check (including certified or cashier's checks)
or by ACH will be forwarded only upon collection of payment for such shares;
collection of payment may take up to 15 days.
You may also redeem shares of the Portfolio through certain broker-dealers and
other financial institutions at which you maintain an account. Such financial
institutions may charge you a fee for this service.
In order for your redemption order to be effective on the day you place your
redemption order with your broker-dealer or other financial institution, such
broker-dealer or financial institution must (i) receive your order before 4:00
p.m. Eastern time for the Portfolio and (ii) promptly transmit the order to the
Transfer Agent. See "Determination of Net Asset Value" below. The financial
institution is responsible for promptly transmitting redemption orders to the
Transfer Agent so that your shares are redeemed at the same day's net asset
value per share.
It is currently the Fund's policy to pay all redemptions in cash. The Fund
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Portfolios
in lieu of cash. The Portfolio has made an election pursuant to Rule 18f-1 under
the 1940 Act by which the Portfolio has committed itself to pay in cash all
requests for redemption by any shareholder of record, limited in amount with
respect to each shareholder during any 90-day period to the lesser of (1)
$250,000 or (2) one percent of the net asset value of the Portfolio at the
beginning of such 90-day period. Shareholders may incur brokerage charges on the
sale of any such securities so received in payment of redemptions. In addition,
in-kind distributions may include illiquid securities which shareholders may be
unable to dispose of at the time or price desired.
The Fund reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of the Portfolio's securities is not reasonably
practicable, or for such other periods as the SEC has by
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order permitted. The Fund also reserves the right to suspend sales of shares of
the Portfolio for any period during which the New York Stock Exchange, the
Adviser, the Administrator, Sub-Administrator, the Transfer Agent and/or the
Custodian are not open for business.
You may receive redemption payments in the form of a check or by Federal Reserve
wire or ACH transfer.
By Mail
There is no charge for having a check for redemption proceeds mailed to you.
By Telephone
Redemption orders may be placed by telephone, provided that this option has been
selected. Shares held in IRA accounts are not eligible for this option and must
be redeemed by written request. Neither the Fund nor the Transfer Agent will be
responsible for any loss, liability, cost or expense for acting upon wire
instructions or upon telephone instructions that it reasonably believes to be
genuine. The Fund and the Transfer Agent will each employ reasonable procedures
to confirm that instructions communicated by telephone are genuine, including
requiring a form of personal identification prior to acting upon instructions
received by telephone and recording telephone instructions. If reasonable
procedures are not employed, the Fund and the Transfer Agent may be liable for
any losses due to unauthorized or fraudulent telephone transactions.
If market conditions are extraordinarily active, or other extraordinary
circumstances exist and you experience difficulties placing redemption orders by
telephone, you may wish to consider placing your order by other means, such as
mail or overnight delivery. The Fund will not accept redemption requests for an
amount greater than $50,000 by telephone instruction, except for cases where the
proceeds of the redemption request are transmitted by Federal wire to a
pre-established checking account. Such redemption requests must be received in
writing and be signature guaranteed.
By Wire
The Transfer Agent will deduct a wire charge, currently $10.00, from the amount
of a Federal Reserve wire redemption payment made at the request of a
shareholder. Shareholders cannot receive proceeds from redemptions of shares of
the Portfolio by Federal Reserve wire on federal holidays restricting wire
transfers.
By ACH
The Fund does not charge for ACH transactions; however, proceeds from such
transactions will not be posted to your bank account until the second Business
Day following the transaction. In order to process a redemption by ACH, banking
information must be established on your account at least 15 days prior to
initiating a transaction. A voided check or deposit slip must accompany requests
to establish this option.
Signature Guarantees
A signature guarantee is a widely accepted way to protect you by verifying the
signature on certain redemption requests. The Fund requires signature guarantees
to be provided in the following circumstances: (1) written requests for
redemptions in excess of $50,000; (2) all written requests to wire redemption
proceeds; (3)
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redemption requests that provide that the redemption proceeds should be sent to
an address other than the address of record or to a person other than the
registered shareholder(s) for the account; and (4) redemptions requesting
proceeds to be sent to a new address or an address that has been changed within
the past 30 days; (5) requests to transfer the registration of shares to another
owner; (6) written requests to add telephone exchange and telephone redemption
options to an account; and (7) changes in previously designated wiring
instructions. These requirements may be waived or modified upon notice of
shareholders. Signature guarantees can be obtained from any of the following
institutions: a national or state bank, a trust company, a federal savings and
loan association, or a broker-dealer that is a member of a national securities
exchange. The Fund does not accept guarantees from notaries public or
organizations that do not provide reimbursement in the case of fraud.
Shareholder Inquiries and Services Offered
If you have any questions about the Portfolio or the shareholder services
described below, please call the Fund at 1-800-433-0051. Written inquiries
should be sent to DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri
64141-6534. The Fund reserves the right to amend the shareholder services
described below or to change the terms or conditions relating to such services
upon 60 days' notice to shareholders. You may, however, discontinue any service
you select, provided that with respect to the Systematic Investment and
Systematic Withdrawal Plans described below, the Fund's Transfer Agent receives
your notification to discontinue such service(s) at least ten (10) days before
the next scheduled investment or withdrawal date.
Systematic Investment and Systematic Withdrawal Plans
For your convenience, the Fund provides plans that enable you to add to your
investment or withdraw from your account(s) with a minimum of paperwork. You can
utilize these plans by simply completing the appropriate section of the Account
Application.
(1) Systematic Investment Plan. The Systematic Investment Plan is a convenient
way for you to purchase shares in the Portfolio at regular monthly or quarterly
intervals selected by you. The Systematic Investment Plan enables you to achieve
dollar-cost averaging with respect to investments in the Portfolio despite its
fluctuating net asset value through regular purchases of a fixed dollar amount
of shares in the Portfolio. Dollar-cost averaging brings discipline to your
investing. Dollar-cost averaging results in more shares being purchased when the
Portfolio's net asset value is relatively low and fewer shares being purchased
when the Portfolio's net asset value is relatively high, thereby helping to
decrease the average price of your shares. Investors who establish a Systematic
Investment Plan may open an account with a minimum balance of $500. Through the
Systematic Investment Plan, shares are purchased by transferring monies (minimum
of $25 per transaction per Portfolio) from your designated checking or savings
account. Your systematic investment in the Portfolio designated by you will be
processed on a regular basis at your option beginning on or about either the
first or fifteenth day of the month or quarter you select. This Systematic
Investment Plan must be established on your account at least 15 days prior to
the intended date of your first systematic investment.
(2) Systematic Withdrawal Plan. The Systematic Withdrawal Plan provides a
convenient way for you to receive current income while maintaining your
investments in the Portfolio. The Systematic Withdrawal Plan permits you to have
payments of $50 or more automatically transferred from your account(s) in the
Portfolio to your designated checking or savings account on a monthly,
quarterly, or semi-annual basis. The Systematic Withdrawal Plan also provides
the option of having a check mailed to the address of record for your account.
In order to start this Plan, you must have a minimum balance of $5,000 in any
account using this feature. Your systematic withdrawals will be processed on a
regular basis beginning on or about either the first or fifteenth day of the
month, quarter or semi-annual period you select.
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Exchange Privileges
Once payment for your shares has been received (i.e., an account has been
established) and your payment has been converted to Federal funds, you may
exchange some or all of your shares for shares of the other portfolios of the
Fund currently available to the public. However, you are limited to four (4)
exchanges annually from the Portfolio to the PBHG Cash Reserves Fund. Exchanges
are made at net asset value. The Fund reserves the right to change the terms and
conditions of the exchange privilege discussed herein, or to terminate the
exchange privilege, upon sixty (60) days' notice. Exchanges will be made only
after proper instructions in writing or by telephone are received for an
established account by the Transfer Agent.
The exchange privilege may be exercised only in those states where the shares of
the Portfolio may legally be sold.
Tax-Sheltered Retirement Plans
A variety of retirement plans, including IRAs, SEP-IRAs, 401(a) Keogh and
corporate money purchase pension and profit sharing plans, and 401(k) and 403(b)
plans are available to investors in the Fund.
(1) Traditional IRAs. You may save for your retirement and shelter your
investment income from current taxes by either: (a) establishing a new
traditional IRA; or (b) "rolling-over" to the Fund monies from other IRAs or
lump sum distributions from a qualified retirement plan. If you are between 18
and 70 1/2 years of age, you can use a traditional IRA to invest up to $2,000
per year of your earned income in the Portfolio. You may also invest up to
$2,000 per year in a spousal IRA if your spouse has no earned income. There is a
$10.00 annual maintenance fee charged to traditional IRA investors. If you
maintain IRA accounts in more than one portfolio of the Fund, you will only be
charged one fee. This fee can be prepaid or will be debited from your account if
not received by the announced deadline.
(2) Roth IRAs. Roth IRAs are similar to traditional IRAs in many respects and
provide a unique opportunity for qualifying individuals to accumulate investment
earnings tax-free. Contributions to Roth IRAs are not tax-deductible (while
contributions to traditional IRAs may be), however, if you meet the distribution
requirements, you can withdraw your investments without paying any taxes on the
earnings. In addition to establishing a new Roth IRA, you may be eligible to
convert a traditional IRA into a Roth IRA. Maintenance fees charged for Roth
IRAs are similar to those for traditional IRAs.
(3) SEP-IRAs. If you are a self-employed person, you can establish a Simplified
Employee Pension Plan ("SEP-IRA"). A SEP-IRA is designed to provide persons with
self-employed income (and their eligible employees) with many of the same tax
advantages as a Keogh, but with fewer administrative requirements.
(4) 401(a) Keogh and Corporate Retirement Plans. Both a prototype money purchase
pension plan and a profit sharing plan, which may be used alone or in
combination, are available for self-employed individuals and their partners and
corporations to provide tax-sheltered retirement benefits for individuals and
employees.
(5) 401(k) Plans. Through the establishment of a 401(k) plan by a corporation of
any size, employees can invest a portion of their wages in the Portfolio on a
tax-deferred basis in order to help them meet their retirement needs.
(6) 403(b) Plans. Section 403(b) plans are custodial accounts which are
available to employees of most
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non-profit organizations and public schools.
Other Special Accounts
The Fund also offers the following special accounts to meet your needs:
(1) Education IRAs. Education IRAs allow you to save for qualified higher
education expenses of designated beneficiaries. Like traditional and Roth IRAs,
Education IRAs provide an opportunity for your investment to grow tax-free until
distributed. Contributions to an Education IRA are not tax deductible, however,
distributions from an Education IRA which are used to pay qualified higher
education expenses are tax-free. You may contribute up to $500 per year for the
benefit of each prospective student under the age of 18. There is a $7.00 annual
maintenance fee charged to Education IRA accounts. The fee can be prepaid or
will be deducted from your account if not received by the announced deadline.
(2) Uniform Gift to Minors/Uniform Transfers to Minors. By establishing a
Uniform Gift to Minors Account/Uniform Transfers to Minors Account with the Fund
you can build a fund for your children's education or a nest egg for their
future and, at the same time, potentially reduce your own income taxes.
(3) Custodial and Fiduciary Accounts. The Fund provides a convenient means of
establishing custodial and fiduciary accounts for investors with fiduciary
responsibilities.
For further information regarding any of the above retirement plans and
accounts, please call toll free at 1-800-433-0051. Retirement investors may,
however, wish to consult with their own tax counsel or adviser.
Minimum Account Size
Due to the relatively high cost of maintaining smaller accounts, the Fund will
impose an annual $15.00 minimum account charge and reserves the right to redeem
shares in any non-retirement account if, as the result of redemptions, the value
of any account drops below the minimum initial investment amount, specified
above, for the Portfolio. See "Minimum Investment" and "Systematic Investment
and Systematic Withdrawal Plans" for minimum investments. You will be allowed at
least 60 days, after notice from the Fund, to make an additional investment to
bring your account value up to at least the applicable minimum account size
before the annual $12.00 minimum account fee is charged and/or the redemption of
a non-retirement account is processed. The applicable minimum account charge
will be imposed annually on any such account until the account is brought up to
the applicable minimum account size.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Portfolio, is determined by dividing the
total market value of the Portfolio's investments and other assets, less any
liabilities, by the total outstanding shares of the Portfolio. Net asset value
per share is determined daily, normally as of the close of trading on the New
York Stock Exchange (normally 4:00 p.m. Eastern time) on any Business Day. The
net asset value per share of the Portfolio, is listed under PBHG in the mutual
fund section of most major daily newspapers, including The Wall Street Journal.
The securities of the Portfolio are valued by the Sub-Administrator. The
Sub-Administrator will use an independent pricing service to obtain valuations
of securities. The pricing service relies primarily on prices of actual market
transactions as well as trade quotations. The procedures of the pricing service
and its valuations
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are reviewed by the officers of the Fund under the general supervision of the
Directors.
Portfolio securities listed on an exchange or quoted on a national market system
are valued at the last sales price. Other securities are quoted at the last bid
price. In the event a listed security is traded on more than one exchange, it is
valued at the last sale price on the exchange on which it is principally traded.
If there are no transactions in a security during the day, it is valued at the
most recent bid price. However, debt securities (other than short-term
obligations), including listed issues, are valued on the basis of valuations
furnished by a pricing service which utilizes electronic data processing
techniques to determine valuations for normal institutional size trading units
of debt securities, without exclusive reliance upon exchange or over-the-counter
prices. Short-term obligations are valued at amortized cost. Securities for
which market quotations are not readily available and other assets held by the
Fund, if any, are valued at their fair value as determined in good faith by the
Board of Directors.
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 of Directors believes accurately reflects fair value.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of the Portfolio
or its shareholders. Accordingly, you are urged to consult your tax advisors
regarding specific questions as to federal, state and local income taxes.
Federal Income Tax
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated herein.
Qualification as a Regulated Investment Company
The Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Fund's other portfolios. The Portfolio intends to
qualify as a "regulated investment company" ("RIC") as defined under Subchapter
M of the Code. In order to qualify for treatment as a RIC under the Code, the
Portfolio must distribute annually to its shareholders at least the sum of 90%
of its net interest income excludable from gross income plus 90% of its
investment company taxable income (generally, net investment income plus net
short-term capital gain) ("Distribution Requirement"). In addition to the
Distribution Requirement, the Portfolio must meet several other requirements.
Among these requirements are the following: (i) the Portfolio must derive at
least 90% of its gross income in each taxable year from dividends, interest,
certain payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies and other income
(including but not limited to gains from options, futures or forward contracts
derived with respect to the
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Portfolio's business of investing in such stock, securities or currencies) (the
"Income Requirement"); (ii) at the close of each quarter of the Portfolio's
taxable year, at least 50% of the value of its total assets must be represented
by cash and cash items, U.S. Government securities, securities of other RICs and
securities of other issuers, with such securities of other issuers limited, in
respect to any one issuer, to an amount that does not exceed 5% of the value of
the Portfolio's assets and that does not represent more than 10% of the
outstanding voting securities of such issuer; and (iii) no more than 25% of the
value of the Portfolio's total assets may be invested in the securities of any
one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which the Portfolio
controls and which are engaged in the same or similar trades or businesses (the
"Asset Diversification Test").
For purposes of the Asset Diversification Test, it is unclear under present law
who should be treated as the issuer of forward foreign currency exchange
contracts, of options on foreign currencies, or of foreign currency futures and
related options. It has been suggested that the issuer in each case may be the
foreign central bank or foreign government backing the particular currency.
Consequently, the Portfolio may find it necessary to seek a ruling from the
Internal Revenue Service on this issue or to curtail its trading in forward
foreign currency exchange contracts in order to stay within the limits of the
Asset Diversification Test.
For purposes of the Income Requirement, foreign currency gains (including gains
from options, futures or forward contracts on foreign currencies) that are not
"directly related" to the Portfolio's principal business may, under regulations
not yet issued, be excluded from qualifying income.
If the Portfolio fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates on its net investment income and net capital
gain without any deductions for amounts distributed to shareholders. In such an
event, all distributions (including capital gains distributions) will be taxable
as ordinary dividends to the extent of the Portfolio's current and accumulated
earnings and profits and such distributions will generally be eligible for the
corporate dividends-received deduction.
Portfolio Distributions
Notwithstanding the Distribution Requirement described above, which requires
only that the Portfolio distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), the
Portfolio will be subject to a nondeductible 4% federal excise tax to the extent
it fails to distribute by the end of any calendar year 98% of its ordinary
income for that year and 98% of its capital gain net income (the excess of
short- and long-term capital gains over short- and long-term capital losses) for
the one-year period ending on October 31 of that calendar year, plus certain
other amounts. The Portfolio intends to make sufficient distributions prior to
the end of each calendar year to avoid liability for the federal excise tax.
Treasury regulations permit a RIC in determining its investment company taxable
income and undistributed net capital gain for any taxable year to elect to treat
all or part of any net capital loss, any net long-term capital loss, or any net
foreign currency loss incurred after October 31 as if it had been incurred in
the succeeding year.
The Portfolio will distribute all of its net investment income (including, for
this purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Dividends from net investment income
will qualify for the dividends-received deduction for corporate shareholders
only to the extent such distributions are derived from dividends paid by
domestic corporations. It can be expected that only certain dividends of the
Portfolio will qualify for that deduction. Any net capital gains will be
distributed annually and will be taxed to shareholders as
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long-term capital gains, regardless of how long the shareholder has held shares
and regardless of whether the distributions are received in cash or in
additional shares. The Portfolio will make annual reports to shareholders of the
federal income tax status of all distributions, including the amount of
dividends eligible for the dividends-received deduction.
Certain securities purchased by the Portfolio are sold with original issue
discount and thus do not make periodic cash interest payments. The Portfolio
will be required to include as part of its current net investment income the
accrued discount on such obligations for purposes of the distribution
requirement even though the Portfolio has not received any interest payments on
such obligations during that period. Because the Portfolio distributes all of
its net investment income to its shareholders, the Portfolio may have to sell
portfolio securities to distribute such accrued income, which may occur at a
time when the Adviser would not have chosen to sell such securities and which
may result in a taxable gain or loss.
Income received on direct U.S. obligations is exempt from income tax at the
state level when received directly by the Portfolio and may be exempt, depending
on the state, when received by a shareholder as income dividends from the
Portfolio provided certain state-specific conditions are satisfied. Not all
states permit such income dividends to be tax exempt and some require that a
certain minimum percentage of an investment company's income be derived from
state tax-exempt interest. The Portfolio will inform shareholders annually of
the percentage of income and distributions derived from direct U.S. obligations.
You should consult your tax advisor to determine whether any portion of the
income dividends received from the Portfolio is considered tax exempt in your
particular state.
Dividends declared by the Portfolio in October, November or December of any year
and payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Portfolio and received by the shareholders on
December 31 of that year, if paid by the Portfolio at any time during the
following January.
Withholding
In certain cases, the Portfolio will be required to withhold, and remit to the
U.S. Treasury, 31% of any distributions paid to a shareholder who (i) has failed
to provide a correct taxpayer identification number, (ii) is subject to backup
withholding by the Internal Revenue Service, or (iii) has not certified to the
Portfolio that such shareholder is not subject to backup withholding.
Redemption or Exchange of Shares
Upon a redemption or exchange of shares, a shareholder will recognize a taxable
gain or loss depending upon his or her basis in the shares. Unless the shares
are disposed of as part of a conversion transaction, such gain or loss will be
treated as capital gain or loss if the shares are capital assets in the
shareholder's hands and will be long-term or short-term, depending upon the
shareholder's holding period for the shares. Any loss recognized by a
shareholder on the sale of Portfolio shares held six months or less will be
treated as a long-term capital loss to the extent of any distributions of net
capital gains received by the shareholder with respect to such shares.
Any loss recognized on a sale or exchange will be disallowed to the extent that
Portfolio shares are sold and replaced within the 61-day period beginning 30
days before and ending 30 days after the disposition of such shares. In such a
case, the basis of the shares acquired will be increased to reflect the
disallowed loss. Shareholders should particularly note that this loss
disallowance rule applies even where shares are automatically replaced under the
dividend reinvestment plan.
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Investment in Foreign Financial Instruments.
Under Code Section 988, gains or losses from certain foreign currency forward
contracts or fluctuations in currency exchange rates will generally be treated
as ordinary income or loss. Such Code Section 988 gains or losses will increase
or decrease the amount of the Portfolio's investment company taxable income
available to be distributed to shareholders as ordinary income, rather than
increasing or decreasing the amount of the Portfolio's net capital gains.
Additionally, if Code Section 988 losses exceed other investment company taxable
income during a taxable year, the Portfolio would not be able to pay any
ordinary income dividends, and any such dividends paid before the losses were
realized, but in the same taxable year, would be recharacterized as a return of
capital to shareholders, thereby reducing the tax basis of Portfolio shares.
Hedging Transactions
Some of the forward foreign currency exchange contracts, options and futures
contracts that the Portfolio may enter into will be subject to special tax
treatment as "Section 1256 contracts." Section 1256 contracts are treated as if
they are sold for their fair market value on the last business day of the
taxable year, regardless of whether a taxpayer's obligations (or rights) under
such contracts have terminated (by delivery, exercise, entering into a closing
transaction or otherwise) as of such date. Any gain or loss recognized as a
consequence of the year-end deemed disposition of Section 1256 contracts is
combined with any other gain or loss that was previously recognized upon the
termination of Section 1256 contracts during that taxable year. The net amount
of such gain or loss for the entire taxable year (including gain or loss arising
as a consequence of the year-end deemed sale of such contracts) is deemed to be
60% long-term and 40% short-term gain or loss. However, in the case of Section
1256 contracts that are forward foreign currency exchange contracts, the net
gain or loss is separately determined and (as discussed above) generally treated
as ordinary income or loss.
Generally, the hedging transactions in which the Portfolio may engage may result
in "straddles" or "conversion transactions" for U.S. federal income tax
purposes. The straddle and conversion transaction rules may affect the character
of gains (or in the case of the straddle rules, losses) realized by the
Portfolio. In addition, losses realized by the Portfolio on positions that are
part of a straddle may be deferred under the straddle rules, rather than being
taken into account in calculating the taxable income for the taxable year in
which the losses are realized. Because only a few regulations implementing the
straddle rules and the conversion transaction rules have been promulgated, the
tax consequences to the Portfolio of hedging transactions are not entirely
clear. The hedging transactions may increase the amount of short-term capital
gain realized by the Portfolio (and, if they are conversion transactions, the
amount of ordinary income) which is taxed as ordinary income when distributed to
shareholders.
The Portfolio may make one or more of the elections available under the Code
which are applicable to straddles. If the Portfolio makes any of the elections,
the amount, character, and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Transactions that may be engaged in by the Portfolio (such as short sales
"against the box") may be subject to special tax treatment as "constructive
sales" under section 1259 of the Code if the Portfolio holds certain
"appreciated financial positions" (defined generally as any interest (including
a futures or forward contract, short sale or option) with respect to stock,
certain debt instruments, or partnership interests if there would be a gain were
such interest sold, assigned, or otherwise terminated at its fair market value).
Upon entering into a constructive sales transaction with respect to an
appreciated financial position, the Portfolio will be deemed to
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have constructively sold such appreciated financial position and will recognize
gain as if such position were sold, assigned, or otherwise terminated at its
fair market value on the date of such constructive sale (and will take into
account any gain for the taxable year which includes such date).
Because application of the straddle, conversion transaction and constructive
sale rules may affect the character of gains or losses, defer losses and/or
accelerate the recognition of gains or losses from the affected straddle or
investment positions, the amount which must be distributed to shareholders and
which will be taxed to shareholders as ordinary income or long-term capital gain
may be increased or decreased as compared to a fund that did not engage in such
transactions.
Requirements relating to the Portfolio's tax status as a RIC may limit the
extent to which the Portfolio will be able to engage in transactions in options
and futures contracts.
State Taxes
Distributions by the Portfolio to shareholders and the ownership of shares may
be subject to state and local taxes.
Foreign Income Tax
Investment Income received by the Portfolio may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on the Portfolio's securities. Tax conventions
between certain countries and the United States may reduce or eliminate these
taxes. Foreign countries generally do not impose taxes on capital gains with
respect to investments by foreign investors. If the Portfolio meets the
Distribution Requirement and if more than 50% of the value of the Portfolio's
total assets at the close of its taxable year consists of securities of foreign
corporations, the Portfolio will be eligible to file an election with the
Internal Revenue Service that will enable shareholders, in effect, to receive
the benefit of the foreign tax credit with respect to any foreign and U.S.
possessions income taxes paid by the Portfolio with respect to income derived
from securities for which applicable holding period requirements have been
satisfied (the "Foreign Tax Credit Election"). Pursuant to the Foreign Tax
Credit Election, the Portfolio will treat those taxes as dividends paid to its
shareholders. Each shareholder will be required to include a proportionate share
of those taxes in gross income as income received from a foreign source and must
treat the amount so included as if the shareholder had paid the foreign tax
directly. The shareholder may then either deduct the taxes deemed paid by him or
her in computing his or her taxable income or, alternatively, use the foregoing
information in calculating the foreign tax credit against the shareholder's
federal income tax. However, there are certain holding period requirements that
must be satisfied by a shareholder before such shareholder will be allowed a
deduction or credit. If the Portfolio makes the Foreign Tax Credit Election, it
will report annually to its shareholders the respective amounts per share of the
Portfolio's income from sources within, and taxes paid to, foreign countries and
U.S. possessions.
Foreign Shareholders
Dividends from the Portfolio's investment company taxable income and
distributions constituting returns of capital paid to a nonresident alien
individual, a foreign trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") generally will be subject to U.S.
withholding tax at a rate of 30% (or lower treaty rate) upon the gross amount of
the dividend. Foreign shareholders may be subject to U.S. withholding tax at a
rate of 30% on the income resulting from the Portfolio's Foreign Tax Credit
Election, but may not be able to claim a credit or deduction with respect to the
withholding tax for the foreign taxes treated as having been paid by them.
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A foreign shareholder generally will not be subject to U.S. taxation on gain
realized upon the redemption or exchange of shares of the Portfolio or on
capital gain dividends. In the case of a foreign shareholder who is a
nonresident alien individual, however, gain realized upon the sale or redemption
of shares of the Portfolio and capital gain dividends ordinarily will be subject
to U.S. income tax at a rate of 30% (or lower applicable treaty rate) if such
individual is physically present in the U.S. for 183 days or more during the
taxable year and certain other conditions are met. In the case of a foreign
shareholder who is a nonresident alien individual, the Portfolio may be required
to withhold U.S. federal income tax at a rate of 31% unless proper notification
of such shareholder's foreign status is provided.
Notwithstanding the foregoing, if distributions by the Portfolio are effectively
connected with a U.S. trade or business of a foreign shareholder, then dividends
from the Portfolio's investment company taxable income, capital gains, and any
gains realized upon the sale of shares of the Portfolio will be subject to U.S.
income tax at the graduated rates applicable to U.S. citizens or domestic
corporations.
Transfers by gift of shares of the Portfolio by a foreign shareholder who is a
nonresident alien individual will not be subject to U.S. federal gift tax. An
individual who, at the time of death, is a foreign shareholder will nevertheless
be subject to U.S. federal estate tax with respect to shares at the graduated
rates applicable to U.S. citizens and residents, unless a treaty exception
applies. In the absence of a treaty, there is a $13,000 statutory estate tax
credit.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisors with respect to the
particular tax consequences to them of an investment in the Portfolio.
Miscellaneous Considerations
The foregoing general discussion of federal income tax consequences is based on
the Code and the regulations issued thereunder as in effect on May 31, 1999.
Future legislative or administrative changes or court decisions may
significantly change the conclusions expressed herein, and any such changes or
decisions may have a retroactive effect with respect to the transactions
contemplated herein.
Prospective shareholders are encouraged to consult their tax advisors as to the
consequences of these and other U.S., state, local, and foreign tax rules
affecting investments in the Portfolio.
PERFORMANCE ADVERTISING
From time to time, the Portfolio may advertise its yield and total return. These
figures will be based on historical earnings and are not intended to indicate
future performance. No representation can be made regarding actual future yields
or returns. Yield refers to the annualized income generated by an investment in
the Portfolio over a specified 30-day period. The yield is calculated by
assuming that the same amount of income generated by the investment during that
period is generated in each 30-day period over one year and is shown as a
percentage of the investment.
The Portfolio may periodically compare its performance to that of other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.) or by financial and business publications and periodicals, broad
groups of comparable mutual funds, unmanaged indices which may assume investment
of
43
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dividends but generally do not reflect deductions for administrative and
management costs and other investment alternatives. The Portfolio may quote
services such as Morningstar, Inc., a service that ranks mutual funds on the
basis of risk-adjusted performance, and Ibbotson Associates of Chicago,
Illinois, which provides historical returns of the capital markets in the U.S.
The Portfolio may use long-term performance of these capital markets to
demonstrate general long-term risk versus reward scenarios and could include the
value of a hypothetical investment in any of the capital markets. The Portfolio
may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.
The Portfolio may quote various measures of volatility and benchmark correlation
in advertising and may compare these measures to those of other funds. Measures
of volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
The performance of the Fund's Advisor Class shares will be lower than that of
the Fund's PBHG Class shares because of the additional Rule 12b-1 shareholder
servicing expenses charged to Advisor Class shares.
CALCULATION OF TOTAL RETURN
From time to time, the Portfolio may advertise its total returns. The total
return refers to the average compounded rate of return to a hypothetical
investment for designated time periods (including, but not limited to, the
period from which the Portfolio commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula: P (1 + T)(n) = ERV, where P = a hypothetical initial payment
of $1,000; T = average annual total return; n = number of years; and ERV =
ending redeemable value of a hypothetical $1,000 payment made at the beginning
of the designated time period as of the end of such period.
Quotations of total return, which are not annualized, represent historical
earnings and asset value fluctuations. Total return is based on past performance
and is not a guarantee of future results.
As of the date of this Statement of Additional Information, the Portfolio had
not yet commenced operations and has no one year, five year, ten year or since
inception total return.
FINANCIAL STATEMENTS
____________ serves as the independent accountants for the Portfolio. _____
provides audit services, tax return review and assistance and consultation in
connection with review of SEC filings.
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PART C: OTHER INFORMATION
ITEM 23. EXHIBITS:
(a) Articles of Restatement of the Articles of Incorporation of the Registrant
filed October 21, 1998. Incorporated herein by reference to Post-Effective
Amendment No. 35 to Registrants Registration Statement on Form N-1A ("PEA
No. 35").
Articles Supplementary of the Registrant filed November 12, 1998.
Incorporated herein by reference to PEA No. 35.
Articles of Restatement of the Registrant filed January 21, 1999.
Incorporated herein by reference to Post-Effective Amendment No. 36 to
Registrants Registration Statement on Form N-1A ("PEA No. 36").
Articles of Amendment filed April __, 2000
(b) Amended and Restated By-Laws of the Registrant adopted effective April 9,
1998. Incorporated herein by reference to Post-Effective Amendment No. 34
to Registrant's Registration Statement on Form N-1A ("PEA No. 34").
(c) Articles of Incorporation filed as (a)
(d) Investment Advisory Agreement dated April 28, 1995 and Schedule A dated
April 1, 1997, by and between the Registrant, on behalf of each portfolio
of the Registrant, and Pilgrim Baxter & Associates, Ltd. Incorporated
herein by reference to Post-Effective Amendment No. 30 to Registrant's
Registration Statement on Form N-1A ("PEA No. 30").
Form of Amendment to Investment Advisory Agreement between Pilgrim Baxter &
Associates, Ltd. and the Registrant. Incorporated herein by reference to
PEA No. 35.
Schedule A dated December 3, 1998 to Investment Advisory Agreement dated
April 28, 1995 by and between the Registrant and Pilgrim Baxter &
Associates, Ltd. Incorporated herein by reference to PEA No. 36.
Schedule A dated January 25, 1999 to Investment Advisory Agreement dated
April 28, 1995 by and between the Registrant and Pilgrim Baxter &
Associates, Ltd. Incorporated herein by reference to PEA No. 36.
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Investment Sub-Advisory Agreement by and between the Registrant, on behalf
of the PBHG Cash Reserves Fund, Pilgrim Baxter & Associates, Ltd. and
Wellington Management Company dated April 4, 1995 Incorporated herein by
reference to Post-Effective Amendment No. 23 to Registrant's Registration
Statement on Form N-1A ("PEA No. 23").
Form of Investment Sub-Advisory Agreement between the Registrant, Pilgrim
Baxter & Associates, Ltd. and Pilgrim Baxter Value Investors, Inc.
Incorporated herein by reference to PEA No. 35.
Investment Sub-Advisory Agreement by and between the Registrant, on behalf
of PBHG Focused Value Fund, Pilgrim Baxter & Associates, Ltd. and Pilgrim
Baxter Value Investors, Inc. dated December 3, 1998. Incorporated herein by
reference to PEA No. 36.
Investment Sub-Advisory Agreement between and among the Registrant, on
behalf of the International Fund, Pilgrim Baxter & Associates, Ltd. and
Murray Johnstone International Limited dated June 30, 1995. Incorporated
herein by reference to PEA No. 23
Investment Sub-Advisory Agreement by and between the Registrant, on behalf
of PBHG Large Cap Value Fund, Pilgrim Baxter & Associates, Ltd. and
Newbold's Asset Management, Inc. dated December 16, 1996 (as revised
effective May 1, 1997). Incorporated herein by reference to PEA No. 30.
Investment Sub-Advisory Agreement between and among the Registrant, on
behalf of PBHG Strategic Small Company Fund, Pilgrim Baxter & Associates,
Ltd. and Newbold's Asset Management, Inc., dated December 16, 1996.
Incorporated herein by reference to PEA No. 30. Investment Sub-Advisory
Agreement by and between the Registrant, on behalf of PBHG Mid-Cap Value
Fund, Pilgrim Baxter & Associates, Ltd. and Newbold's Asset Management,
Inc. dated April 1, 1997. Incorporated herein by reference to PEA No. 30.
Investment Sub-Advisory Agreement by and between the Registrant, on behalf
of PBHG Small Cap Value Fund, Pilgrim Baxter & Associates, Ltd. and
Newbold's Asset Management, Inc. dated April 1, 1997. Incorporated herein
by reference to PEA No. 30.
Schedule A dated April 4, 2000 to Investment Advisory Agreement dated April
28, 1995 by and between the Registrant and Pilgrim Baxter & Associates,
Ltd.
(e) Distribution Agreement between the Registrant and SEI Financial Services
Company dated July 1, 1996 and Schedule A dated April 1, 1997. Incorporated
herein by reference to PEA No. 30.
Form of Amendment to Distribution Agreement between the Registrant and SEI
Financial Services Company. Incorporated herein by reference to PEA No. 35.
Schedule A dated December 3, 1998 to Distribution Agreement dated April 1,
1997 by and between the Registrant and SEI Financial Services Company.
Incorporated herein by reference to PEA No. 36.
Schedule A dated January 25, 1999 to Distribution Agreement dated April 1,
1997 by and between the Registrant and SEI Financial Services Company.
Incorporated herein by reference to PEA No. 36.
Schedule A dated April 4, 2000 to Distribution Agreement dated April 1,
1997 by and between the Registrant and SEI Financial Services Company.
Form of Selling Group Agreement. Incorporated herein by reference to
Post-Effective Amendment No. 10 to Registrant's Registration Statement on
Form N-1A ("PEA No. 10").
(f) Not Applicable
(g) Custodian Agreement between the Registrant and The Northern Trust Company,
on behalf of the International Fund. Incorporated herein by reference to
PEA No. 30.
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First Amendment to Custody Agreement between the Registrant and The
Northern Trust Company dated June 4, 1998 on behalf of the International
Fund. Incorporated herein by reference to PEA No. 35.
Custodian Agreement between the Registrant and CoreStates Bank, N.A. and
Schedule A dated April 1, 1997. Incorporated herein by reference to
PEA No. 30.
Form of Amendment to the Custodian Agreement between the Registrant and
First Union National Bank, successor by merger to CoreStates Bank, N.A.
Incorporated herein by reference to PEA No. 35.
Schedule A dated December 3, 1998 to Custodian Agreement dated April 1,
1997 by and between the Registrant and First Union National Bank .
Incorporated herein by reference to PEA No. 36.
Schedule A dated January 25, 1999 to Custodian Agreement dated April 1,
1997 by and between the Registrant and First Union National Bank.
Incorporated herein by reference to PEA No. 36.
(h) Administrative Services Agreement between the Registrant and PBHG Fund
Services dated July 1, 1996 and Exhibit A dated April 1, 1997. Incorporated
herein by reference to PEA No. 30.
Form of Amendment to the Administrative Services Agreement between the
Registrant and PBHG Fund Services. Incorporated herein by reference to PEA
No. 35.
Schedule A dated December 3, 1998 to Administrative Services Agreement
dated July 1, 1996 by and between the Registrant and PBHG Fund Services.
Incorporated herein by reference to PEA No. 36.
Schedule A dated January 25, 1999 to Administrative Services Agreement
dated July 1, 1996 by and between the Registrant and PBHG Fund Services.
Incorporated herein by reference to PEA No. 36.
Schedule A dated April 4, 2000 to Administrative Services Agreement dated
July 1, 1996 by and between the Registrant and PBHG Fund Services.
Sub-Administrative Services Agreement between the Registrant and SEI Fund
Resources dated July 1, 1996 and Schedule A dated April 1, 1997.
Incorporated herein by reference to PEA No. 30.
Amendment dated May 1, 1998 to Sub-Administrative Services Agreement
between the Registrant, PBHG Fund Services and SEI Fund Resources dated
July 1, 1996. Incorporated herein by reference to PEA No. 35.
Form of Amendment to the Sub-Administrative Services Agreement between the
Registrant, PBHG Fund Services and SEI Fund Resources. Incorporated herein
by reference to PEA No. 35.
Schedule A dated December 3, 1998 to Sub-Administrative Services Agreement
dated July 1, 1996 by and between the Registrant, PBHG Fund Services and
SEI Fund Resources. Incorporated herein by reference to PEA No. 36.
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Schedule A dated January 25, 1999 to Sub-Administrative Services Agreement
dated July 1, 1996 by and between the Registrant, PBHG Fund Services and
SEI Fund Resources. Incorporated herein by reference to PEA No. 36.
Schedule A dated April 4, 2000 to Sub-Administrative Services Agreement
dated July 1, 1996 by and between the Registrant, PBHG Fund Services and
SEI Fund Resources.
Schedule A dated December 3, 1998 to Agency Agreement dated January 1, 1998
by and between the Registrant and DST Systems, Inc. Incorporated herein by
reference to PEA No. 36.
Schedule A dated January 25, 1999 to Agency Agreement dated January 1, 1998
by and between the Registrant and DST Systems, Inc. Incorporated herein by
reference to PEA No. 36.
Schedule A dated April 4, 2000 to Agency Agreement dated January 1, 1998 by
and between the Registrant and DST Systems, Inc.
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG Core Growth Fund dated September 24,
1996. Incorporated herein by reference to Post-Effective Amendment No. 25
to Registrant's Registration Statement on Form N-1A ("PEA No. 25").
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG Limited Fund dated September 24, 1996.
Incorporated herein by reference to PEA No. 25.
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG Large Cap 20 Fund dated November 24,
1996. Incorporated herein by reference to Post-Effective Amendment No. 27
to Registrant's Registration Statement on Form N-1A ("PEA No. 27").
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG Large Cap Value Fund dated December 16,
1996. Incorporated herein by reference to PEA No. 27.
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG Strategic Small Company Fund dated
December 16, 1996. Incorporated herein by reference to PEA No. 27.
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG International Fund dated March 6, 1997.
Incorporated herein by reference to PEA No. 30.
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG Mid-Cap Value Fund dated April 1, 1997.
Incorporated herein by reference to PEA No. 30.
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG Small Cap Value Fund dated April 1,
1997. Incorporated herein by reference to PEA No. 30.
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Form of Expense Limitation Agreement between the Registrant and Pilgrim
Baxter & Associates, Ltd on behalf of each Portfolio with respect to its
Advisor Class shares. Incorporated herein by reference to Post-Effective
Amendment No. 31 to Registrant's Registration Statement on Form N-1A.
Form of Expense Limitation Agreement between the Registrant and Pilgrim
Baxter & Associates, Ltd. on behalf of each Portfolio listed on Schedule A.
Incorporated herein by reference to PEA No. 35.
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG Focused Value Fund dated December 3,
1998. Incorporated herein by reference to PEA No. 36.
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG New Opportunities Fund dated January 25,
1999. Incorporated herein by reference to PEA No. 36.
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG Global Technology & Communications Fund
dated April 4, 2000.
Shareholder Services Agreement between the Registrant and PBHG Fund
Services dated January 1, 1998. Incorporated herein by reference to
PEA No. 35.
Schedule A dated December 3, 1998 to Shareholder Services Agreement dated
January 1, 1998 by and between the Registrant and PBHG Fund Services.
Incorporated herein by reference to PEA No. 36.
Schedule A dated January 25, 1999 to Shareholder Services Agreement dated
January 1, 1998 by and between the Registrant and PBHG Fund Services.
Incorporated herein by reference to PEA No. 36.
Schedule A dated April 4, 2000 to Shareholder Services Agreement dated
January 1, 1998 by and between the Registrant and PBHG Fund Services.
Southwestern Life Insurance Company Defined Benefit Pension Plan and Trust.
Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A ("PEA No. 1").
Adoption Agreement for Southwestern Life Insurance Company Standardized
Integrated Defined Benefit Pension Plan and Trust (with Pairing
Provisions). Incorporated herein by reference to PEA No. 1.
Adoption Agreement for Southwestern Life Insurance Company Standardized
Non-Integrated Defined Benefit Pension Plan and Trust (with Pairing
Provisions). Incorporated herein by reference to PEA No. 1.
Adoption Agreement for Southwestern Life Insurance Company Non-Standardized
Integrated Defined Benefit Pension Plan and Trust. Incorporated herein by
reference to PEA No. 1.
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Adoption Agreement for Southwestern Life Insurance Company Non-Standardized
Non-Integrated Defined Benefit Pension Plan and Trust. Incorporated herein
by reference to PEA No. 1.
Southwestern Life Insurance Company Combination Profit Sharing-Money
Purchase Plan and Trust. Incorporated by reference to PEA No. 1.
Adoption Agreement for Southwestern Life Insurance Company Standardized
Money Purchase Plan and Trust (with Pairing Provisions). Incorporated
herein by reference to PEA No. 1.
Adoption Agreement for Southwestern Life Insurance Company Standardized
Profit Sharing Plan and Trust (with Pairing Provisions). Incorporated
herein by reference to PEA No. 1.
Adoption Agreement for Southwestern Life Insurance Company Non-Standardized
Money Purchase Plan and Trust. Incorporated herein by reference to
PEA No. 1.
Adoption Agreement for Southwestern Life Insurance Company Non-Standardized
Profit Sharing Plan and Trust. Incorporated herein by reference to
PEA No. 1.
Form 5305, Simplified Employee Pension-Individual Retirement Accounts
Contribution Agreement. Incorporated herein by reference to PEA No. 1.
Form 5305-A, Individual Retirement Custodial Account. Incorporated herein
by reference to PEA No. 1.
Southwestern Life Insurance Company Tax Deferred Annuity Program Custodial
Agreement. Incorporated herein by reference to PEA No. 1.
Amendment to Application for Investment Plans under a 403(b)(7) Plan.
Incorporated herein by reference to Post-Effective Amendment No. 19 to
Registrant's Registration Statement on Form N-1A.
Schedule for computation of Performance Quotation provided in the
Registration Statement. Incorporated herein by reference to PEA No. 30.
(i) Consent of Counsel
(j) Consent of Independent Accountants
(k) Financial Highlights incorporated herein by reference to Prospectus dated
July 31, 1999, as supplemented November 16, 1999, as supplemented
January 26, 2000.
The following financial statements are incorporated herein by reference to
the Annual Report of The PBHG Funds, Inc. (the "Fund") dated March 31,
1999:
Statement of Net Assets as of March 31, 1999
Statement of Operations for the period ended March 31, 1999
Statement of Changes in Net Assets for the period ended March 31, 1999
Financial Highlights for the fiscal year or period ended March 31, 1999
Notes to Financial Statements as of March 31, 1999
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The following financial statements (unaudited) are incorporated herein by
reference by reference to the Semi-Annual Report of the Fund dated
September 30, 1998:
Statement of Net Assets as of September 30, 1998
Statements of Assets and Liabilities as of September 30, 1998
Statements of Operations as of September 30, 1998
Statements of Changes in Net Assets as of September 30, 1998
Financial Highlights for the fiscal year or period ended
September 30, 1998
Notes to Financial Statements as of September 30, 1998
(l) Letter from Philadelphia Life Insurance Company to the Registrant with
respect to the initial capitalization of the Registrant. Incorporated
herein by reference to Pre-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A.
(m) Plan pursuant to Rule 12b-1 with respect to Advisor Class shares.
Incorporated herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A.
(n) Financial Data Schedule.
(o) Rule 18f-3 Multiple Class Plan dated November 20, 1995 and Schedule A dated
April 1, 1997. Incorporated herein by reference to PEA No. 30.
Schedule A dated December 3, 1998 to Rule 18f-3 Multiple Class Plan dated
November 20, 1995 by and between Registrant and Pilgrim Baxter &
Associates, Ltd. Incorporated herein by reference to PEA No. 36.
Schedule A dated January 25, 1999 to Rule 18f-3 Multiple Class Plan dated
November 20, 1995 by and between Registrant and Pilgrim Baxter &
Associates, Ltd. Incorporated herein by reference to PEA No. 36.
(p) Code of Ethics of Registrant
Code of Ethics of Pilgrim Baxter & Associates, Ltd.
Code of Ethics of Pilgrim Baxter Value Investors, Inc.
Code of Ethics of Murray Johnstone International Limited
Code of Ethics of Wellington Management Company, LLP
Code of Ethics of SEI Investments Distribution Company
24 (a) Directors' Power of Attorney. Incorporated herein by reference to
PEA No. 34.
(b) Officers' Power of Attorney. Incorporated herein by reference to
PEA No. 34.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
There are no persons that are controlled by or under common control with the
Registrant.
Item 25. INDEMNIFICATION
The Articles of Incorporation of the Registrant include the following:
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ARTICLE VII
7.4 Indemnification. The Corporation, including its successors and assigns,
shall indemnify its directors and officers and make advance payment of related
expenses to the fullest extent permitted, and in accordance with the procedures
required, by the General Laws of the State of Maryland and the Investment
Company Act of 1940, as amended ("1940 Act"). The By-Laws may provide that the
Corporation shall indemnify its employees and/or agents in any manner and within
such limits as permitted by applicable law. Such indemnification shall be in
addition to any other right or claim to which any director, officer, employee or
agent may otherwise be entitled. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation or is or was serving at the request of the Corporation
as a director, officer, partner, trustee, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other enterprise
or employee benefit plan, against any liability (including, with respect to
employee benefit plans, excise taxes) asserted against and incurred by such
person in any such capacity or arising out of such person's position, whether or
not the Corporation would have had the power to indemnify against such
liability. The rights provided to any person by this Article 7.4 shall be
enforceable against the Corporation by such person who shall be presumed to have
relied upon such rights in serving or continuing to serve in the capacities
indicated herein. No amendment of these Articles of Incorporation shall impair
the rights of any person arising at any time with respect to events occurring
prior to such amendment.
The By-Laws of the Registrant include the following:
ARTICLE IX
INDEMNIFICATION AND ADVANCE OF EXPENSES
Section 1. Indemnification of Directors and Officers. The Corporation shall
indemnify its directors to the fullest extent that indemnification of directors
is permitted by the Maryland General Corporation Law. The Corporation shall
indemnify its officers to the same extent as its directors and to such further
extent as is consistent with law. The Corporation shall indemnify its directors
and officers who, while serving as directors or officers, also serve at the
request of the Corporation as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, real
estate investment trust, trust, other enterprise or employee benefit plan to the
fullest extent consistent with law. The indemnification and other rights
provided for by this Article shall continue as to a person who has ceased to be
a director or officer, and shall inure to the benefit of the heirs, executors
and administrators of such a person. This Article shall not protect any such
person against any liability to the Corporation or any stockholder thereof to
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross 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, as amended ("1933 Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suite or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
To the extent that the Articles of Incorporation, By-Laws or any other
instrument pursuant to which the Registrant is organized or administered
indemnify any director or officer of the Registrant, or that any contract or
agreement
C-8
<PAGE>
indemnifies any person who undertakes to act as investment adviser or principal
underwriter to the Registrant, any such provision protecting or purporting to
protect such persons against any liability to the Registrant or its security
holders to which he would otherwise by subject by reason of willful misfeasance,
bad faith, or gross negligence, in the performance of his duties, or by reason
of his contract or agreement, will be interpreted and enforced in a manner
consistent with the provisions of Sections 17(h) and (i) of the 1940 Act, as
amended, and Release No. IC-11330 issued thereunder.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
Other business, profession, vocation, or employment of a substantial nature in
which each director or principal officer of Pilgrim Baxter & Associates, Ltd.
and Pilgrim Baxter Value 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
Baxter & Associates, Ltd. Name of Other Company Connection with Other Company
- ------------------------------ --------------------- -----------------------------
<S> <C> <C>
Harold J. Baxter Pilgrim Baxter Value Investors, Inc. Director, Chairman and Chief Executive
Director, Chairman and Officer
Chief Executive Officer
PBHG Fund Services Trustee
PBHG Fund Distributors Trustee
825 Duportail Road
Wayne, PA 19087
PBA Funding, Inc. Director
United Asset Management Corporation Director
Gary L. Pilgrim PBHG Fund Services Trustee
Director and Chief Investment 825 Duportail Road
Officer, President (4/95 - 10/97), Wayne, PA 19087
Secretary (5/95 - 12/96)
Pilgrim Baxter Value Investors, Inc. Director, President
Brian F. Bereznak PBHG Fund Services President and Trustee
Chief Operating Officer
(5/95 - 10/97)
Eric C. Schneider Pigrim Baxter Value Investors, Inc. Director, Chief Financial Officer and
Chief Financial Officer and Treasurer
Treasurer PBHG Fund Services Chief Financial Officer
PBHG Fund Distributors Trustee
825 Duportail Road
Wayne, PA 19087
</TABLE>
C-9
<PAGE>
<TABLE>
<S> <C> <C>
PBA Funding, Inc. President
John M. Zerr Pilgrim Baxter Value Investors, Inc. General Counsel and Secretary
General Counsel and Secretary
PBHG Fund Services General Counsel and Secretary
PBHG Fund Distributors General Counsel and Secretary
825 Duportail Road
Wayne, PA 19087
PBA Funding, Inc. Secretary
Name and Position with Pilgrim
Baxter & Associates, Ltd. Name of Other Company Connection with Other Company
- ------------------------------ --------------------- -----------------------------
Harold J. Baxter Pilgrim Baxter & Associates, Ltd. Director, Chairman and Chief Executive
Director, Chairman and Chief Officer
Executive Officer PBHG Fund Services Trustee
PBHG Fund Distributors Trustee
825 Duportail Road
Wayne, PA 19087
PBA Funding, Inc. Director
United Asset Management Corporation Director
Brian F. Bereznak Pilgrim Baxter & Associates, Ltd. Chief Operating Officer (5/95 - 10/97)
Director
PBHG Fund Services President and Trustee
Gary L. Pilgrim Pilgrim Baxter & Associates, Ltd. Director, Chief Investment Officer,
Director, President President (4/95 - 10/97),
Secretary (5/95 - 12/96)
PBHG Fund Distributors Trustee
825 Duportail Road
Wayne, PA 19087
David W. Jennings Pilgrim Baxter & Associates, Ltd. Trustee
Director, President and Chief 825 Duportail Road
Operating Officer (10/96) - 1/98) Wayne, PA 19087
Eric C. Schneider Pilgrim Baxter & Associates, Ltd. Chief Financial Officer and Treasurer
Director, Chief Financial Officer
and Treasurer PBHG Fund Services Chief Financial Officer
</TABLE>
C-10
<PAGE>
<TABLE>
<S> <C> <C>
PBHG Fund Distributors Trustee
825 Duportail Road
Wayne, PA 19087
PBA Funding, Inc. President
John M. Zerr Pilgrim Baxter & Associates, Ltd. General Counsel and Secretary
General Counsel and Secretary
PBHG Fund Services General Counsel and Secretary
PBHG Fund Distributors General Counsel and Secretary
825 Duportail Road
Wayne, PA 19087
PBA Funding, Inc. Secretary
</TABLE>
The list required by this Item 28 of officers and directors of Murray Johnstone
International Limited, 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 Murray Johnstone International
Limited pursuant to the Investment Advisers Act of 1940, as amended ("Advisers
Act"), (SEC File No. 801-34926).
The list required by this Item 28 of officers and directors of Wellington
Management, 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 Wellington Management pursuant to the Advisers Act
(SEC File No. 801-15908).
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Registrant's distributor, SEI Investments Distribution Co., acts as
distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI Institutional International Trust August 30, 1988
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFund May 1, 1992
STI Classic Funds May 29, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds (R) June 1, 1993
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
Ark Funds November 1, 1995
Huntington Funds January 11, 1996
SEI Asset Allocation Trust April 1, 1996
C-11
<PAGE>
TIP Funds April 28, 1996
The PBHG Funds, Inc. June 1, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
Highmark Funds February 15, 1997
Armada Funds March 8, 1997
Expedition Funds June 9, 1997
TIP Institutional Funds January 1, 1998
Oak Associates Funds February 27, 1998
The Nevis Fund, Inc. June 29, 1998
The Parkstone Group of Funds September 14, 1998
Amerindo Funds July 13, 1999
CNI Charter Funds April 1, 1999
Parkstone Advantage Funds April 1, 1999
Friends Ivory Funds December 16, 1999
SFS provides numerous financial services to investment managers, pension plan
sponsors, and bank trust departments. These services include portfolio
evaluation, performance measurement and consulting services ("Funds Evaluation")
and automated execution, clearing and settlement of securities transactions
("MarketLink").
The principal business address of each person named in the table below is SEI
Investments Distribution Co., One Freedom Valley Road, Oaks, Pennsylvania 19456
<TABLE>
<CAPTION>
Positions and
Offices with
Name Position and Office with Underwriter Registrant
- ---- ------------------------------------ -------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman -
Of Board of Directors
Mark J. Held President & Chief Operating Officer -
Robert M. Silvestri Chief Financial Officer & Treasurer -
Carmen V. Romeo Director & Executive Vice President -
Gilbert L. Beebower Executive Vice President -
Dennis J. McGonigle Executive Vice President -
Richard B. Lieb Executive Vice President, President - -
Investment Services Division
Leo J. Dolan, Jr. Senior Vice President -
Carl A. Guarino Senior Vice President -
Jack May Senior Vice President -
Hartland J. McKeown Senior Vice President
Kevin P. Robins Senior Vice President
Patrick K. Walsh Senior Vice President -
Robert Crudup Vice President & Managing Director -
Vic Galef Vice President & Managing Director -
Kim Kirk Vice President & Managing Director -
John Krzeminski Vice President & Managing Director -
Carolyn McLaurin Vice President & Managing Director
Wayne M. Withrow Senior Vice President & Managing Director -
Robert Aller Vice President -
Todd Cipperman Senior Vice President & General Counsel
Barbara Doyne Vice President -
Jeff Drennen Vice President -
Kathy Heilig Vice President -
Jeff Jacobs Vice President -
</TABLE>
C-12
<PAGE>
<TABLE>
<S> <C> <C>
Samuel King Vice President -
Joanne Nelson Vice President -
Mark Nagle Vice President -
Cynthia M. Parrish Vice President & Secretary -
Rob Redican Vice President -
Maria Reinehart Vice President -
Steve Smith Vice President -
Daniel Spaventa Vice President -
Kathryn L. Stanton Vice President & Assistant Secretary
S. Courtney Collier Vice President & Assistant Secretary -
Lydia A. Gavalis Vice President & Assistant Secretary -
Greg Gettinger Vice President & Assistant Secretary -
Lynda J. Striegel Vice President & Assistant Secretary Vice President &
Assistant Secretary
Timothy Barto Vice President & Assistant Secretary Vice President &
Assistant Secretary
Richard Deak Vice President & Assistant Secretary
James Foggo Vice President & Assistant Secretary Vice President &
Assistant Secretary
Christine McCullough Vice President & Assistant Secretary
Lori White Vice President & Assistant Secretary -
</TABLE>
c. None.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS:
Books or other documents required to be maintained by Section 31(a) of the 1940
Act, 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 Custodians:
First Union National Bank The Northern Trust Company
530 Walnut Street 50 South LaSalle Street
Philadelphia, PA 19106 Chicago, IL 60675
(b) With respect to Rules 31a-1(a); 31a-1(b)(1),(4); (2)(C) and (D); (4); (5);
(6); (8); (9); (10); (11) and 31a-1(f), the required books and records are
currently maintained at the offices of Registrant's Sub-Administrator:
SEI Fund Resources
One Freedom Valley Road
Oaks, PA 19456
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the
required books and records are maintained at the principal offices of the
Registrant's Adviser or Sub-Adviser:
Pilgrim Baxter & Associates, Ltd. Murray Johnstone
825 Duportail Road International Limited
Wayne, PA 19087 11 West Nile Street
Glasgow, Scotland G12PX
C-13
<PAGE>
Wellington Management Company, LLP Pilgrim Baxter Value Investors, Inc.
75 State Street 825 Duportail Road
Boston, MA 02109 Wayne, PA 19087
ITEM 29. MANAGEMENT SERVICES:
None
ITEM 30. UNDERTAKINGS:
Not Applicable
C-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment No. 38 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Wayne,
and Commonwealth of Pennsylvania on the 6th day of April, 2000.
THE PBHG FUNDS, INC.
Registrant
By: /s/ Harold J. Baxter
---------------------
Harold J. Baxter
Chairman and Director
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Harold J. Baxter Chairman and Director April 6, 2000
- ----------------------- -------------
Harold J. Baxter
* Director April 6, 2000
- ---------------------- -------------
John R. Bartholdson
* Director April 6, 2000
- ---------------------- -------------
Jettie M. Edwards
* Director April 6, 2000
- ---------------------- -------------
Albert A. Miller
/s/ Gary L. Pilgrim President April 6, 2000
- ---------------------- -------------
Gary L. Pilgrim
/s/ Meghan M. Mahon Vice President & April 6, 2000
- ------------------- Assistant Secretary -------------
Meghan M. Mahon
/s/ Lee T. Cummings Treasurer, Chief Financial April 6, 2000
- --------------------- Officer and Controller -------------
Lee T. Cummings
* By: /s/ John M. Zerr
----------------
John M. Zerr
Attorney-in-Fact
<PAGE>
EXHIBIT LIST
Exhibit
Number Description
- ------- -----------
EX-99.B(a) Articles of Amendment
EX-99.B(d) Schedule A dated April 4, 2000 to Investment Advisory Agreement
dated April 28, 1995 by and between the Registrant and Pilgrim
Baxter & Associates, Ltd.
EX-99.B(e) Schedule A dated April 4, 2000 to Distribution Agreement dated
April 1, 1997 by and between the Registrant and SEI Financial
Services Company.
EX-99.B(h) Schedule A dated April 4, 2000 to Administrative Services
Agreement dated July 1, 1996 by and between the Registrant and
PBHG Fund Services.
Schedule A dated April 4, 2000 to Sub-Administrative Services
Agreement dated July 1, 1996 by and between the Registrant, PBHG
Fund Services and SEI Fund Resources.
Schedule A dated April 4, 2000 to Agency Agreement dated
January 1, 1998 by and between the Registrant and DST Systems,
Inc.
Expense Limitation Agreement between the Registrant and Pilgrim
Baxter & Associates, Ltd. on behalf of PBHG Global Technology &
Communications Fund dated April 4, 2000.
Schedule A dated April 4, 2000 to Shareholder Services Agreement
dated January 1, 1998 by and between the Registrant and PBHG Fund
Services.
EX-99.B(j) Consent of Independent Accountants
EX-99.B(n) Financial Data Schedules
EX-99.B(p) Code of Ethics of Registrant
Code of Ethics of Pilgrim Baxter & Associates, Ltd.
Code of Ethics of SEI Investments Distribution Company
Code of Ethics of Pilgrim Baxter Value Investors, Inc. [to be
filed by subsequent Post Effective Amendment]
Code of Ethics of Murray Johnstone International Limited [to be
filed by subsequent Post Effective Amendment]
Code of Ethics of Wellington Management Company, LLP [to be
filed by subsequent Post Effective Amendment]
EX-99.B(a)
THE PBHG FUNDS, INC.
ARTICLES OF AMENDMENT
The PBHG Funds, Inc., a Maryland corporation (the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by changing the
name of the "PBHG Enhanced Equity Fund" to the "PBHG Global Technology &
Communications Fund".
SECOND: The foregoing amendment was approved by a majority of the entire
Board of Directors of the Corporation and is limited to a change expressly
permitted by Section 2-605(a)(2) of the Maryland General Corporation Law to be
made without action by the stockholders.
THIRD: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940, as amended.
FOURTH: The undersigned Vice President of the Corporation acknowledges
these Articles of Amendment to be the corporate act of the Corporation and, as
to all matters or facts required to be verified under oath, the undersigned Vice
President acknowledges that to the best of her knowledge, information and
belief, these matters and facts are true in all material respects and that this
statement is made under the penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
to be executed under seal in its name and on its behalf by one of its Vice
Presidents and its corporate seal to be affixed and attested to by its Secretary
on April__, 2000.
ATTEST: THE PBHG FUNDS, INC.
By: /s/ John M. Zerr By: /s/ Meghan M. Mahon
---------------- --------------------------------------
John M. Zerr Meghan M. Mahon
Secretary Vice President and Assistant Secretary
EX-99.B(d)
Schedule A
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG Large Cap Growth Fund
PBHG Select Equity Fund
PBHG Limited Fund
PBHG Core Growth Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Small Cap Value Fund
PBHG Technology & Communications Fund
PBHG Strategic Small Company Fund
PBHG International Fund
PBHG Cash Reserves Fund
PBHG Focused Value Fund
PBHG New Opportunities Fund
PBHG Global Technology & Communications Fund
Dated: April 4, 2000
EX-99.B(e)
Schedule A
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG Large Cap Growth Fund
PBHG Select Equity Fund
PBHG Limited Fund
PBHG Core Growth Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Small Cap Value Fund
PBHG Technology & Communications Fund
PBHG Strategic Small Company Fund
PBHG International Fund
PBHG Cash Reserves Fund
PBHG Focused Value Fund
PBHG New Opportunities Fund
PBHG Global Technology & Communications Fund
Dated: April 4, 2000
EX-99.B(h)
Schedule A
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG Large Cap Growth Fund
PBHG Select Equity Fund
PBHG Limited Fund
PBHG Core Growth Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Small Cap Value Fund
PBHG Technology & Communications Fund
PBHG Strategic Small Company Fund
PBHG International Fund
PBHG Cash Reserves Fund
PBHG Focused Value Fund
PBHG New Opportunities Fund
PBHG Global Technology & Communications Fund
Dated: April 4, 2000
EX-99.B(j)
[Consent of Independent Accountants - to be provided]
EX-99.B(n)
[Financial Data Schedule - To Come]
The PBHG Funds, Inc.
Code of Ethics
Adopted: April __, 2000
<PAGE>
Executive Summary
This is a summary of the restrictions and reporting/certification
requirements imposed on Access Persons by this Code. Capitalized terms are
defined in Section I of the Code. Do not rely on this summary as a complete
statement of the restrictions and reporting/certification requirements. Please
refer to the appropriate Section of the Code for more complete information.
Restrictions on Access Persons (Section III of the Code):
o Do not defraud, mislead or manipulate the Fund in connection with the Purchase
or Sale of a Security Held of to be Acquired by the Fund.
o Pre-clear every Purchase or Sale of Beneficial Ownership in a Security with
the Review Officer.
o Do not acquire Beneficial Ownership of a Security as part of an Initial Public
Offering
o Do not profit from the Purchase and Sale or Sale and Purchase of Beneficial
Ownership in the same Security within a 60 calendar day period.
o Pre-clear every Purchase of Sale of Beneficial Ownership in a Limited Offering
with the Review Officer.
o Do not accept any position with any company, partnership or other entity until
approved by the Review Officer.
o Do not accept any Gift worth more than $100 from any person or entity doing
business with the Fund until approved by the Review Officer.
o Do not accept or consider any Gift when exercising fiduciary duties on behalf
of the Fund.
Reporting and Certification Requirements for Access Persons (Section IV of the
Code):
o Submit duplicate Security Trade Confirmations and Account Statements to the
Review Officer.
o Submit a signed and dated Initial Holdings Report to the Review Officer no
later than 10 days after becoming an Access Person.
o Submit a signed and dated Quarterly Transaction Report to the Review Officer
no later than 10 days after the end of each calendar quarter.
o Submit a signed and dated Annual Holdings Report to the Review Officer no
later than 30 days after the calendar year end.
o Submit a signed and dated Annual Certification to the Review Officer no later
than 30 days after the calendar year end.
o Immediately report any Beneficial Ownership of more than 1/2 of 1% of an
entity's outstanding shares to the Review Officer.
2
<PAGE>
The PBHG Funds, Inc.
Code of Ethics
This Code of Ethics is adopted by the Board of Directors of The PBHG Funds,
Inc. (the "Fund") in accordance with Rule 17j-1(c) under the Investment Company
Act of 1940, as amended (the "Act"), and the Recommendations of the Investment
Company Institute Advisory Group on Personal Investing. This Code of Ethics is
based upon the principle that the directors and officers of the Fund, and
certain affiliated persons of the Fund and its investment advisers and
sub-advisers, owe a fiduciary duty to, among others, the shareholders of the
Fund to conduct their affairs, including their personal securities transactions,
in such manner to avoid (i) serving their own personal interests ahead of
shareholders; (ii) taking inappropriate advantage of their position with the
Fund; and (iii) any actual or potential conflicts of interest or any abuse of
their position of trust and responsibility. This fiduciary duty includes the
duty of the investment advisers to the portfolios of the Fund to report material
violations of this Code of Ethics to the Board of Directors of the Fund.
I. Definitions
Access Person(s) means every director, officer, Investment Personnel or
Advisory Person of the Fund. The term does not include (a) any
director, officer, Investment Personnel or Advisory Person of the Fund
that is subject to a code of ethics of the Fund's investment adviser,
sub-adviser, administrator, sub-administrator or distributor that has
been reviewed and approved by the Board of Directors of the Fund and
(b) any director of the who is not an "interested person" of the Fund
as defined in section 2(a)(19) of the Act, except where such director
knows, in the ordinary course of fulfilling his or her official duties
as a director of the Fund that the Security is a Security Held or to be
Acquired by the Fund, its investment adviser, or its sub-adviser.
Advisory Person means (a) any employee of the Fund (or any company in a
Control relationship to the Fund) who, in connection with his or her
regular functions or duties, normally makes, participates in, or
obtains current information regarding the Purchase or Sale of a
Security by the Fund, or whose functions relate to the making of any
recommendations with respect to such Purchase or Sale and (b) any
natural person in a Control relationship to the Fund who obtains
information concerning recommendations made to the Fund with regard to
the Purchase or Sale of a Security by the Fund.
Beneficial Ownership means any direct or indirect pecuniary interest in
or any direct or indirect influence or control over a Security or
Limited Offering. An example of influence or control is any voting or
investment
3
<PAGE>
discretion. In general, an Access Person will be considered the
beneficial owner of any Security or Limited Offering held in the name
of (i) a spouse or domestic partner, (ii) a minor child, (iii) a
relative who resides in the Access Person's house, or (iv) any other
person if the Access Person has direct or indirect influence or control
over the Security or Limited Offering. Overall, Beneficial Ownership
will be determined in accordance with Section 16 of the Securities
Exchange Act of 1934.
Control(s) means the power to exercise a controlling influence over the
management or policies of a company, unless this power is solely the
result of an official position with the company. For example, ownership
of 25% or more of a company's outstanding voting securities is presumed
to give the holder of those securities control over the company. A
natural person is presumed not to be a controlled person. Overall,
control will be determined in accordance with the definition set forth
in Seciton 2(a)(9) of the Act.
Initial Public Offering means an offering of securities registered under
the Securities Act of 1933, the issuer of which, immediately before the
registration, was not subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934.
Investment Personnel means (a) any employee of the Fund (or of any
company in a control relationship to the Fund) who, in connection with
his or her regular functions or duties, makes or participates in making
recommendations regarding the Purchase or Sale of securities by the
Fund and (b) any natural person who Controls the Fund and who obtains
information concerning recommendations made to the Fund regarding the
Purchase or Sale of securities by the Fund.
Limited Offering(s) means an offering that is exempt from registration
under the Securities Act of 1933 pursuant to Section 4(2) or Section
4(6) or pursuant to Rules 504, 505, or 506 under the Securities Act of
1933. The term includes so-called private placements such as any
investment limited partnership that is exempt from registration.
Personal Account means any Security or Limited Offering account in
which an Access Person has Beneficial Ownership. For example, a
Personal Account would include any brokerage account maintained by an
Access Person or the spouse of an Access Person at Merrill Lynch,
Ameritrade or at any other discount or full service broker.
Purchase or Sale includes, among other things, every direct or indirect
acquisition or sale and the writing of an option to purchase or sell.
Review Officer means the Chief Compliance Officer of Pilgrim Baxter &
Associates, Ltd. or his/her designee.
Security has the same meaning as that set forth in Section 2(a)(36) of
the Act. It includes such things as stocks, SPDRs and municipal bonds.
It does not include securities issued by the U.S. Government or its
agencies, bankers' acceptances, bank certificates of deposit,
commercial paper,
4
<PAGE>
high quality short-term debt instruments, including repurchase
agreements and shares of registered open-end mutual funds.
Security Held or to be Acquired by the Fund means any Security which,
within the past 15 days: (i) is or has been held by the Fund or (ii) is
being or has been considered by the Fund for purchase by the Fund.
II. Restrictions on Access Persons
Fund Relations:
o Do not defraud, mislead or manipulate the Fund in connection
with the Purchase or Sale of a Security Held or to be Acquired
by the Fund.
Access Persons are prohibited from directly or
indirectly using any act, device, scheme, artifice,
practice or course of conduct to defraud, mislead or
manipulate the Fund in connection with the Purchase
or Sale of a Security Held or to be Acquired by the
Fund. Access Persons are also prohibited from making
any untrue statement of material fact to the Fund and
from omitting to state a material fact necessary in
order to make the statement made to the Fund, under
the circumstances, not misleading.
Personal Transactions in a Security
o Pre-clear every Purchase or Sale of Beneficial Ownership in a
Security with the Review Officer.
Access Persons must pre-clear every Purchase or Sale
of Beneficial Ownership in a Security with the Review
Officer. There are 4 exceptions to this restriction.
See Section III of the Code for more information,
including the 4 exceptions to this restriction.
o Do not acquire Beneficial Ownership of a Security as part of an
Initial Public Offering.
Access Persons are prohibited from directly or
indirectly acquiring Beneficial Ownership in a
Security as part of an Initial Public Offering by an
issuer.
o Do not profit from the Purchase and Sale or Sale and Purchase
of Beneficial Ownership in the same Security within a 60
calendar day period.
Access Persons are prohibited from profiting from the
Purchase and Sale or Sale and Purchase of Beneficial
Ownership in the same Security within a 60 calendar
day period.
This restriction does not apply to the exercise or
expiration of an option over which the Access Person
has no discretion.
5
<PAGE>
As requested by an Access Person, the Review Officer
may, in his discretion, grant other exceptions to
this restriction on a case-by-case basis.
Personal Transactions in a Limited Offering
o Pre-clear every Purchase of Sale of Beneficial Ownership in a
Limited Offering with the Review Officer.
Access Persons must pre-clear every Purchase or Sale of
Beneficial Ownership in a Limited Offering with the Review
Officer. See Section III of the Code for more information.
Positions with a Company, Partnership or other Entity
o Do not accept any position with any company, partnership or other
entity until approved by the Review Officer.
Access Persons shall not accept a position as a director,
trustee, general partner or officer of a public or private
company or partnership until the Review Officer approves
accepting the position.
In general, the Review Officer will approve the acceptance
of these positions if they are consistent with Fund
interests.
Gifts
o Do not accept any Gift worth more than $100 from any person or
entity doing business with the Fund until approved by the Review
Officer.
Access Persons are prohibited from accepting any gift,
favor, gratuity or other item ("Gift") with a fair market
value greater than $100 from any person or entity doing
business with the Fund until the Review Officer approves the
Gift.
A Gift does not include occasional participation in lunches,
dinners, cocktail parties, sporting activities or similar
gatherings conducted for business purposes.
o Do not accept or consider any Gift when exercising fiduciary
duties on behalf of the Fund.
Access Persons are prohibited from accepting any Gift,
allowing any member of their family to accept any Gift,
6
<PAGE>
and considering any Gift already received by them or their
family when exercising their fiduciary duties on behalf of
the Fund.
III. Procedures for Pre-Clearing Personal Transactions
Purchase or Sale of Beneficial Ownership in a Security
o As stated in Section II of this Code, Access Persons must
pre-clear every Purchase or Sale of Beneficial Ownership in a
Security with the Review Officer.
o This means that Access Persons must obtain prior written approval
from the Review Officer before effecting any Purchase or Sale of
a Security.
Exceptions: This pre-clearance/approval process does not apply to
the following:
(a) Purchase or Sale that is non-volitional on the part of the
Access Person, including a purchase or sale upon the
exercise of puts or calls written by the Access Person and
sales from a margin account, pursuant to a bona fide margin
call
(b) Purchase that is part of an automatic dividend reinvestment
plan
(c) Purchase effected upon the exercise of rights issued by an
issuer pro rata to all holders of the Security, to the
extent such rights were acquired from the issuer and sales
of such rights so acquired
(d) An acquisition of a Security through a gift or bequest
o Pre-Clearance requests for the Purchase or Sale of a Security
must be submitted on a Pre-Authorization Personal Securities
Transaction form which may be obtained from the Review Officer.
o The Review Officer will notify Access Persons whether their
pre-clearance request is approved or denied.
o Pre-Clearance approval by the Review Officer is valid for only
two (2) business days. Any Purchase or Sale of a Security not
completed within this period must be pre-cleared again before
effected.
o The Review Officer may approve the Purchase or Sale of a Security
which appears upon reasonable inquiry and investigation to
present no reasonable likelihood of harm to the Fund and is in
accordance with Rule 17j-1 under the Act.
Note: These transactions would normally include (a) the
Purchase or Sale of a Security that is not a Security Held
or to be Acquired by the Fund and (b) the Purchase or Sale
of up to 1,000 shares of a Security that is a Security Held
or to be Acquired by the Fund if (i) the issuer has a market
capitalization of over $1 billion and (ii) that Security is
not then currently on the Fund's trading blotter.
o The Review Officer reports every Purchase and Sale of a Security
by an Access Person to the Board of Directors of the Fund.
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Purchase or Sale of Beneficial Ownership in a Limited Offering
o As stated in Section III of this Code, Access Persons must
pre-clear every Purchase or Sale of Beneficial Ownership in a
Limited Offering with the Review Officer.
o This means that Access Persons must obtain prior written approval
from the Review Officer before effecting any Purchase or Sale of
Beneficial Ownership in a Limited Offering.
o Access Persons must supply the Review Officer with a copy of the
Offering Memorandum for the Limited Offering at the time the
Access Person submits his/her pre-clearance approval request.
o Access Persons must execute a certificate of representation which
certifies: (a) his/her obligations under the Code of Ethics; (b)
the restrictions imposed upon him/her in connection with an
acquisition of Beneficial Ownership in a Limited Offering and (c)
the accuracy of any statements or representations made by him/her
in connection with the pre-clearance approval process. This
certificate is may be obtained from the Review Officer.
o In determining whether to grant approval, the Review Officer will
take into account, among other factors, whether the investment
opportunity should be reserved for the Fund and whether the
investment opportunity is being offered to the Access Person by
virtue of his of her position with the Fund.
o The Access Person may not be a selling shareholder in the Initial
Public Offering or any subsequent unwritten offering by the
entity. Access Persons may petition the Revie Officer for relief
from this restriction.
o Access Persons must hold the Limited Offering for the longer of
(i) the holding period which would be applicable pursuant to Rule
144 or (ii) 12 months. Access Persons may petition the Review
Officer for relief from this mandatory holding period.
o The Review Officer will maintain a list of entities in which
Access Persons have acquired a Limited Offering. This list will
periodically be compared to the Fund's trading records.
IV. Reporting and Certification Requirements for Access Persons
o Submit duplicate Security Trade Confirmations and Account
Statements to the Review Officer.
Access Persons must direct each broker, dealer and bank that
places a Purchase or Sale of a Security on behalf of the Access
Person to send a duplicate copy of the trade confirmation to the
Review Officer.
Access Persons also must direct each broker, dealer and bank at
which a Security is held in an account for the direct or indirect
benefit of the
Access Person to send a duplicate account statement to the Review
Officer.
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A sample letter instructing the broker, dealer or bank to send
duplicate trade confirmations and account statements may be
obtained from the Review Officer.
Access Persons may comply with the duplicate trade
confirmation/account statement requirement by directly providing
the Review Officer with a copy of every such trade confirmation
and account statement.
o Submit a signed and dated Initial Holdings Report to the Review
Officer no later than 10 days after becoming an Access Person.
Access Persons must submit a signed and dated Initial Holdings
Report to the Review Officer no later than 10 days after becoming
an Access Person under this Code.
The Initial Holdings Report may be obtained from the Review
Officer.
The Initial Holding Report must contain the following
information, as of the date the individual became an Access
Person:
(a) the title, number of shares and principal amount of every
Security and Limited Offering in which the Access Person has
Beneficial Ownership;
(b) the account name and number of every Personal Account and
the name of the broker, dealer or bank where the Personal
Account is maintained and
(c) the date the Report is submitted to the Review Officer.
Notes: In providing this information, Access Persons may
cross reference any trade confirmations and account
statements submitted to the Review Officer.
If there is no Security, Limited Offering or Personal
Account information to report, check the boxes to
that effect on the Initial Holdings Report.
The Initial Holdings Report may contain a statement that the
report will not be construed as an admission by the Access
Person that he has any Beneficial Ownership in any Security
or Limited Offering listed in the report.
o Submit a signed and dated Quarterly Transaction Report to the
Review Officer no later than 10 days after the end of each
calendar quarter.
Access Persons must submit a signed and dated Quarterly
Transaction Report to the Review Officer no later than 10 days
after the end of each
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calendar quarter.
The Quarterly Transaction Report may be obtained from the Review
Officer.
The Quarterly Transaction Report must contain the following
information:
(a) for every Purchase or Sale of Beneficial Ownership in a
Security or Limited Offering placed during the quarter:
(i) the date of the Purchase or Sale, the title, interest
rate and maturity date (if applicable), number of
shares and principal amount of the Security or Limited
Offering;
(ii) the nature of the Purchase or Sale (i.e., purchase,
sale or other type of acquisition or disposition);
(iii) the price at which the Purchase or Sale of a Security
or Limited Offering was placed;
(iv) the name of the broker, dealer or bank with or through
which the Purchase or Sale was placed, including the
account name and number of the Personal Account and
(v) the date the Report is submitted to the Review
Officer.
(b) For every Personal Account opened during the quarter:
(i) the name of the broker, dealer or bank with whom the
Personal Account was opened;
(ii) the account name and number of the Personal Account;
(iii) the date the Personal Account was opened and
(iv) the date the Report is submitted to the Review
Officer.
Notes: In providing this information, Access Persons may
cross reference any trade confirmations and account
statements submitted to the Review Officer.
If there is no Security, Limited Offering or Personal
Account information to report, check the boxes to
that effect on the Quarterly Transaction Report.
The Quarterly Transaction Report may contain a statement
that the report will not be construed as an admission by the
Access Person that he has any Beneficial Ownership in any
Security or Limited Offering listed in the report.
o Submit a signed and dated Annual Holdings Report to the Review
Officer no later than 30 days after the calendar year end.
Access Persons must submit a signed and dated Annual
Holdings Report to the Review Officer no later than 30 days
after the calendar year end.
The Annual Holdings Report may be obtained from the Review
Officer.
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The Annual Holdings Report must contain the following
information, as of a date no more than 30 days before the
report is submitted:
(a) the title, number of shares and principal amount of
every Security and Limited Offering in which the Access
Person has Beneficial Ownership;
(b) the account name and number of every Personal Account
and the name of any broker, dealer or bank where every
Personal Account is maintained and
(c) the date the Report is submitted to the Review Officer.
Notes: In providing this information, Access Persons may
cross reference any trade confirmations and account
statements submitted to the Review Officer.
If there is no Security, Limited Offering or Personal
Account information to report, check the boxes to
that effect of the Annual Holdings Report.
o Submit a signed and dated Annual Certification to the Review
Officer no later than 30 days after the calendar year-end.
Access Persons must submit a signed and dated Annual
Certification to the Review Officer no later than 30 days after
the calendar year end.
The Annual Certification is included as part of the Annual
Holdings Report which may be obtained from the Review Officer.
In the Annual Certification, Access Persons must certify that
they:
(a) have read and understand this Code;
(b) are subject to this Code;
(c) will comply with this Code during the upcoming year; and
(d) have complied with all the Code reporting requirements to
which they were subject during the past year.
o Immediately report any Beneficial Ownership of more than 1/2 of
1% of an entity's outstanding shares to the Review Officer.
Access Persons whose Beneficial Ownership in an entity becomes
more than 1/2 of 1% of that entity's outstanding shares (whether
publicly-traded or not) immediately report the following to the
Review Officer: (a) the name of the entity; (b) the total number
of shares in which the Access Person has direct Beneficial
Ownership and (c) the total number of shares in which the Access
Person has indirect Beneficial Ownership.
V. Review and Enforcement Procedures
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o The Review Officer maintains a list of all Access Persons subject
to the reporting requirements of Section IV and notifies all
Access Persons of their specific reporting requirements.
o The Review Officer reviews every trade confirmation, account
statement and report submitted by Access Persons pursuant to
Section IV.
o If the Review Officer determines that an Access Person may have
violated this Code, he may request the Access Person to submit
additional information. The Review Officer's determination and
all additional information provided by the Access Person are then
submitted to a senior officer of the Investment Adviser for
further review.
o Access Persons who violate this Code may be subject to sanctions,
including one or more of the following:
(a) a letter of censure
(b) suspension or termination of employment
(c) a fine
(d) restrictions on future personal transactions in a Security
or Limited Offering
(e) reversal of the Purchase or Sale
(f) referral to regulatory or law enforcement agencies
(g) disgorgement of profits
o The following factors may be considered in determining the
appropriateness of any sanction:
(a) harm to the Fund
(b) frequency of occurrence
(c) degree of conflict with Fund interests
(d) evidence of willful or reckless disregard of the Code
requirements
(e) honest and timely cooperation from the Access Person
VI. Records Maintained by the Fund
In accordance with Rule 17j-1(f), the Fund maintains the
following records in an easily accessible place and makes them
available for examination by the Securities and Exchange
Commission:
o A copy of every Fund Code of Ethics in effect during the
past six years.
o A record of every Fund Code of Ethics violation that
occurred during the last six years and a record of any
action taken as a result of that violation.
o A copy of every trade confirmation, account statement and
report submitted by Access Persons under Section IV during
the past six years.
o A record of every person who is, or within the last six
years has been, an
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Access Person under this Code.
o A record of every person who is, or within the last six
years has been a Review Officer and his/her designee.
o A copy of every written report furnished in accordance with
Rule 17j-1(c)(2)(ii) to the Fund's Board of Directors during
the last six years.
o A record of any decision by the Review Officer, and the
reasons supporting the decision, to approve the acquisition
or sale of a Limited Offering by an Access Person. This
record will be kept for five years after the end of the
fiscal year in which the approval is granted.
VII. Miscellaneous
o The Fund will use its best efforts to ensure that all
information provided by an Access Person pursuant to this
Code will be treated as personal and confidential. However,
every Access Person should know that all such information
will be available for inspection by appropriate regulatory
agencies and other parties as are necessary to evaluate
compliance with or sanctions under this Code.
o At least annually, the Review Officer will prepare a written
report to the Board of Directors of the Fund describing any
issues arising under this Code or procedures, including but
not limited to, information about material violations of
this Code or procedures and any sanctions imposed in
response to those material violations.
o At least annually, the Review Officer will certify that the
Fund has adopted procedures reasonably necessary to prevent
its Access Persons from violating this Code.
Adopted this ___ day of April 2000.
13
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Pilgrim Baxter & Associates, Ltd.
Code of Ethics
14
<PAGE>
Adopted: March 22, 2000
15
<PAGE>
Executive Summary
This is a summary of the restrictions and reporting/certification
requirements imposed on Access Persons by this Code. Capitalized terms are
defined in Section II of the Code. Do not rely on this summary as a complete
statement of the restrictions and reporting/certification requirements. Please
refer to the appropriate Section of the Code for more complete information.
Restrictions on Access Persons (Section III of the Code):
o Do not defraud, mislead or manipulate any Client in connection with the
Purchase or Sale of a Security.
o Pre-clear every Purchase or Sale of Beneficial Ownership in a Security with
the Review Officer.
o Do not acquire Beneficial Ownership of a Security as part of an Initial
Public Offering
o Do not profit from the Purchase and Sale or Sale and Purchase of Beneficial
Ownership in the same Security within a 60 calendar day period.
o Pre-clear every Purchase of Sale of Beneficial Ownership in a Limited
Offering with the Limited Offering Review Committee.
o Do not accept any position with any company, partnership or other entity
until approved by the Review Officer.
o Do not accept any Gift worth more than $100 from any person or entity doing
business with Pilgrim Baxter until approved by the Review Officer.
o Do not accept or consider any Gift when exercising fiduciary duties on
behalf of a Client.
Reporting and Certification Requirements for Access Persons (Section V of the
Code):
o Submit duplicate Security Trade Confirmations and Account Statements to the
Review Officer.
o Submit a signed and dated Initial Holdings Report to the Review Officer no
later than 10 days after becoming an Access Person.
o Submit a signed and dated Quarterly Transaction Report to the Review
Officer no later than 10 days after the end of each calendar quarter.
o Submit a signed and dated Annual Holdings Report to the Review Officer no
later than 30 days after the calendar year end.
o Submit a signed and dated Annual Certification to the Review Officer no
later than 30 days after the calendar year end.
o Immediately report any Beneficial Ownership of more than 1/2 of 1% of an
entity's outstanding share to the Review Officer.
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Pilgrim Baxter & Associates, Ltd.
Code of Ethics
This Code of Ethics has been adopted by the Board of Directors of Pilgrim
Baxter & Associates, Ltd. ("Pilgrim Baxter") in accordance with Rule 17j-1(c)
under the Investment Company Act of 1940, as amended (the "Act"), and the
Recommendations of the Investment Company Institute Advisory Group on Personal
Investing. Rule 17j-1 under the Act prohibits persons who are actively engaged
in the management, portfolio selection or underwriting of registered investment
companies from participating in fraudulent or manipulative practices in
connection with the purchase or sale of securities held or to be acquired by
those investment companies.
I. Statement of General Principles
As an investment adviser, Pilgrim Baxter owes its clients a fiduciary duty
to act solely in their best interests. As such, Pilgrim Baxter employees,
officers and directors are required to conduct themselves in a manner that
places the best interests of a client before their own. While Pilgrim Baxter has
complete confidence in the integrity and good faith of its employees, officers
and directors, Pilgrim Baxter believes it is important to set forth, in writing,
the general principles that should guide the daily conduct of all Pilgrim Baxter
employees, officers and directors. Pilgrim Baxter believes these general
principles to be the following:
o The best interests of Pilgrim Baxter's clients are paramount.
Therefore, all Pilgrim Baxter personnel must conduct themselves and
their operations to give maximum effect to this tenet by always
placing client interests before their own.
o The personal securities transactions of Pilgrim Baxter personnel must
be accomplished so as to avoid even the appearance of a conflict with
client interests.
o Pilgrim Baxter personnel must always avoid actions or activities that
allow, or appear to allow, them to profit or benefit from their
position with respect to clients, or that would otherwise bring into
question their independence or judgment.
II. Definitions
Access Person(s) means every director, officer and employee of Pilgrim
Baxter and any independent contractor or temporary employee who, because of
their job responsibilities, has been deemed by the Review Officer to have
access to information concerning the Purchase or Sale of a Security by
Pilgrim Baxter on behalf of a Client.
Beneficial Ownership means any direct or indirect pecuniary interest
in or any direct or indirect influence or control over a Security or
Limited
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Offering. An example of influence or control is any voting or investment
discretion. In general, an Access Person will be considered the beneficial
owner of any Security or Limited Offering held in the name of (i) a spouse
or domestic partner, (ii) a minor child, (iii) a relative who resides in
the Access Person's house, or (iv) any other person if the Access Person
has direct or indirect influence or control over the Security or Limited
Offering. Overall, Beneficial Ownership will be determined in accordance
with Section 16 of the Securities Exchange Act of 1934.
Client means any investment company, or any of its portfolios,
registered under the Act and any separately managed account for which
Pilgrim Baxter acts as investment adviser or sub-adviser.
Initial Public Offering means an offering of securities registered under
the Securities Act of 1933, the issuer of which, immediately before the
registration, was not subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934.
Limited Offering(s) means an offering that is exempt from registration
under the Securities Act of 1933 pursuant to Section 4(2) or Section 4(6)
or pursuant to Rules 504, 505, or 506 under the Securities Act of 1933. The
term includes so-called private placements such as any investment limited
partnership that is exempt from registration.
Limited Offering Review Committee means the committee members
identified in the Pre-Clearance Procedures and Conditions for Limited
Offerings which are attached to this Code as Exhibit A.
Personal Account means any Security or Limited Offering account in which an
Access Person has Beneficial Ownership. For example, a Personal Account
would include any brokerage account maintained by an Access Person or the
spouse of an Access Person at Merrill Lynch, Ameritrade or at any other
discount or full service broker.
Purchase or Sale includes, among other things, every direct or
indirect acquisition or sale and the writing of an option to purchase or
sell.
Review Officer means the Chief Compliance Officer, or his/her designee.
` Related Security means any Security whose value directly fluctuates as a
result of a change in the value of a Security or Limited Offering.
Security has the same meaning as that set forth in Section 2(a)(36) of
the Act. It includes such things as stocks, SPDRs and municipal bonds. It
does not include securities issued by the U.S. Government or its agencies,
bankers' acceptances, bank certificates of deposit, commercial paper, high
quality short-term debt instruments, including repurchase agreements and
shares of registered open-end mutual funds.
Security Universe means every Security then currently included in the
official lists of securities held by a Client or appropriate for Client
investment consideration that are compiled by Pilgrim Baxter's investment
team.
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III. Restrictions on Access Persons
Client Relations:
o Do not defraud, mislead or manipulate any Client in connection with
the Purchase or Sale of a Security.
Access Persons are prohibited from directly or indirectly using any
act, device, scheme, artifice, practice or course of conduct to
defraud, mislead or manipulate any Client in connection with the
Purchase or Sale of a Security. Access Persons are also prohibited
from making any untrue statement of material fact to any Client and
from omitting to state a material fact necessary in order to make the
statement made to any Client, under the circumstances, not misleading.
Personal Transactions in a Security
o Pre-clear every Purchase or Sale of Beneficial Ownership in a Security
with the Review Officer.
Access Persons must pre-clear every Purchase or Sale of Beneficial
Ownership in a Security with the Review Officer. There are 4
exceptions to this restriction. See Section IV of the Code for more
information, including the 4 exceptions to this restriction.
o Do not acquire Beneficial Ownership of a Security as part of an
Initial Public Offering.
Access Persons are prohibited from directly or indirectly acquiring
Beneficial Ownership in a Security as part of an Initial Public
Offering by an issuer.
o Do not profit from the Purchase and Sale or Sale and Purchase of
Beneficial Ownership in the same Security within a 60 calendar day
period.
Access Persons are prohibited from profiting from the Purchase and
Sale or Sale and Purchase of Beneficial Ownership in the same Security
within a 60 calendar day period.
This restriction does not apply to the exercise or expiration of an
option over which the Access Person has no discretion.
As requested by an Access Person, the Review Officer may, in his
discretion, grant other exceptions to this restriction on a
case-by-case basis.
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<PAGE>
Personal Transactions in a Limited Offering
o Pre-clear every Purchase of Sale of Beneficial Ownership in a Limited
Offering with the Limited Offering Review Committee.
Access Persons must pre-clear every Purchase or Sale of Beneficial
Ownership in a Limited Offering with the Limited Offering Review
Committee. See Section IV of the Code for more information.
Positions with a Company, Partnership or other Entity
o Do not accept any position with any company, partnership or other
entity until approved by the Review Officer.
Access Persons shall not accept a position as a director, trustee,
general partner or officer of a public or private company or
partnership until the Review Officer approves accepting the position.
In general, the Review Officer will approve the acceptance of these
positions if they are consistent with Client interests.
Gifts
o Do not accept any Gift worth more than $100 from any person or entity
doing business with Pilgrim Baxter until approved by the Review
Officer.
Access Persons are prohibited from accepting any gift, favor, gratuity
or other item ("Gift") with a fair market value greater than $100 from
any person or entity doing business with Pilgrim Baxter until the
Review Officer approves the Gift.
A Gift does not include occasional participation in lunches, dinners,
cocktail parties, sporting activities or similar gatherings conducted
for business purposes.
o Do not accept or consider any Gift when exercising fiduciary duties on
behalf of a Client.
Access Persons are prohibited from accepting any Gift, allowing any
member of their family to accept any Gift, and considering any Gift
already received by them or their family when exercising their
fiduciary duties on behalf of a Client.
IV. Procedures for Pre-Clearing Personal Transactions
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Purchase or Sale of Beneficial Ownership in a Security
o As stated in Section II of this Code, Access Persons must pre-clear
every Purchase or Sale of Beneficial Ownership in a Security with the
Review Officer.
o This means that Access Persons must obtain prior written approval from
the Review Officer before effecting any Purchase or Sale of a
Security.
o Exceptions: This pre-clearance/approval process does not apply to the
following:
(e) Purchase or Sale that is non-volitional on the part of the Access
Person, including a purchase or sale upon the exercise of puts or
calls written by the Access Person and sales from a margin
account, pursuant to a bona fide margin call;
(f) Purchase that is part of an automatic dividend reinvestment plan;
(g) Purchase effected upon the exercise of rights issued by an issuer
pro rata to all holders of the Security, to the extent such
rights were acquired from the issuer and sales of such rights so
acquired; and
(h) An acquisition of a Security through a gift or bequest
o Pre-Clearance requests for the Purchase or Sale of a Security must be
submitted on a Pre-Authorization Personal Securities Transaction form
located at s:\common\code\PBA Reports\Codeauth1.
o The Review Officer will notify Access Persons whether their
pre-clearance request is approved or denied.
o Pre-Clearance approval by the Review Officer is valid for only two (2)
business days. Any Purchase or Sale of a Security not completed within
this period must be pre-cleared again before effected.
o If the Security is not currently in the Security Universe, the Review
Officer will consult with the Chief Investment Officer to determine if
the Security should be included in the Security Universe, or in his
absence that individual designated to make such determination.
o The Review Officer may approve the Purchase or Sale of a Security
which appears upon reasonable inquiry and investigation to present no
reasonable likelihood of harm to any Client and with respect to a
Client that is a registered investment company, is in accordance with
Rule 17j-1 under the Act.
Note: These transactions would normally include (a) the Purchase or
Sale of a Security not in the Security Universe and (b) the Purchase
or Sale of up to 1,000 shares of a Security in the Security Universe
if (i) the issuer has a market capitalization of over $1 billion and
(ii) that Security is not then currently on the trading blotter.
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o The Review Officer reports every Purchase and Sale of a Security in
the Security Universe by an Access Person to the Board of Directors of
the PBHG Family of Funds.
Purchase or Sale of Beneficial Ownership in a Limited Offering
o As stated in Section III of this Code, Access Persons must pre-clear
every Purchase or Sale of Beneficial Ownership in a Limited Offering
with the Limited Offering Review Committee.
o This means that Access Persons must obtain prior written approval from
the Limited Offering Review Committee before effecting any Purchase or
Sale of Beneficial Ownership in a Limited Offering.
o This pre-clearance/approval process is governed by the Pre-Clearance
Procedures and Conditions for Limited Offerings, which are attached to
this Code as Exhibit A.
Note: These Pre-Clearance Procedures and Conditions also impose
additional restrictions on an Access Person after a Limited
Offering has been acquired.
o Access Persons must submit a Certificate of Representation with their
pre-clearance request. This Certificate is located at
s:\common\code\PBA Reports\Limited Offering Pre-auth.
V. Reporting and Certification Requirements for Access Persons
o Submit duplicate Security Trade Confirmations and Account Statements
to the Review Officer.
Access Persons must direct each broker, dealer and bank that places a
Purchase or Sale of a Security on behalf of the Access Person to send
a duplicate copy of the trade confirmation to the Review Officer.
Access Persons also must direct each broker, dealer and bank at which
a Security is held in an account for the direct or indirect benefit of
the Access Person to send a duplicate account statement to the Review
Officer.
A sample letter instructing the broker, dealer or bank to send
duplicate trade confirmations and account statements may be obtained
from the Review Officer.
Access Persons may comply with the duplicate trade
confirmation/account statement requirement by directly providing the
Review Officer with a copy of every such trade confirmation and
account statement.
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o Submit a signed and dated Initial Holdings Report to the Review
Officer no later than 10 days after becoming an Access Person.
Access Persons must submit a signed and dated Initial Holdings Report
to the Review Officer no later than 10 days after becoming an Access
Person under this Code.
The Initial Holdings Report is located at s:\common\code\PBA
Reports\Codeinit.
The Initial Holding Report must contain the following information, as
of the date the individual became an Access Person:
(d) the title, number of shares and principal amount of every
Security and Limited Offering in which the Access Person has
Beneficial Ownership;
(e) the account name and number of every Personal Account and the
name of the broker, dealer or bank where the Personal Account is
maintained and
(f) the date the Report is submitted to the Review Officer.
Notes: In providing this information, Access Persons may cross
reference any trade confirmations and account statements
submitted to the Review Officer.
If there is no Security, Limited Offering or Personal
Account information to report, check the boxes to that
effect on the Initial Holdings Report.
The Initial Holdings Report may contain a statement that the report
will not be construed as an admission by the Access Person that he has
any Beneficial Ownership in any Security or Limited Offering listed in
the report.
o Submit a signed and dated Quarterly Transaction Report to the Review
Officer no later than 10 days after the end of each calendar quarter.
Access Persons must submit a signed and dated Quarterly Transaction
Report to the Review Officer no later than 10 days after the end of
each calendar quarter.
The Quarterly Transaction Report is located at s:\common\code\PBA
Reports\Codeqtr.
The Quarterly Transaction Report must contain the following
information:
(c) for every Purchase or Sale of Beneficial Ownership in a Security
or Limited Offering placed during the quarter:
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(vi) the date of the Purchase or Sale, the title, interest rate
and maturity date (if applicable), number of shares and
principal amount of the Security or Limited Offering;
(vii) the nature of the Purchase or Sale (i.e., purchase, sale or
other type of acquisition or disposition);
(viii) the price at which the Purchase or Sale of a Security or
Limited Offering was placed;
(ix) the name of the broker, dealer or bank with or through which
the Purchase or Sale was placed, including the account name
and number of the Personal Account and
(x) the date the Report is submitted to the Review Officer.
(d) For every Personal Account opened during the quarter:
(v) the name of the broker, dealer or bank with whom the
Personal Account was opened;
(vi) the account name and number of the Personal Account;
(vii) the date the Personal Account was opened and
(viii) the date the Report is submitted to the Review Officer.
Notes: In providing this information, Access Persons may cross
reference any trade confirmations and account statements
submitted to the Review Officer.
If there is no Security, Limited Offering or
Personal Account information to report,
check the boxes to that effect on the
Quarterly Transaction Report.
The Quarterly Transaction Report may contain a statement that the
report will not be construed as an admission by the Access Person that
he has any Beneficial Ownership in any Security or Limited Offering
listed in the report.
o Submit a signed and dated Annual Holdings Report to the Review Officer
no later than 30 days after the calendar year end.
Access Persons must submit a signed and dated Annual Holdings Report
to the Review Officer no later than 30 days after the calendar year
end.
The Annual Holdings Report is located at s:\common\code\PBA
Reports\Codeannl.
The Annual Holdings Report must contain the following information, as
of a date no more than 30 days before the report is submitted:
(d) the title, number of shares and principal amount of every
Security and Limited Offering in which the Access Person has
Beneficial Ownership;
(e) the account name and number of every Personal Account and the
name of any broker, dealer or bank where every Personal Account
is maintained and
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(f) the date the Report is submitted to the Review Officer.
Notes: In providing this information, Access Persons may cross
reference any trade confirmations and account statements
submitted to the Review Officer.
If there is no Security, Limited Offering or
Personal Account information to report,
check the boxes to that effect of the Annual
Holdings Report.
o Submit a signed and dated Annual Certification to the Review Officer
no later than 30 days after the calendar year-end.
Access Persons must submit a signed and dated Annual Certification to
the Review Officer no later than 30 days after the calendar year end.
The Annual Certification is included as part of the Annual Holdings
Report which is located at s:\common\code\PBA Reports\Codeannl.
In the Annual Certification, Access Persons must certify that they:
(e) have read and understand this Code;
(f) are subject to this Code;
(g) will comply with this Code during the upcoming year; and
(h) have complied with all the Code reporting requirements to which
they were subject during the past year.
o Immediately report any Beneficial Ownership of more than 1/2 of 1% of
an entity's outstanding shares to the Review Officer.
Access Persons whose Beneficial Ownership in an entity becomes more
than 1/2 of 1% of that entity's outstanding shares (whether
publicly-traded or not) immediately report the following to the Review
Officer: (a) the name of the entity; (b) the total number of shares in
which the Access Person has direct Beneficial Ownership and (c) the
total number of shares in which the Access Person has indirect
Beneficial Ownership.
VI. Review and Enforcement Procedures
o The Review Officer maintains a list of all Access Persons subject to
the reporting requirements of Section V and notifies all Access
Persons of their specific reporting requirements.
o The Review Officer reviews every trade confirmation, account statement
and report submitted by Access Persons pursuant to Section V.
o If the Review Officer determines that an Access Person may have
violated this Code, he may request the Access Person to submit
additional
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information. The Review Officer's determination and all additional
information provided by the Access Person are then submitted to a
senior officer of Pilgrim Baxter for further review.
o A senior officer of Pilgrim Baxter reviews every trade confirmation,
account statement and report submitted by the Review Officer pursuant
to Section V and determines whether the Review Officer may have
violated this Code.
o Access Persons who violate this Code may be subject to sanctions,
including one or more of the following:
(h) a letter of censure
(i) suspension or termination of employment
(j) a fine
(k) restrictions on future personal transactions in a Security or
Limited Offering
(l) reversal of the Purchase or Sale
(m) referral to regulatory or law enforcement agencies
(n) disgorgement of profits
o The following factors may be considered in determining the
appropriateness of any sanction:
(f) harm to any Client
(g) frequency of occurrence
(h) degree of conflict with Client interests
(i) evidence of willful or reckless disregard of the Code
requirements
(j) honest and timely cooperation from the Access Person
VII. Records Maintained by Pilgrim Baxter
In accordance with Rule 17j-1(f), Pilgrim Baxter maintains the following
records in an easily accessible place and makes them available for
examination by the Securities and Exchange Commission:
o A copy of every Pilgrim Baxter Code of Ethics in effect during the
past six years.
o A record of every Pilgrim Baxter Code of Ethics violation that
occurred during the last six years and a record of any action taken as
a result of that violation.
o A copy of every trade confirmation, account statement and report
submitted by Access Persons under Section V during the past six years.
o A record of every person who is, or within the last six years has
been, an Access Person under this Code.
o A record of every person who is, or within the last six years has been
a Review Officer and his/her designee.
o Effective February 1, 2000, a record of every person who is, or within
the last six years has been, a member of the Limited Offering Review
Committee.
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o A copy of every written report Pilgrim Baxter has furnished as
investment adviser or sub-adviser in accordance with Rule
17j-1(c)(2)(ii) to the board of directors of an investment company
registered under the Investment Company Act of 1940 during the last
six years.
o Effective February 1, 2000, a record of any decision by the Limited
Offering Review Committee, and the reasons supporting the decision, to
approve the acquisition or sale of a Limited Offering by an Access
Person. This record will be kept for five years after the end of the
fiscal year in which the approval is granted.
VIII. Miscellaneous
o Pilgrim Baxter will use its best efforts to ensure that all
information provided by an Access Person pursuant to this Code will be
treated as personal and confidential. However, every Access Person
should know that all such information will be available for inspection
by appropriate regulatory agencies and other parties within and
outside of Pilgrim Baxter as are necessary to evaluate compliance with
or sanctions under this Code.
o Upon request, the Review Officer will prepare a report to Pilgrim
Baxter's Board of Directors discussing the operation of this Code and
whether any changes or modifications to the Code are necessary.
o Upon request, the Review Officer will certify that Pilgrim Baxter has
adopted procedures reasonably necessary to prevent its Access Persons
form violating this Code.
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Exhibit A
PRE-CLEARANCE
PROCEDURES AND CONDITIONS
FOR LIMITED OFFERINGS
These Procedures and Conditions govern the Purchase or Sale of Beneficial
Ownership in a Limited Offering by an Access Person, as set forth in Section III
of the Code of Ethics. Capitalized terms not defined in these Procedures and
Conditions have the same definition as they do in the Code of Ethics.
1. Pre-Clearance Required. As required by the Code of Ethics, every Access
Person must obtain prior written approval from the Limited Offering Review
Committee before directly or indirectly acquiring or selling any Beneficial
Ownership in a Limited Offering.
2. Limited Offering Review Committee.
a. The Limited Offering Pre-Clearance Review Committee (the "Review
Committee") consists of the following persons: the Chairman, the CIO,
the Chairperson of the Management Committee and at least one of the
following persons: the Chief Compliance Officer or the General
Counsel.
b. If a member of the Review Committee is the Access Person seeking
pre-clearance approval, that member will recuse him/herself from the
Review Committee and will only be considered an Access Person for
purposes of the pre-clearance approval process.
3. Pre-Clearance Approval Process.
a. The Review Committee reviews each pre-clearance approval request on a
case-by-case basis.
b. Before pre-clearance approval may be granted, among other things,
(i) the Access Person and the Review Committee must determine that
the Limited Offering is not appropriate for any Client;
(ii) the Access Person must demonstrate he/she would be a passive
investor and would own less than 5% of the entity after acquiring
the Limited Offering; and
(iii) the Review Committee must determine that no Client owns a
Related Security.
4. Conflict of Interest Potential.
a. In General. Pilgrim Baxter recognizes that the acquisition of
Beneficial Ownership in a Limited Offering by an Access Person may
create a conflict of interest. Therefore, in determining whether to
approve an Access Person's
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request, the Review Committee considers, among other things, the
likelihood that a conflict of interest may arise, whether Client
interests may be protected and whether that conflict may cause Pilgrim
Baxter to violate its fiduciary duties to a Client.
b. Brokerage Allocation. Pilgrim Baxter recognizes that the source of the
opportunity to acquire a Limited Offering may present a potential
conflict of interest. Pilgrim Baxter believes that inappropriate quid
pro quo arrangements are unlikely to arise because its brokerage
allocation is the exclusive province of Pilgrim Baxter's trading
department. Nonetheless, before granting pre-clearance approval to an
Access Person, the Review Committee must determine that there is no
reasonable expectation that a material conflict of interest will
develop if the opportunity for the Access Person to acquire a Limited
Offering came from a broker with whom Pilgrim Baxter does business.
The CEO or his designee will periodically monitor Pilgrim Baxter's
brokerage allocation to assure that (i) no material conflict actually
exists and (ii) that no appearance of impropriety exists in connection
with Pilgrim Baxter's brokerage allocation and past sources of Limited
Offering investment opportunities. In addition, Pilgrim Baxter's
traders are prohibited from directly or indirectly acquiring
beneficial ownership in a Limited Offering sourced from or through a
broker with whom Pilgrim Baxter does business or with whom Pilgrim
Baxter has a reasonable likelihood of doing business in the future.
5. Limited Offering Memorandum. The Access Person must supply the Review
Committee with a copy of the Offering Memorandum for the Limited Offering
at the time the Access Person submits his/her pre-clearance approval
request.
6. Certificate of Representation By Access Person. The Access Person must
execute a certificate of representation which certifies: (a) his/her
obligations under the Code of Ethics; (b) the restrictions imposed upon
him/her in connection with an acquisition of Beneficial Ownership in a
Limited Offering and (c) the accuracy of any statements or representations
made by him/her in connection with the pre-clearance approval process. This
certificate is located at s:\common\code\PBA Reports\Limited Offering
Pre-auth.
7. Restrictions After Acquiring a Limited Offering.
a. The Access Person may not be a selling shareholder in the Initial
Public Offering or any subsequent unwritten offering by the entity.
b. Access Person must hold the Limited Offering for the longer of (i) the
holding period which would be applicable pursuant to Rule 144 or (ii)
12 months. However, if no Client participates in the Initial Public
Offering of the entity and the entity is not in the Security Universe,
the Access Person may petition the Review Committee for relief from
this mandatory holding period.
8. Restricted Entities. The Review Committee will establish a list of entities
in which Access Persons have acquired a Limited Offering. This list will
periodically be compared to Pilgrim Baxter's trading records.
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SEI INVESTMENTS COMPANY
CODE OF ETHICS AND
INSIDER TRADING POLICY
January, 2000
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SEI INVESTMENTS COMPANY
CODE OF ETHICS AND INSIDER TRADING POLICY
TABLE OF CONTENTS
I. General Policy
II. Code of Ethics
A. Purpose of Code
B. Employee Categories
C. Restrictions on Personal Securities Transactions
D. Pre-clearance of Personal Securities Transactions
E. Reporting Requirements
F. Detection and Reporting of Code Violations
G. Violations of the Code of Ethics
H. Confidential Treatment
I. Definitions Applicable to the Code of Ethics
III. Insider Trading Policy
A. What is "Material" Information?
B. What is "Nonpublic Information"?
C. Who is an Insider?
D. What is Misappropriation?
E. What is Tipping?
F. Identifying Inside Information?
G. Trading in SEI Investments Company Securities
H. Violations of the Insider Trading Policy
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I. GENERAL POLICY
SEI Investments Company, through various subsidiaries (jointly "SEI"), is an
investment adviser, administrator, distributor, and/or trustee of investment
companies, collective investment trusts, investment partnerships, and asset
management accounts (jointly "Investment Vehicles"). As an investment adviser,
SEI is subject to various U.S. securities laws and regulations governing the use
of confidential information and personal securities transactions. This Code of
Ethics and Insider Trading Policy (jointly "Policy") was developed based on
those laws and regulations, and sets forth the procedures and restrictions
governing the personal securities transactions of all SEI employees.
SEI has a highly ethical business culture and expects that all employees will
conduct any personal securities transactions consistent with this Policy and in
such a manner as to avoid any actual or potential conflict of interest or abuse
of a position of trust and responsibility. When an employee invests for his or
her own account, conflicts of interest may arise between a client's and the
employee's interest. Such conflicts may include using an employee's advisory
position to take advantage of available investment opportunities, taking an
investment opportunity from a client for an employee's own portfolio, or
frontrunning, which occurs when an employee trades in his or her personal
account before making client transactions. As a fiduciary, SEI owes a duty of
loyalty to clients which requires that an employee must always place the
interests of clients first and foremost and shall not take inappropriate
advantage of his or her position. Thus, SEI employees must conduct themselves
and their personal securities transactions in a manner that does not create
conflicts of interest with the firm's clients.
Pursuant to this Policy, employees will be subject to various pre-clearance and
reporting standards, based on their responsibilities within SEI. As a result, it
is important that all employees pay special attention to the employee category
section within this Policy to determine what provisions of the Policy applies to
them, as well as to the sections on restrictions, pre-clearance, and reporting
of personal securities transactions.
Employees outside the United States are subject to this Policy and the
applicable laws of the jurisdictions in which they are located. These laws may
differ substantially from U.S. law and may subject employees to additional
requirements. To the extent any particular portion of the Policy is inconsistent
with foreign law not included herein or within the firm's Compliance Manual,
employees should consult their designated Compliance Officer or the Compliance
Department at SEI's Oaks facility.
Each employee subject to this Policy must read and retain a copy and agree to
abide by its terms. Failure to comply with the provisions of this Policy may
result in the imposition of serious sanctions, including, but not limited to
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disgorgement of profits, dismissal, substantial personal liability and/or
referral to regulatory or law enforcement agencies.
Any questions regarding SEI's policy or procedures should be referred to the
Compliance Department, which currently includes Cyndi Parrish, the Compliance
Director. (x2807).
II. CODE OF ETHICS
A. Purpose of Code
This Code of Ethics ("Code") was adopted pursuant to the provisions of Section
17(j) of the Investment Company Act of 1940, as amended, and Rule 17j-1
thereunder, as amended. Those provisions of the U.S. securities laws were
adopted to prevent persons who are actively engaged in the management, portfolio
selection or underwriting of registered investment companies from participating
in fraudulent, deceptive or manipulative acts, practices or courses of conduct
in connection with the purchase or sale of securities held or to be acquired by
such companies. Employees (including contract employees) will be subject to
various pre-clearance and reporting standards based on their responsibilities
within SEI and accessibility to certain information. Those functions are set
forth in the categories listed below.
B. Employee Categories
1. Access Person - any director, officer or employee of SEI Investments Mutual
Fund Services who, in connection with his or her regular functions or
duties, makes, participates in, or obtains prior or contemporaneous
information regarding the purchase or sale of an Investment Vehicle's
portfolio securities for which SEI acts as distributor and/or
administrator.
2. Investment Person - any director, officer or employee of the Asset
Management Group who (1) directly oversees the performance of one or more
sub-advisers for any Investment Vehicle for which SEI acts as investment
adviser, (2) executes or helps execute portfolio transactions for any such
Investment Vehicle, or (3) obtains or is able to obtain prior or
contemporaneous information regarding the purchase or sale of an Investment
Vehicle's portfolio securities.
3. Portfolio Persons - any director, officer or employee entrusted with direct
responsibility and authority to make investment decisions affecting one or
more client portfolios.
4. Registered Representative - any director, officer or employee who is
registered with the National Association of Securities Dealers as a
registered representative (Series 6, 7 or 63), a registered principal
(Series 24 or 26) or
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an investment representative (Series 65), regardless of job title or
responsibilities.
5. Associate - any director, officer or employee who does not fall within
definitions 1, 2, 3 or 4 above.
C. Restrictions on Personal Securities Transactions
When buying or selling securities, SEI employees may not employ any device,
scheme or artifice to defraud, mislead, or manipulate any fund or investment
client. The following restrictions are applicable to an employee's personal
securities transactions.
1. Access Persons:
o may not purchase or sell, directly or indirectly, any Security within
24 hours before or after the time that the same (or a related)
Security is being purchased or sold by any Investment Vehicle for
which SEI acts as advisor, distributor and/or administrator.
o may not acquire Securities as part of an Initial Public
Offering("IPO") without obtaining the written approval of the
designated Compliance Officer at Mutual Fund Services before directly
or indirectly acquiring a beneficial ownership in such securities.
o may not acquire a beneficial ownership interest in Securities issued
in a private placement transaction without obtaining prior written
approval from the designated Compliance Officer at Mutual Fund
Services.
2. Investment Persons:
o may not purchase or sell, directly or indirectly, any Security within
24 hours before or after the time that the same (or a related)
Security is being purchased or sold by any Investment Vehicle for
which SEI or one of its sub-advisers acts as investment adviser or
sub-adviser to the Investment Vehicle.
o may not profit from the purchase and sale or sale and purchase of a
Security within 60 days of acquiring or disposing of Beneficial
Ownership of that Security. This prohibition does not apply to
transactions resulting in a loss, or to futures or options on futures
on broad-based securities indexes or U.S. government securities.
o may not acquire Securities as part of an Initial Public Offering
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without obtaining the written approval of the Compliance Department
before directly or indirectly acquiring a beneficial ownership in such
securities.
o may not acquire a beneficial ownership interest in Securities issued
in a private placement transaction without obtaining prior written
approval from the Compliance Department.
o may not receive any gift of more than de minimus value (currently
$100.00 per year) from any person or entity that does business with or
on behalf of any Investment Vehicle.
o may not serve on the board of directors of any publicly traded
company.
3. Portfolio Persons:
o may not purchase or sell, directly or indirectly, any Security within
7 days before or after a client portfolio has executed a trade in that
same (or an equivalent) Security, unless the order is withdrawn.
o may not acquire Securities as part of an Initial Public Offering
without obtaining the written approval of the designated Compliance
Officer before directly or indirectly acquiring a beneficial ownership
in such securities.
o may not acquire a beneficial ownership interest in Securities issued
in a private placement transaction without obtaining prior written
approval from the Compliance Department.
o may not profit from the purchase and sale or sale and purchase of a
Security within 60 days of acquiring or disposing of Beneficial
Ownership of that Security. This prohibition does not apply to
transactions resulting in a loss, or to futures or options on futures
on broad-based securities indexes or U.S. government securities.
o may not receive any gift of more than de minimus value (currently
$100.00 per year) from any person or entity that does business with or
on behalf of any Investment Vehicle.
o may not serve on the board of directors of any publicly traded
company.
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4. Registered Representatives:
o may not acquire Securities as part of an Initial Public Offering.
D. Pre-clearance of Personal Securities Transactions
1. Access, Investment and Portfolio Persons:
o must pre-clear each proposed securities transaction with the
Compliance Department or the designated Compliance Officer for
Accounts held in their names or in the names of others in which they
hold a Beneficial Ownership interest. No transaction in Securities may
be effected without the prior written approval of the Compliance
Department or the designated Compliance Officer, except as set forth
below in Section D.4 which sets forth the securities transactions that
do not require pre-clearance.
o the Compliance Department or the designated Compliance Officer will
keep a record of the approvals, and the rationale supporting,
investments in IPO and private placement transactions.
2. Registered Representatives/Associates:
o must pre-clear transactions with the Compliance Department or
designated Compliance Officer only if the Registered Representative or
Associate knew or should have known at the time of the transaction
that, during the 24 hour period immediately preceding or following the
transaction, the Security was purchased or sold or was being
considered for purchase or sale by any Investment Vehicle.
3. Transactions that do not have to be pre-cleared:
o Purchases or sales over which the employee pre-clearing the
transaction (the "Pre-clearing Person") has no direct or indirect
influence or control;
o Purchases, sales or other acquisitions of Securities which are
non-volitional on the part of the Pre-clearing Person or any
Investment Vehicle, such as purchases or sales upon exercise of puts
or calls written by the Pre-clearing Person, sales from a margin
account pursuant to a bona fide margin call, stock dividends, stock
splits, mergers, consolidations, spin-offs, or other similar corporate
reorganizations or distributions;
o Purchases which are part of an automatic dividend reinvestment plan or
automatic employee stock purchase plans;
o Purchases effected upon the exercise of rights issued by an issuer pro
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<PAGE>
rata to all holders of a class of its Securities, to the extent such
rights were acquired from such issuer;
o Acquisitions of Securities through gifts or bequests; and
o Transactions in open-end mutual funds.
4. Pre-clearance procedures:
o All requests for pre-clearance of securities transactions must be
submitted to the Compliance Department or the designated Compliance
Officer by completing a Pre-clearance Request Form (attached as
Exhibit 1). SEI Employees located in the U.S. with access to the I
drive may also complete an electronic version of the form located at
I:\register\preform.doc.
o The following information must be provided on the Form:
a. Name, date, extension, title;
b. Transaction detail, i.e., whether the transaction is a buy or
sell; the security name and security type; number of shares;
price; date acquired if a sale; and whether the security is held
in a portfolio or Investment Vehicle, part of an initial public
offering, or part of a private placement transaction; and
c. Signature and date; if electronically submitted, initial and
date.
o The Compliance Department or the designated Compliance Officer will
notify the employee whether the request is approved or denied by
telephone or email, and by sending a copy of the signed form to the
employee. An employee is not officially notified that the transaction
has been pre-cleared until he or she receives a copy of the signed
form. Employees should retain copies of the signed form.
o Employees may not submit a Pre-clearance Request Form for a
transaction that he or she does not intend to execute.
o Pre-clearance authorization is valid for 3 business days only.
Transactions, which are not completed within this period, must be
resubmitted with an explanation why the previous pre-cleared
transaction was not completed.
o Investment persons must submit to the Compliance Department or the
designated Compliance Officer transaction reports showing the
transactions in all the Investment Vehicles for which SEI or a
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sub-adviser serves as an investment adviser for the 24 hour period
before and after the date on which their securities transactions were
effected. Transaction reports need only be submitted for the
portfolios that hold or are eligible to purchase and sell the types of
securities proposed to be bought or sold by the Investment Person. For
example, if the Investment Person seeks to obtain approval for a
proposed equity trade, only the transaction reports for the portfolios
effecting transactions in equity securities are required.
o The Compliance Department or the designated Compliance Officer will
maintain pre-clearance records for 5 years.
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E. Reporting Requirements
1. Duplicate Brokerage Statements [All Employees]
o All SEI Employees are required to instruct their brokers/dealers to
file duplicate brokerage statements with the Compliance Department at
SEI Oaks. Employees in SEI's global offices are required to have their
duplicate statements sent to the offices in which they are located.
Statements must be filed for all Accounts (including those in which
employees have a Beneficial Ownership interest), except those that
trade exclusively in open-end mutual funds, government securities, or
SEI stock through the employee stock/stock option plan. Failure of a
broker-dealer to send duplicate statements will not excuse an
Employee's violation of this Section, unless the Employee demonstrates
that he or she took every reasonable step to monitor the broker's or
dealer's compliance.
o Sample letters instructing the brokers/dealers to send the statements
to SEI are attached as Exhibit 2, and may be found at
I:\register\407pers.doc and I:\register\permltr.doc. If the broker or
dealer requires a letter authorizing a SEI employee to open an
account, the permission letter may used and may be found at
I:\register\permltr.doc. Please complete the necessary information in
the letter and forward a signature ready copy to the Compliance
Department.
o If no such duplicate statement can be supplied, the Employee should
contact the Compliance Department or the designated Compliance
Officer.
2. Initial Holdings Report [Access, Investment and Portfolio Persons]
o Access, Investment and Portfolio Persons must submit an Initial
Holdings Report to the Compliance Department or designated Compliance
Officer disclosing every security beneficially owned directly or
indirectly by such person within 10 days of becoming an Access,
Investment or Portfolio Person.
o The Initial Holdings Report must include the following information:
(1) the title of the security; (2) the number of shares held; (3) the
principal amount of the security; and (4) the name of the broker,
dealer or bank where the security is held. The information disclosed
in the report must be current as of a date no more than 30 days before
the report is submitted.
o The Initial Holdings Report is attached as Exhibit 3 to this Code and
can be found on the I drive at I:register\inhold.doc.
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3. Quarterly Report of Securities Transactions [Access, Investment and
Portfolio Persons]
o Access, Investment and Portfolio Persons must submit quarterly
transaction reports of the purchases and/or sales of securities in
which such persons have a direct or indirect Beneficial Ownership
interest (See Exhibit 4- Quarterly Transaction Report). The report
will be provided to all Investment Persons before the end of each
quarter by the Compliance Department or the designated Compliance
Officer and must be completed and returned no later than 10 days after
the end of each calendar quarter. Quarterly Transaction Reports that
are not returned by the date they are due will be considered late and
will be reported as violations of the Code of Ethics. Investment and
Portfolio Persons who repeatedly return the reports late (5 late
filings) will be subject to a monetary fine for their Code of Ethics
violations.
o The following information must be provided on the report:
a. The date of the transaction, the description and number of
shares, and the principal amount of each security involved;
b. Whether the transaction is a purchase, sale or other acquisition
or disposition;
c. The transaction price; and
d. The name of the broker, dealer or bank through whom the
transaction was effected.
4. Annual Report of Securities Holdings [Access, Investment and Portfolio
Persons]
o On an annual basis, Investment and Portfolio Persons must submit to
the Compliance Department or the designated Compliance Officer an
Annual Report of Securities Holdings that contains a list of all
securities subject to this Code in which they have any direct or
indirect Beneficial Ownership interest (See Exhibit 5 - Annual
Securities Holdings Report). The information disclosed in the report
must be current as of a date no more than 30 days before the report is
submitted.
o Annual reports must be returned to the Compliance Department or the
designated Compliance Officer within 30 days after the end of the
calendar year-end.
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5. Annual Certification of Compliance [All Employees]
o All employees will be required to certify annually that they:
- have read the Code of Ethics;
- understand the Code of Ethics; and
- have complied with the provisions of the Code of Ethics.
o The Compliance Department or the designated Compliance Officer will
send out annual forms (attached as Exhibit 6) to all employees that
must be completed and returned no later than 30 days after the end of
the calendar year.
F. Detection and Reporting of Code Violations
The Compliance Department or the designated Compliance Officer will :
o review the trading activity reports or duplicate statements filed by
Employees, focusing on patterns of personal trading;
o review the trading activity of Investment Vehicles;
o review the holdings reports submitted by Access, Investment and
Portfolio Persons;
o prepare an Annual Issues and Certification Report to the Board of
Trustees or Directors of the Investment Vehicles that, (1) describes
the issues that arose during the year under this Code, including, but
not limited to, material violations of and sanctions under the Code,
and (2) certifies that SEI has adopted procedures reasonably necessary
to prevent its access, investment and portfolio personnel from
violating this Code; and
o prepare a written report to SEI management personnel outlining any
violations of the Code together with recommendations for the
appropriate penalties.
G. Violations of the Code of Ethics
1. Penalties:
o Employees who violate the Code of Ethics may be subject to serious
penalties which may include:
- written warning;
- reversal of securities transaction;
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- restriction on trading privileges;
- disgorgement of trading profits;
- fine;
- suspension or termination of employment; and/or
- referral to regulatory or law enforcement agencies.
2. Penalty Factors:
o Factors which may be considered in determining an appropriate penalty
include, but are not limited to:
- the harm to clients;
- the frequency of occurrence;
- the degree of personal benefit to the employee;
- the degree of conflict of interest;
- the extent of unjust enrichment;
- evidence of fraud, violation of law, or reckless disregard of a
regulatory requirement; and/or
- the level of accurate, honest and timely cooperation from the
employee.
H. Confidential Treatment
o The Compliance Department or the designated Compliance Officer will
use their best efforts to assure that all requests for pre-clearance,
all personal securities transaction reports and all reports for
securities holding are treated as "Personal and Confidential."
However, such documents will be available for inspection by
appropriate regulatory agencies and other parties within and outside
SEI as are necessary to evaluate compliance with or sanctions under
this Code.
I. Definitions Applicable to the Code of Ethics
1. Account - a securities trading account held by an Employee and by any such
person's spouse, minor children and adults residing in his or her household
(each such person, an "immediate family member"); any trust for which the person
is a trustee or from which the Employee benefits directly or indirectly; any
partnership (general, limited or otherwise) of which the Employee is a general
partner or a principal of the general partner; and any other account over which
the Employee exercises investment discretion.
2. Beneficial Ownership - Security ownership in which a person has a direct or
indirect financial interest. Generally, an employee will be regarded as a
beneficial owner of Securities that are held in the name of:
a. a spouse or domestic partner;
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b. a minor child;
c. a relative who resides in the employee's household; or
d. any other person IF: (a) the employee obtains from the securities
benefits substantially similar to those of ownership (for example,
income from securities that are held by a spouse); or (b) the employee
can obtain title to the securities now or in the future.
3. Initial Public Offering - an offering of securities for which a registration
statement has not been previously filed with the U.S. SEC and for which there is
no active public market in the shares.
4. Purchase or sale of a Security - includes the writing of an option to
purchase or sell a security.
5. Security - includes notes, bonds, stocks (including closed-end funds),
convertibles, preferred stock, options on securities, futures on broad-based
market indices, warrants and rights. A "Security" does not include direct
obligations of the U.S. Government ; bankers' acceptances, bank certificates of
deposit, commercial paper and high quality short-term debt instruments,
including repurchase agreements; and, shares issued by open-end mutual funds.
III. INSIDER TRADING POLICY
All Employees are required to refrain from investing in Securities based on
material nonpublic inside information. This policy is based on the U.S. federal
securities laws that prohibit any person from:
1. trading on the basis of material, nonpublic information;
2. tipping such information to others;
3. recommending the purchase or sale of securities on the basis of such
information;
4. assisting someone who is engaged in any of the above activities; and
5. trading a security, which is the subject of an actual or impending tender
offer when in possession of material nonpublic information relating to the
offer.
This includes any confidential information that may be obtained by Access,
Investment and Portfolio Persons regarding the advisability of purchasing or
selling specific securities for any Investment Vehicles or on behalf of clients.
Additionally, this policy includes any confidential information that may be
obtained about SEI Investments Company or any of its affiliated entities. This
Section outlines basic definitions and provides guidance to Employees with
respect to this Policy.
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A. What is "Material" Information?
Information is material when there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment decisions.
Generally, if disclosing certain information will have a substantial effect on
the price of a company's securities, or on the perceived value of the company or
of a controlling interest in the company, the information is material, but
information may be material even if it does not have any immediate direct effect
on price or value. There is no simple "bright line" test to determine when
information is material; assessments of materiality involve a highly
fact-specific inquiry. For this reason, any question as to whether information
is material should be directed to the Compliance Department.
B. What is "Nonpublic" Information?
Information about a publicly traded security or issuer is "public" when it has
been disseminated broadly to investors in the marketplace. Tangible evidence of
such dissemination is the best indication that the information is public. For
example, information is public after it has become available to the general
public through a public filing with the SEC or some other governmental agency,
the Dow Jones "tape" or the Wall Street Journal or some other publication of
general circulation, and after sufficient time has passed so that the
information has been disseminated widely.
Information about securities that are not publicly traded, or about the issuers
of such securities, is not ordinarily disseminated broadly to the public.
However, for purposes of this Policy, such private information may be considered
"public" private information to the extent that the information has been
disclosed generally to the issuer's security holders and creditors. For example,
information contained in a private placement memorandum to potential investors
may be considered "public" private information with respect to the class of
persons who received the memorandum, but may still be considered "nonpublic"
information with respect to creditors who were not entitled to receive the
memorandum. As another example, a controlling shareholder may have access to
internal projections that are not disclosed to minority shareholders; such
information would be considered "nonpublic" information.
C. Who Is an Insider?
Unlawful insider trading occurs when a person, who is considered an insider,
with a duty not to take advantage of material nonpublic information violates
that duty. Whether a duty exists is a complex legal question. This portion of
the Policy is intended to provide an overview only, and should not be read as an
exhaustive discussion of ways in which persons may become subject to insider
trading prohibitions.
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Insiders of a company include its officers, directors (or partners), and
employees, and may also include a controlling shareholder or other controlling
person. A person who has access to information about the company because of some
special position of trust or has some other confidential relationship with a
company is considered a temporary insider of that company. Investment advisers,
lawyers, auditors, financial institutions, and certain consultants and all of
their officers, directors or partners, and employees are all likely to be
temporary insiders of their clients.
Officers, directors or partners, and employees of a controlling shareholder may
be temporary insiders of the controlled company, or may otherwise be subject to
a duty not to take advantage of inside information.
D. What is Misappropriation?
Misappropriation usually occurs when a person acquires inside information about
Company A in violation of a duty owed to Company B. For example, an employee of
Company B may know that Company B is negotiating a merger with Company A; the
employee has material nonpublic information about Company A and must not trade
in Company A's shares.
For another example, Employees who, because of their association with SEI,
receive inside information as to the identity of the companies being considered
for investment by SEI Investment Vehicles or by other clients, have a duty not
to take advantage of that information and must refrain from trading in the
securities of those companies.
E. What is Tipping?
Tipping is passing along inside information; the recipient of a tip (the
"tippee") becomes subject to a duty not to trade while in possession of that
information. A tip occurs when an insider or misappropriator (the "tipper")
discloses inside information to another person, who knows or should know that
the tipper was breaching a duty by disclosing the information and that the
tipper was providing the information for an improper purpose. Both tippees and
tippers are subject to liability for insider trading.
A. F. Identifying Inside Information
Before executing any securities transaction for your personal account or for
others, you must consider and determine whether you have access to material,
nonpublic information. If you think that you might have access to material,
nonpublic information, you must take the following steps:
1. Report the information and proposed trade immediately to the Compliance
Department or designated Compliance Officer;
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2. Do not purchase or sell the securities on behalf of yourself or others; and
3. Do not communicate the information inside or outside SEI, other than to the
Compliance Department or designated Compliance Officer.
These prohibitions remain in effect until the information becomes public.
Employees managing the work of consultants and temporary employees who have
access to material nonpublic information are responsible for ensuring that
consultants and temporary employees are aware of this Policy and the
consequences of non-compliance.
G. Trading in SEI Investments Company Securities
This Policy applies to all employees with respect to trading in the securities
of SEI Investments Company, including shares held directly or indirectly in the
Company's 401(k) plan. Employees, particularly "officers" (as defined in Rule
16(a)-1(f) in the Securities Exchange Act of 1934, as amended), of the company
should be aware of their fiduciary duties to SEI and should be sensitive to the
appearance of impropriety with respect to any of their personal transactions in
SEI's publicly traded securities. Thus, the following restrictions apply to all
transactions in SEI's publicly traded securities occurring in an employee's
Account and in all other accounts in which the employee benefits directly or
indirectly, or over which the employee exercises investment discretion.
o Blackout Period - Directors and Officers are prohibited from buying or
selling SEI's publicly traded securities during the blackout period. The
blackout periods are as follows:
o for the first, second and third quarterly financial reports - begins
at the close of the prior quarter and ends after SEI publicly
announces the financial results for that quarter.
o for the annual and fourth quarter financial reports - begins on the
6th business day of the first month following the end of the calendar
year-end and ends after SEI publicly announces its financial results.
All securities trading during this period may only be conducted with the
approval of SEI's General Counsel or the Compliance Director. In no event
may securities trading in SEI's stock be conducted while an Director or
Officer of the company is in possession of material nonpublic information
regarding SEI.
o Major Events - Employees who have knowledge of any SEI events or
developments that may have a "material" impact on SEI's stock that have not
been publicly announced are prohibited from buying or selling SEI's
publicly traded securities before such announcements. (See definition of
"material information" contained in III. A. above.)
o Short Selling and Derivatives Trading Prohibition - All employees are
prohibited from engaging in short sales and options trading of SEI's common
stock.
Section 16(a) directors and officers are subject to the following additional
trading restriction.
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o Short Swing Profits - Directors and Officers may not profit from the
purchase and sale or sale and purchase of SEI's securities within 6 months
of acquiring or disposing of Beneficial Ownership of that Security.
H. Violations of the Insider Trading Policy
Unlawful trading of securities while in possession of material nonpublic
information, or improperly communicating that information to others, is a
violation of the federal securities laws and may expose violators to stringent
penalties. Criminal sanctions may include a fine of up to $1,000,000 and/or ten
years imprisonment. The SEC can recover the profits gained or losses avoided
through the violative trading, a penalty of up to three times the illicit
windfall or loss avoided, and an order permanently enjoining violators from such
activities. Violators may be sued by investors seeking to recover damages for
insider trading violations. In addition, violations by an employee of SEI may
expose SEI to liability. SEI views seriously any violation of this Policy, even
if the conduct does not, by itself, constitute a violation of the federal
securities laws. Violations of this Policy constitute grounds for disciplinary
sanctions, including dismissal.
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SEI INVESTMENTS COMPANY
CODE OF ETHICS AND INSIDER TRADING POLICY
EXHIBITS
Exhibit 1 Pre-clearance Request Form
Exhibit 2 Account Opening Letters to Brokers/Dealers
Exhibit 3 Initial Holdings Report
Exhibit 4 Quarterly Transaction Report
Exhibit 5 Annual Securities Holdings Report
Exhibit 6 Annual Compliance Certification
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EXHIBIT 1
- --------------------------------------------------------------------------------
PRECLEARANCE REQUEST FORM
- --------------------------------------------------------------------------------
Name: Date:
Ext #: Title/Position:
- --------------------------------------------------------------------------------
Transaction Detail: I request prior written approval to execute the following
trade:
- --------------------------------------------------------------------------------
Buy: /_/ Sell: /_/ Security Name: Security type:
No. of Shares: Price: If sale, date acquired:
Held in an SEI Portfolio: Yes /_/ No /_/
If yes, provide: (a) the Portfolio's name:
(b) the date Portfolio bought or sold the security:
Initial Public Offering: Private Placement:
/_/ Yes /_/ No /_/ Yes /_/ No
- --------------------------------------------------------------------------------
Disclosure Statements
- --------------------------------------------------------------------------------
I hereby represent that, to the best of my knowledge, neither I nor the
registered account holder: (1) have knowledge of a possible or pending purchase
or sale of the above security in any of the portfolios for which SEI acts as an
investment adviser, distributor, administrator, or for which SEI oversees the
performance of one or more it sub-advisers; (2) is in possession of any material
nonpublic information concerning the security to which this request relates; and
(3) is engaging in any manipulative or deceptive trading activity.
I acknowledge that if the Compliance Officer to whom I submit this written
request determines that the above trade would contravene SEI Investments
Company's Code of Ethics and Insider Trading Policy ("the Policy"), the
Compliance Officer in his or her sole discretion has the right not to approve
the trade, and I undertake to abide by his or her decision.
I acknowledge that this authorization is valid for a period of three (3)
business days.
- --------------------------------------------------------------------------------
Signature: Date:
- --------------------------------------------------------------------------------
Compliance Officer's Use Only
- --------------------------------------------------------------------------------
Approved: /_/ Disapproved: /_/ Date:
By: Comments:
- --------------------------------------------------------------------------------
Transaction Report Received: Yes /_/ No /_/
- --------------------------------------------------------------------------------
Note: This preclearance will lapse at the end of the day on , 20 . If you
decide not to effect the trade, please notify the Compliance Department or
designated Compliance Officer immediately.
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EXHIBIT 2
Date:
Your Broker
street address
city, state, zip code
Re: Your Name
your S.S. number or account number
Dear Sir or Madam:
Please be advised that I am an employee of SEI Investments Distribution, Co., a
registered broker/dealer an/or SEI Investments Management Corporation, a
registered investment adviser. Please send duplicate statements only of this
brokerage account to the attention of:
SEI Investments Company
Attn: The Compliance Department
One Freedom Valley Drive
Oaks, PA 19456
This request is made pursuant to SEI's Code of Ethics and Insider Trading Policy
and Rule 3050 of the NASD's Code of Conduct.
Thank you for your cooperation.
Sincerely,
Your name
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Date:
[Address]
Re: Employee Name
Account #
SS#
Dear Sir or Madam:
Please be advised that the above referenced person is an employee of SEI
Investments Distribution, Co., a registered broker/dealer and/or SEI Investments
Management Corporation, a registered investment adviser. We grant permission for
him/her to open a brokerage account with your firm and request that you send
duplicate statements only of this employee's brokerage account to:
SEI Investments Company
Attn: The Compliance Department
One Freedom Valley Drive
Oaks, PA 19456
This request is made pursuant to SEI's Code of Ethics and Insider Trading Policy
and Rule 3050 of the NASD's Code of Conduct.
Thank you for your cooperation.
Sincerely,
Cynthia M. Parrish
Compliance Director
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EXHIBIT 3
SEI INVESTMENTS MANAGEMENT CORPORATION
INITIAL HOLDINGS REPORT
Name:___________________________________________________________________________
Signature:____________________________________________________________
Submission Date:_____________________
Number of Name of Broker, Dealer or
Title of Security Shares Held Principal Amount Bank Where Security is Held
================================================================================
================================================================================
This report must be submitted within 10 days of becoming an Access, Investment
or Portfolio Person under SEI Investments Company's Code of Ethics. All
securities holdings must be reported on this form.
I confirm that the above list is an accurate and complete listing of all
securities in which I have a direct or indirect beneficial interest.
____________________________________________________________________
Signature
______________________
Date
____________________________________________________________________
Received by:
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EXHIBIT 4
SEI INVESTMENTS MANAGEMENT CORPORATION
QUARTERLY TRANSACTION REPORT
Transaction Record of Securities Directly or Indirectly Beneficially Owned
________________, 2000 to ____________, 2000
Name:___________________________________________________________________________
Signature:______________________________________________________________________
Submission Date:________________________________________________________________
Number of Broker/
Shares and Dealer Issuer &
Principal Type of or Title of
Date Amount Transaction Bank Security Price
================================================================================
================================================================================
This report is required of all officers, directors and certain other persons
under Section 204 of the Investment Advisers Act of 1940 and Rule 17j-1 of the
Investment Company Act of 1940 and is subject to examination. Transactions in
direct obligations of the U.S. Government need not be reported. In addition,
persons need not report transactions in bankers' acceptances, certificates of
deposit, commercial paper or open-end investment companies. The report must be
returned within 10 days of the applicable calendar quarter end. The reporting of
transactions on this record shall not be construed as an admission that the
reporting person has any direct or indirect beneficial ownership in the security
listed.
By signing this document, I represent that all reported transactions were
pre-cleared through the Compliance Department or the designated Compliance
Officer in compliance with the SEI Investments Company Code of Ethics and
Insider Trading Policy.
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EXHIBIT 5
SEI INVESTMENTS
ANNUAL SECURITIES HOLDINGS REPORT
As of December 31, 19__
Employee Name: ____________________________________________
- --------------------------------------------------------------------------------
Account Number
and Name of
Brokerage Firm
Number Type of Ownership Where Securities
Security of Shares (direct or indirect) are Held
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I confirm that the above list is an accurate and complete listing of all
securities in which I have a direct or indirect beneficial interest.
__________________________________ ____________________________________
Name Received by
__________________________
Date
Note: Do not report holdings of U.S. Government securities, bankers'
acceptances, certificates of deposit, commercial paper and mutual funds.
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EXHIBIT 6
SEI INVESTMENTS
CODE OF ETHICS
ANNUAL COMPLIANCE CERTIFICATION
TO: Compliance Department
FROM:
DATE:
1. I hereby acknowledge receipt of a copy of the Code of Ethics and Insider
Trading Policy.
2. I have read and understand the Code of Ethics and Insider Trading Policy
and recognize that I am subject thereto.
3. I hereby declare that I have complied with the terms of the Code of Ethics
and Insider Trading Policy.
Signature: __________________________________________________________
Date: _______________________
Received by: ________________________________________________________
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