Pilgrim Baxter & Associates, Ltd.

On June 21, 2004, the SEC instituted administrative and cease-and-desist proceedings against Pilgrim Baxter & Associates, Ltd. The SEC alleged that PBA, the registered investment adviser to the PBHG family of mutual funds, participated in a scheme involving short-term trading ("market timing") of the PBHG Funds, reaping profits and diluting the value of the funds to the detriment of long-term investors. The SEC's Order was part of a settlement with PBA of its federal district court action against PBA – on July 20, 2004, upon the SEC's request, the federal district court dismissed that action against PBA. See Litigation Release No. 18802 (July 27, 2004). PBA also was ordered to pay $40 million in disgorgement and $50 million in a civil penalty for distribution to defrauded shareholders. For more information about the SEC's action, you can read In the Matter of Pilgrim Baxter & Associates, Ltd. (June 21, 2004).

In addition, in settlement of a separate but related action filed by the New York Attorney General, PBA agreed to reduce management fees by 3.16% over a five-year period, a reduction valued at $10 million. For more information, you can read the NYAG Press Release (June 21, 2004).

Under the terms of the SEC's Order, PBA, through an Independent Distribution Consultant, must submit a distribution plan for the $90 million to the SEC by December 13, 2004. Upon approval of the plan, the SEC will post notice of the Plan of Distribution on this web page.

http://www.sec.gov/divisions/enforce/claims/pilgrimbaxter.htm