NU Online News Service, Nov. 13, 2003, 1:29 p.m. EST – Pilgrim Baxter & Associates, Wayne, Pa., the unit of Old Mutual P.L.C., London, that advises the PBHG Funds, says its founders, Harold Baxter and Gary Pilgrim, are stepping down because of concerns about Pilgrim’s investment in a hedge fund that invested in the PBHG Funds.

Baxter has been chairman and chief executive of Pilgrim Baxter since he helped start the company in 1982. Pilgrim, a founding partner, has been a fund manager at the company and a supervisor of daily operations for trading and account control.

David Bullock, who joined Pilgrim Baxter in July as president and chief operating officer, will take over from Baxter as chief executive of Pilgrim Baxter, and from Pilgrim as president of the PBHG Funds and as president of the PBHG Insurance Series Fund.

Scott Powers, chief executive of Old Mutual Asset Management, the company that runs Old Mutual’s asset-management businesses, will become the chairman of Pilgrim Baxter, Pilgrim Baxter says.

Bullock attributes the departures of Baxter and Pilgrim to an internal review of past practices that Pilgrim Baxter began in September.

“That review, conducted with the assistance of independent experts, has raised questions about decisions the prior management team made before December 2001, when they sought to eliminate all market timing in the PBHG Funds,” Bullock writes in a letter to the PBHG Funds’ shareholders. “That review has brought into focus conduct that was not, in our view, consistent with the highest standards of professional and ethical behavior.”

Pilgrim Baxter says the review turned up information about a “passive investment on the part of Mr. Pilgrim in a private investment limited partnership, unaffiliated with Pilgrim Baxter, that, with Mr. Baxter’s knowledge when he was CEO, actively purchased and redeemed shares of certain PBHG Funds and other mutual funds using a quantitative tactical asset-allocation model based solely on publicly available information.”

Pilgrim began investing in the limited partnership in 1995 and has continued to invest in the partnership to the present, but the limited partnership’s investment activity in the PBHG Funds was limited to the period from March 2000 to December 2001, Pilgrim Baxter says.

“There is no evidence that Mr. Pilgrim, or any other employee, provided the limited partnership with any nonpublic information about the PBHG Funds,” Pilgrim Baxter says.

Bullock writes in the shareholder letter that Pilgrim Baxter is acting to resolve the issue by having Baxter and Pilgrim resign.

In addition, Pilgrim will give the PBHG Funds all personal profits he earned from the limited partnership’s investments in the PBHG Funds, Pilgrim Baxter says.

Pilgrim Baxter has retained independent counsel to lead its internal review to assure a thorough, independent examination of mutual fund trading practices in the PBHG Funds group, and the counsel will present the results to the PBHG Funds’ board, Pilgrim Baxter says.

Pilgrim Baxter also will retain an independent accounting firm to conduct a separate review of the adequacy of internal controls and procedures affecting the administration of the PBHG Funds, Pilgrim Baxter says.

“Pilgrim Baxter’s current practices of attempting to prevent market-timing activity in the PBHG Funds will be formally adopted as policies and disclosed in PBHG fund prospectuses,” the company adds.

Pilgrim Baxter says it temporarily will put Pilgrim’s responsibilities for portfolio management in the hands of other Pilgrim Baxter and PBHG Funds executives. The company also has hired an executive search firm to find new, permanent portfolio managers.

Bullock, the new chief executive, previously was president of Transamerica Capital Inc., a U.S. unit of AEGON N.V., The Hague, Netherlands. While at Transamerica, he was responsible for developing and marketing Transamerica Life Insurance Company variable annuity products and the IDEX Mutual Funds.

Previously, Bullock was a senior vice president at GE Financial Assurance, a unit of General Electric Company, Fairfield, Conn.

Bullock has a bachelor’s degree in financial and estate planning from Brigham Young University.

Powers has been chief executive of Old Mutual Asset Management since 2001. Before that, he was an executive vice president at a unit of Mellon Financial Corp., Pittsburgh.

Bullock has a bachelor’s degree in economics from Harvard University.