As Filed with the Securities and Exchange Commission on December 12, 2002
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. __
[ ] Post-Effective Amendment No. __
JANUS INVESTMENT FUND
(Exact Name of Registrant as Specified in Charter)
100 FILLMORE STREET
DENVER, COLORADO 80206-4928
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, including Area Code: (303) 333-3863
-----------------
THOMAS A. EARLY
JANUS INVESTMENT FUND
100 FILLMORE STREET
DENVER, COLORADO 80206-4928
(Name and Address of Agent for Service)
Copy to:
DEBORAH BIELICKE EADES
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60601
-----------------
Approximate date of proposed public offering: As soon as practicable
after the effective date of this Registration Statement.
No filing fee is required because an indefinite number of shares have
previously been registered pursuant to Rule 24f-2 under the Investment Company
Act of 1940.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
[Janus LOGO]
FOR SHAREHOLDERS OF ONE OR MORE OF THE FOLLOWING FUNDS:
BERGER GROWTH FUND
January XX, 2003 BERGER LARGE CAP GROWTH FUND
BERGER MID CAP GROWTH FUND
BERGER SMALL COMPANY GROWTH FUND
BERGER BALANCED FUND
BERGER INFORMATION TECHNOLOGY FUND
BERGER INTERNATIONAL FUND
Dear Shareholder:
Your fund's Board is requesting your vote on the following proposals regarding
your Berger fund(s). These proposals are part of a plan to reorganize your
Berger fund into a Janus fund with similar investment objectives.
While we encourage you to read the Questions and Answers section and the full
text of the enclosed proxy statement/prospectus, the proposals are summarized as
follows:
o Approve the reorganization of your Berger fund(s) into a Janus
fund(s) with similar investment objectives (see page X of the
proxy statement/prospectus to see which Berger fund will
reorganize with which Janus fund);
o For Berger Large Cap Growth Fund, approve an amendment to the
Articles of Incorporation to better facilitate the
reorganization;
o Ratify interim advisory agreements with Janus for certain
funds; and
o Elect Board members for certain funds.
Your fund's Board members unanimously approved the proposals and urge you to
vote "FOR" each proposal.
Please take a few minutes to cast your vote now. If you have any questions about
the proposals, feel free to call a proxy specialist at 1-866-238-7096
(Georgeson's number).
Thank you for your response and we look forward to welcoming you as a Janus
shareholder and serving your future investment needs.
Respectfully,
Mark Whiston
CEO, Janus Capital Group
YOUR VOTE IS IMPORTANT. To vote, simply fill out each of the enclosed proxy
cards and return them to us in the enclosed postage-paid envelope. If we do not
hear from you by ______, our proxy solicitor, Georgeson Shareholder
Communications Inc., may contact you.
IMPORTANT NEWS FOR SHAREHOLDERS
While we encourage you to read the full text of the enclosed Proxy
Statement/Prospectus, here is a brief overview of some matters affecting your
Fund that will be the subject of shareholder vote.
QUESTIONS AND ANSWERS
YOUR VOTE IS VERY IMPORTANT
Q. WHAT ARE SHAREHOLDERS BEING ASKED TO VOTE ON AT THE UPCOMING SPECIAL
MEETINGS ON MARCH 7, 2003?
A. Stilwell Financial Inc. ("Stilwell") is the indirect owner of both
Berger Financial Group LLC ("Berger") and Janus Capital Management LLC
("Janus"). On September 3, 2002, Stilwell announced its intention to
consolidate all of its investment advisory operations under Janus. As a
result of this restructuring, it is anticipated that Berger, the
investment adviser to your Fund, will be consolidated into Janus and
will cease to exist.
In connection with the consolidation, your Board approved the
reorganization of your Fund into a similar Janus Fund. You are being
asked to vote on the reorganization of your Fund (the
"Reorganization").
In connection with the Reorganization, your Board also approved an
interim advisory agreement with Janus for Berger Growth Fund, Berger
Large Cap Growth Fund, Berger Mid Cap Growth Fund, Berger Small Company
Growth Fund and Berger Balanced Fund. Pursuant to the interim advisory
agreement, Janus began serving as investment adviser to your Fund on
December 16, 2002. You are being asked to ratify that agreement for
your Fund. Berger and the current subadviser will continue to provide
advisory services to Berger Information Technology Fund and Berger
International Fund until the closing of the Reorganization.
Shareholders of the Berger Large Cap Growth Fund also are being asked
to vote on an amendment to their Fund's charter, which would lower the
necessary vote for certain corporate actions, including the
Reorganization, from two-thirds to a majority of the outstanding shares
of the Fund.
Q. WHY ARE CERTAIN FUNDS ELECTING NEW TRUSTEES?
A. The Board of Berger Investment Portfolio Trust also approved the
reorganization of certain other Berger Funds with a value style into
newly-created Janus funds. In order to effect the reorganization of
those value funds, shareholders of all series of Berger Investment
Portfolio Trust are being asked to elect the members of the Janus
Funds' Board of Trustees to the Board of the Berger Investment
Portfolio Trust to facilitate integration of the Funds into the Janus
family. As a result, shareholders of the Berger Mid Cap Growth Fund,
Berger Small Company Growth Fund, Berger Balanced Fund and Berger
Information Technology Fund, together with other Funds not included in
this proxy statement/prospectus, are being asked to vote on the
election of Board members.
Q. HOW DO THE INVESTMENT OBJECTIVES AND POLICIES OF THE BERGER FUNDS AND
THE JANUS FUNDS COMPARE?
A. Although each of the Berger Funds has similar investment objectives and
compatible investment policies with its corresponding Janus Fund, there
are differences. Your portfolio manager will
change and will be supported by the research and trading personnel and
facilities of Janus rather than Berger or your current subadviser.
Q. WHAT ARE THE ADVANTAGES FOR BERGER FUND SHAREHOLDERS?
A. Combining your Fund with a Janus Fund will allow you to continue your
investment in a fund with a similar investment objective and compatible
investment policies. In addition, each Janus Fund is expected to have
lower overall expenses than the corresponding Berger Fund.
Q. WHEN WOULD THE REORGANIZATION TAKE PLACE FOR MY FUND?
A. If approved by shareholders, the Reorganization for each Fund is
expected to occur in the first quarter of 2003.
Q. WILL I RECEIVE NEW SHARES IN EXCHANGE FOR MY CURRENT SHARES?
A. Yes. Upon approval and completion of the Reorganization, your Berger
Fund shares will be exchanged for shares of the applicable Janus Fund.
You will receive shares of the Janus Fund whose aggregate value at the
time of issuance will equal the aggregate value of your Berger Fund
shares on the effective date.
Q. WHO IS PAYING FOR THE REORGANIZATION COSTS?
A. Janus, the investment adviser of the Janus Funds, has agreed to bear
the costs of the Reorganization.
Q. WILL THE REORGANIZATION CREATE A TAXABLE EVENT FOR ME?
A. The Reorganization is intended to be done on a tax-free basis for
federal income tax purposes. Therefore, you will recognize no gain or
loss for federal income tax purposes as a result of the Reorganization.
In addition, the tax basis and holding period of the Janus Fund shares
you receive will be the same in the aggregate as the tax basis and
holding period of your Berger Fund shares.
Q. CAN I EXCHANGE OR REDEEM MY BERGER FUND SHARES BEFORE THE
REORGANIZATION TAKES PLACE?
A. Yes. You may exchange your Berger Fund shares for shares of another
Berger Fund open to new investors or redeem your shares, at any time
before the Reorganization takes place. If you choose to do so, your
request will be treated as a normal exchange or redemption of shares
and will be a taxable transaction.
Q. HAS THE BOARD APPROVED THE PROPOSALS?
A. Yes. Your Fund's Board members unanimously approved the proposals and
recommend that you vote in favor of each proposal.
Q. HOW DO I VOTE MY SHARES?
A. You can vote your shares at the meetings or you can authorize proxies
to vote your shares by mail using the enclosed proxy card. You can also
authorize proxies to vote your shares by telephone
or by the Internet. If you need more information on how to vote or if
you have any questions, please call Georgeson Shareholder
Communications Inc. at 1-866-238-7096.
Q. WHAT HAPPENS IF A PROPOSAL IS NOT APPROVED?
A. If shareholders do not approve the Reorganization of a Fund, the
Reorganization for that Fund will not take effect and your Fund's Board
members will take such action as they deem to be in the best interests
of the Fund and its shareholders. The Reorganizations for Berger Mid
Cap Growth Fund, Berger Small Company Growth Fund, Berger Balanced Fund
and Berger Information Technology Fund, each a series of Berger
Investment Portfolio Trust, are contingent upon shareholder approval of
the persons nominated as Board members.
If shareholders do not ratify the interim advisory agreement of a Fund,
the interim advisory agreement will terminate in accordance with its
terms upon the earlier of the effective date of the Reorganization or
on May 15, 2003.
If shareholders of the Berger Large Cap Growth Fund do not approve the
amendment to the Fund's charter, approval of the Reorganization will
require the affirmative vote of the holders of two-thirds, rather than
a majority, of the Fund's outstanding shares.
BERGER GROWTH FUND, INC.
BERGER LARGE CAP GROWTH FUND, INC.
BERGER INVESTMENT PORTFOLIO TRUST
BERGER MID CAP GROWTH FUND
BERGER SMALL COMPANY GROWTH FUND
BERGER BALANCED FUND
BERGER INFORMATION TECHNOLOGY FUND
BERGER WORLDWIDE FUNDS TRUST
BERGER INTERNATIONAL FUND
NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS
TO BE HELD ON MARCH 7, 2003
Notice is hereby given that Special Meetings of Shareholders of the Berger Funds
listed above (each a "Berger Fund" and, collectively, the "Berger Funds"), will
be held at the offices of Janus Capital Management LLC, 3773 Cherry Creek Drive
North, Denver, Colorado 80209, on March 7, 2003 at 10:00 a.m. Mountain time, for
the purposes of considering the proposals set forth below.
Proposal 1: For shareholders of Berger Large Cap Growth Fund, Inc. only,
to approve an amendment to the charter of the Fund, to
decrease the vote required for approval of corporate actions
(which otherwise would require approval by a greater
proportion of votes) to the affirmative vote of the holders
of shares entitled to cast a majority of all votes entitled
to be cast on the matter.
Proposal 2: For shareholders of all Funds, to approve an Agreement and
Plan of Reorganization providing for the transfer of all of
the assets and all liabilities of: (a) Berger Growth Fund in
exchange for Janus Olympus Fund shares; (b) Berger Large Cap
Growth Fund in exchange for Janus Growth and Income Fund
shares; (c) Berger Mid Cap Growth Fund in exchange for Janus
Enterprise Fund shares; (d) Berger Small Company Growth Fund
in exchange for Janus Venture Fund shares; (e) Berger
Balanced Fund in exchange for Janus Balanced Fund shares;
(f) Berger Information Technology Fund in exchange for Janus
Global Technology Fund shares; and (g) Berger International
Fund in exchange for Janus Overseas Fund shares. The shares
so received will be distributed to shareholders of the
applicable Berger Fund, which will be terminated or
dissolved as soon as practicable thereafter.
Proposal 3: For shareholders of Berger Growth Fund, Berger Large Cap
Growth Fund, Berger Mid Cap Growth Fund, Berger Small
Company Growth Fund and Berger Balanced Fund only, to ratify
an interim Investment Advisory Agreement for each Fund with
Janus Capital Management LLC.
Proposal 4: For shareholders of Berger Mid Cap Growth Fund, Berger
Small Company Growth Fund, Berger Balanced Fund and Berger
Information Technology Fund only, to elect Board members to
the Berger Investment Portfolio Trust's Board.
Shareholders of record of each Berger Fund set forth above as of the
close of business on January 7, 2003 are entitled to notice of, and to vote at
this meeting, or any adjournment of this meeting.
Shareholders of each Berger Fund will vote separately on proposal 2 and proposal
3. A proposal will be effected as to a particular Berger Fund only if that
Fund's shareholders approve the proposal. Shareholders of Berger Mid Cap Growth
Fund, Berger Small Company Growth Fund, Berger Balanced Fund, Berger Information
Technology Fund and two other series of Berger Investment Portfolio Trust
included in a separate proxy statement will vote as a single class on proposal
4.
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY THE
ACCOMPANYING PROXY CARD, WHICH IS BEING SOLICITED BY THE BOARDS OF THE BERGER
FUNDS. YOU MAY EXECUTE THE PROXY CARD USING THE METHODS DESCRIBED IN THE PROXY
CARD. EXECUTING THE PROXY CARD IS IMPORTANT TO ENSURE A QUORUM AT THE MEETING.
PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY SUBMITTING A
WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY EXECUTED PROXY OR BY ATTENDING
THE MEETING AND VOTING IN PERSON.
By Order of the Boards of Directors and
Boards of Trustees
Sue Vreeland
Secretary
, 2003
- --------------
PROXY STATEMENT/PROSPECTUS
DATED ___________, 2003
RELATING TO THE ACQUISITION OF CERTAIN BERGER FUNDS
210 UNIVERSITY BOULEVARD
DENVER, COLORADO 80206
1-800-551-5849
BY AND IN EXCHANGE FOR SHARES OF CERTAIN JANUS FUNDS
100 FILLMORE STREET
DENVER, COLORADO 80206-4928
1-800-525-3713
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors or Board of Trustees, as the
case may be (each a "Board" and each director or trustee a "Board Member"), of
Berger Growth Fund, Inc., Berger Large Cap Growth Fund, Inc., Berger Investment
Portfolio Trust and Berger Worldwide Funds Trust (each a "Company" and
collectively, the "Companies") in connection with the Special Meetings of
Shareholders (the "Meetings") of Berger Growth Fund, Berger Large Cap Growth
Fund, Berger Mid Cap Growth Fund, Berger Small Company Growth Fund, Berger
Balanced Fund, Berger Information Technology Fund and Berger International Fund
(each a "Berger Fund" and collectively, the "Berger Funds"), to be held on March
7, 2003 at 10:00 a.m. Mountain time, at the offices of Janus Capital Management
LLC ("Janus"), 3773 Cherry Creek Drive North, Denver, Colorado 80209.
Shareholders of each Berger Fund, voting separately, will be asked to consider
and approve an Agreement and Plan of Reorganization (the "Reorganization Plan"),
pursuant to which all of the assets and liabilities of each Berger Fund would be
acquired by a corresponding series of Janus Investment Fund in return for shares
of that Janus Fund (each a "Janus Fund" and collectively, the "Janus Funds")
(each a "Reorganization" and collectively, the "Reorganizations"). Each Berger
Fund will then be terminated or dissolved as soon as practicable thereafter.
In connection with the Reorganizations, shareholders of Berger Growth
Fund, Berger Large Cap Growth Fund, Berger Mid Cap Growth Fund, Berger Small
Company Growth Fund and Berger Balanced Fund, voting separately, will be asked
to ratify an interim investment advisory agreement with Janus (the "Interim
Advisory Agreement"), pursuant to which Janus currently serves as investment
adviser to each Berger Fund. Shareholders of Berger Mid Cap Growth Fund, Berger
Small Company Growth Fund, Berger Balanced Fund and Berger Information
Technology Fund, voting together with other series of Berger Investment
Portfolio Trust not included in this Proxy Statement/Prospectus, will be asked
to elect new Board Members to the Board of Berger Investment Portfolio Trust.
The nominees, if elected, will not take office unless the Reorganizations of
those funds are approved. If shareholders do not approve the Reorganizations,
the current Board Members of Berger Investment Portfolio Trust will continue to
serve. Shareholders of Berger Large Cap Growth Fund also will be asked to
approve an amendment to that Fund's charter (the "Charter"), which would have
the effect of lowering the vote required to approve that Fund's Reorganization
to the affirmative vote of the holders of shares entitled to cast a majority of
the votes entitled to be cast on the matter.
This Proxy Statement/Prospectus sets forth concisely the information
that a shareholder of each Berger Fund should know before voting on the
proposals and should be retained for future reference. Certain additional
relevant documents listed below, which have been filed with the Securities and
Exchange Commission ("SEC"), are incorporated in whole or in part by reference.
A Statement of
Additional Information dated __________, 2003, relating to this Proxy
Statement/Prospectus and the Reorganizations and including certain financial
information about the participating Berger Funds and Janus Funds, has been filed
with the SEC and is incorporated by reference into this Proxy
Statement/Prospectus. A copy of such Statement of Additional Information is
available upon request and without charge by writing to the Janus Funds, P.O.
Box 173375, Denver, Colorado 80217-3375, or by calling toll-free 1-800-525-3713.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Each Reorganization Plan provides that each Berger Fund will transfer
all of its assets and all liabilities to the corresponding Janus Fund listed
opposite its name in the following chart:
<Table>
<Caption>
BERGER FUND (SELLING FUND) JANUS FUND (ACQUIRING FUND)
-------------------------- ---------------------------
Berger Growth Fund Janus Olympus Fund
Berger Large Cap Growth Fund Janus Growth and Income Fund
Berger Mid Cap Growth Fund Janus Enterprise Fund
Berger Small Company Growth Fund Janus Venture Fund
o Investor Shares
o Institutional Shares
Berger Balanced Fund Janus Balanced Fund
Berger Information Technology Fund Janus Global Technology Fund
o Investor Shares
o Institutional Shares
Berger International Fund Janus Overseas Fund
</Table>
In exchange for the transfer of these assets and liabilities, each Janus Fund
will issue shares to the corresponding Berger Fund listed above, in an amount
equal in value to the aggregate net assets of the Berger Fund. These transfers
are expected to occur on or about March 24, 2003 (the "Closing Date"), based on
the value of each Fund's assets as of the close of the regular trading session
on the New York Stock Exchange (normally, 4:00 p.m. Eastern time) on the
business day immediately prior to the Closing Date (the "Effective Time"). As
soon as practicable after the transfer of all of a Berger Fund's assets and
liabilities, that Berger Fund will make a liquidating distribution to its
shareholders of the Janus Fund's shares received, so that a holder of shares in
a Berger Fund at the Effective Time of the Reorganization will receive a number
of shares of the corresponding Janus Fund with the same aggregate value as the
shareholder had in the Berger Fund at the Effective Time. On the Closing Date,
shareholders of each Berger Fund will become shareholders of the corresponding
Janus Fund. Each Berger Fund will then be terminated or dissolved as soon as
practicable thereafter. The closing of each Reorganization (each a "Closing") is
contingent upon shareholder approval of the Reorganization Plan with respect to
the applicable Berger Fund. Shareholders of each Berger Fund will vote
separately on its Reorganization and approval of a Reorganization is not
contingent upon the approval of any other Reorganization. A copy of the
Reorganization Plan for all Berger Funds other than Berger International Fund is
attached as Exhibit A. A copy of the Reorganization Plan for Berger
International Fund is attached as Exhibit B.
The Companies and Janus Investment Fund are open-end, management
investment companies registered under the Investment Company Act of 1940 (the
"1940 Act"). Berger Financial Group LLC ("Berger") is the investment adviser and
administrator to Berger Information Technology Fund and Berger International
Fund. Prior to December 16, 2002 (the effective date of each Interim Advisory
Agreement), Berger was the investment adviser and administrator to the other
Berger Funds included in this Proxy Statement/Prospectus. Berger Distributors
LLC, a wholly owned subsidiary of Berger, is the
principal underwriter of the Berger Funds. DST Systems, Inc., serves as transfer
agent for the Berger Funds.
Janus Capital Management LLC ("Janus") is the investment adviser to the
Janus Funds. On December 16, 2002, Janus began serving as investment adviser to
Berger Growth Fund, Berger Large Cap Growth Fund, Berger Mid Cap Growth Fund,
Berger Small Company Growth Fund and Berger Balanced Fund pursuant to an Interim
Advisory Agreement with respect to each Fund. Janus Distributors LLC ("Janus
Distributors"), a wholly owned subsidiary of Janus, is the principal underwriter
of the Janus Funds. Janus Services LLC ("Janus Services"), a wholly owned
subsidiary of Janus, serves as transfer agent for the Janus Funds.
For a more detailed discussion of the investment objectives, policies
and risks of the Berger Funds, see the Berger Funds' prospectuses dated January
29, 2002 (for Institutional Shares of Berger Small Company Growth Fund and
Berger Information Technology Fund and for Berger International Fund) and June
14, 2002 (for Investor Shares of Berger Small Company Growth Fund and Berger
Information Technology Fund and for all other Berger funds except Berger
International Fund) and statements of additional information dated January 29,
2002, as amended and/or supplemented, which have been filed with the SEC and are
incorporated by reference into this Proxy Statement/Prospectus insofar as they
relate to the Berger Funds participating in the Reorganizations. No other parts
of the prospectuses or statements of additional information are incorporated
herein. Copies of the Berger Funds' prospectuses and statements of additional
information are available upon request and without charge by calling
1-800-551-5849.
For a more detailed discussion of the investment objectives, policies
and risks of the Janus Funds, see the Janus Funds' prospectus and statements of
additional information dated February 25, 2002, as amended and/or supplemented,
which have been filed with the SEC and are incorporated by reference into this
Proxy Statement/Prospectus insofar as they relate to the Janus Funds
participating in the Reorganizations. No other parts of the prospectuses or
statements of additional information are incorporated herein. A copy of the
prospectus for the Janus Fund(s) into which your Berger Fund(s) is reorganizing
accompanies this Proxy Statement/Prospectus. Copies of the Janus Funds'
statements of additional information are available upon request and without
charge by calling 1-800-525-3713.
This Proxy Statement/Prospectus, the Notice of Special Meetings and
proxy card(s) are expected to be sent to shareholders beginning on or about
_______, 2003.
The following table identifies the Berger Funds entitled to vote on
each proposal:
<Table>
<Caption>
BERGER BERGER BERGER
LARGE MID SMALL BERGER
BERGER CAP CAP COMPANY BERGER INFORMATION BERGER
GROWTH GROWTH GROWTH GROWTH BALANCED TECHNOLOGY INTERNATIONAL
PROPOSAL FUND FUND FUND FUND FUND FUND FUND
-------- ------ ------ ------ ------ -------- ----------- -------------
To approve an
amendment to the
Charter of Berger
Large Cap Growth
Fund, Inc............. X
To approve an
Agreement and Plan
of Reorganization..... X X X X X X X
To ratify an Interim
Advisory Agreement
with Janus............ X X X X X
To elect Board Members... X X X X
</Table>
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
Proposal 1: To Approve an Amendment to the Charter of Berger Large Cap Growth Fund, Inc.........................1
Proposal 2: To Approve an Agreement and Plan of Reorganization..................................................1
Synopsis.........................................................................................................1
Investment Management and Performance............................................................................4
Janus Olympus Fund -- Berger Growth Fund................................................................4
Janus Growth and Income Fund -- Berger Large Cap Growth Fund............................................6
Janus Enterprise Fund -- Berger Mid Cap Growth Fund.....................................................9
Janus Venture Fund -- Berger Small Company Growth Fund.................................................11
Janus Balanced Fund -- Berger Balanced Fund............................................................13
Janus Global Technology Fund -- Berger Information Technology Fund.....................................15
Janus Overseas Fund -- Berger International Fund.......................................................18
Shareholder Fees and Fund Expenses..............................................................................20
Information Relating to the Reorganizations.....................................................................31
Shareholder Rights..............................................................................................36
Additional Information..........................................................................................39
Proposal 3: To ratify an Interim Advisory Agreement with Janus (Berger Growth Fund, Berger Large Cap
Growth Fund, Berger Mid Cap Growth Fund, Berger Small Company Growth Fund and Berger Balanced
Fund Only).............................................................................................40
Proposal 4: To Elect Board Members (Berger Mid Cap Growth fund, Berger Small Company Growth Fund,
Berger Balanced Fund and Berger Information Technology Fund Only)......................................44
Voting Matters..................................................................................................48
Other Business..................................................................................................50
Shareholder Inquiries...........................................................................................50
Exhibit A - Agreement and Plan of Reorganization (All Berger Funds Except Berger International Fund)
Exhibit B - Agreement and Plan of Reorganization (Berger International Fund)
Exhibit C - Amendment to the Berger Large Cap Growth Fund's Charter
Exhibit D - Form of Interim Advisory Agreement
Exhibit E - Management's Discussion of the Janus Funds' Performance
Exhibit F - Management's Discussion of the Berger Funds' Performance
Appendix A - Board Members and Officers of Berger Investment Portfolio Trust
</Table>
PROPOSAL 1: TO APPROVE AN AMENDMENT TO THE CHARTER
OF BERGER LARGE CAP GROWTH FUND, INC.
Berger Large Cap Growth Fund, Inc. is a Maryland corporation governed
by the Maryland General Corporation Law (the "MGCL"), its Charter and Bylaws.
Under the MGCL, a Maryland corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, or engage in
similar transactions outside the ordinary course of business unless approved by
the affirmative vote of holders of shares entitled to cast at least two-thirds
of all the votes entitled to be cast on the matter unless a lesser percentage
(but not less than a majority of all of the votes entitled to be cast on the
matter) is set forth in the corporation's charter. The Charter of the Berger
Large Cap Growth Fund, Inc. was previously amended to provide for approval of
amendments to the Charter and other extraordinary corporate actions by a
majority vote. However, it is unclear whether that amendment would apply to the
vote on the transfer of assets or dissolution, both of which are necessary
corporate actions for the consummation of the Reorganization.
To avoid any ambiguity with respect to the vote on the Reorganization,
an amendment to the Charter of Berger Large Cap Growth Fund, Inc. is being
proposed for approval by shareholders of the Fund. The amendment, a copy of
which is attached as Exhibit C, would provide that, notwithstanding any
provision of the law or the Charter permitting or requiring any corporate action
to be taken or approved by the affirmative vote of the holders of shares
entitled to cast a greater number of votes, any such action is effective and
valid if approved by the affirmative vote of holders of shares entitled to cast
a majority of all the votes entitled to be cast on the matter. The Board Members
of the Company believe that approval of the proposed amendment by the
shareholders is advisable and will enable the Fund to limit expenses and avoid
delays that might otherwise be incurred in obtaining two-thirds approval for the
Reorganization. If shareholders approve this proposal, Articles of Amendment
will immediately be filed with the State Department of Assessments and Taxation
of Maryland while the meeting is in progress so that the amendment would be
effective with respect to shareholder approval of the Reorganization. As a
result, approval of this proposal will allow approval of the Reorganization by a
majority, rather than two-thirds, of the outstanding shares of the Fund.
THE BOARD OF BERGER LARGE CAP GROWTH FUND, INC. UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR APPROVAL OF THE AMENDMENT TO THE CHARTER.
PROPOSAL 2: TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION
SYNOPSIS
This portion of the Proxy Statement/Prospectus is designed to allow you
to compare the investment policies, shareholder policies, fees and expenses and
other features of each Berger Fund with those of its corresponding Janus Fund.
Shareholders should read this entire Proxy Statement/Prospectus carefully. For
more complete information, please read the prospectus for each Fund.
INTRODUCTION
On September 3, 2002, Stilwell Financial Inc. ("Stilwell"), which
indirectly owns approximately 86% of Berger, entered into an Agreement and Plan
of Merger with Janus Capital Corporation ("JCC"). JCC is a holding company that
owns approximately 92% of Janus and is the managing member of Janus
vested with all management authority and responsibility, although the officers
of Janus have been delegated most of the management of the day-to-day
operations. Stilwell is a publicly traded holding company with principal
operations in the financial asset management businesses. Stilwell currently owns
approximately 98% of JCC, and through such ownership, approximately 92% of
Janus. Pursuant to the Agreement and Plan of Merger, JCC will merge into
Stilwell on or about December 31, 2002, with Stilwell surviving and succeeding
to all of the assets and liabilities of JCC, including Janus. Stilwell will
remain a publicly traded holding company with principal operations in financial
asset management businesses and will operate under the name Janus Capital Group
Inc. or a similar name ("JCGI"). After the merger, Janus will be a direct
subsidiary of JCGI and JCGI will own at least 92% of Janus. In a series of
related transactions, Berger will become a wholly owned subsidiary of Janus, and
it is expected that Berger will be consolidated into Janus in the first quarter
of 2003 and cease to exist. The foregoing series of transactions is referred to
as the "Stilwell Consolidation."
THE REORGANIZATIONS
The Board Members of each Company, including all of the Board Members
who are not "interested persons" of Berger, Janus or the Companies within the
meaning of the 1940 Act (the "Independent Board Members"), approved the
Reorganization Plan at a meeting held on November 26, 2002. Subject to its
approval by shareholders of each Berger Fund with respect to such Berger Fund,
the Reorganization Plan provides for (a) the transfer of all of the assets and
liabilities of each Berger Fund in exchange for shares of a comparable Janus
Fund; (b) the distribution of such shares to shareholders of each Berger Fund in
liquidation of that Fund; and (c) the termination or dissolution of each Berger
Fund. As a result of the Reorganizations, each shareholder of a Berger Fund will
become a shareholder of the corresponding Janus Fund as described in this Proxy
Statement/Prospectus. Each Janus Fund issues a single class of shares and
shareholders of Berger Information Technology Fund and Berger Small Company
Growth Fund will receive shares in the corresponding Janus Fund, regardless of
whether they currently hold Investor Shares or Institutional Shares of the
current Berger Fund. Shareholders of each Berger Fund will vote separately on
the Reorganization of their Fund, with each Reorganization separate and distinct
from the other. Shareholders of Investor Shares and Institutional Shares of
Berger Information Technology Fund and Berger Small Company Growth Fund will
vote as a single class. The Reorganization of each Berger Fund is not contingent
upon approval by shareholders of any other Berger Fund.
THE COMPANIES AND THE JANUS INVESTMENT FUND
Each Company is an open-end management investment company. Berger
Growth Fund, Inc. and Berger Large Cap Growth Fund, Inc. were incorporated in
Maryland on March 10, 1966. Berger Growth Fund and the Berger Large Cap Growth
Fund each offer one class of shares, their capital stock. Berger Investment
Portfolio Trust, which offers redeemable shares in different series, was
organized as a Delaware statutory trust on August 23, 1993. Berger Mid Cap
Growth Fund and Berger Balanced Fund, each a series of Berger Investment
Portfolio Trust, offer one class of shares. Berger Small Company Growth Fund and
Berger Information Technology Fund, series of Berger Investment Portfolio Trust,
each offer two classes of shares, Investor Shares and Institutional Shares.
Berger Worldwide Funds Trust, which offers redeemable shares in different
series, was organized as a Delaware statutory trust on May 31, 1996. Berger
International Fund, a series of Berger Worldwide Funds Trust, offers one class
of shares. Berger International Fund is a "feeder" fund in a master-feeder
structure.
Janus Investment Fund, an open-end management investment company, which
offers redeemable shares in different series, was organized as a Massachusetts
business trust on February 11, 1986. Each Janus Fund is a series of Janus
Investment Fund and does not offer classes of shares.
2
INVESTMENT ADVISER
Janus is the investment adviser to the Janus Funds. As of December 16,
2002, Janus began serving as investment adviser to the Berger Growth Fund,
Berger Large Cap Growth Fund, Berger Mid Cap Growth Fund, Berger Small Company
Growth Fund and Berger Balanced Fund. Janus, located at 100 Fillmore Street,
Denver, Colorado 80206, began serving as investment adviser to Janus Fund in
1970 and currently serves as adviser to fifty-nine (59) proprietary Janus funds
and subadviser to approximately fifty-two (52) mutual funds. Janus and its
affiliates also serve as adviser to offshore funds, unregistered pooled vehicles
and institutional separate accounts. As of September 30, 2002, the Janus
portfolio management team consisted of twenty-three (23) portfolio managers and
over forty (40) research analysts. Janus offers domestic and international
equity products primarily in the "growth" style, as well as fixed income and
money market products. As a result of the Stilwell Consolidation, Janus also
will offer a range of products in the "value" and mathematical styles through
its subsidiaries and strategic partners. Janus and its affiliates have
approximately [$128.75] billion in assets under management as of December 31,
2002, and constitute one of the nation's largest asset management complexes.
Janus is registered as an investment adviser under the Investment Advisers Act
of 1940 (the "Advisers Act"). Prior to December 31, 2002, Stilwell owned 92% of
the outstanding shares of Janus indirectly.
Prior to December 16, 2002, Berger was investment adviser to all of the
Berger Funds included in this Proxy Statement/Prospectus. Berger is currently
investment adviser to Berger Information Technology Fund and Berger
International Fund. Berger is registered as an investment adviser under the
Advisers Act. Berger, located at 210 University Boulevard, Denver, Colorado
80206, had approximately $_____ billion in assets under management as of
[December 31], 2002. Prior to December 31, 2002, Stilwell owned approximately
86% of Berger indirectly. As of December 31, 2002, Berger is a wholly owned
subsidiary of Janus. Except for the Funds operating pursuant to Interim Advisory
Agreements, Berger will serve as investment adviser to the Funds until the
Closing Date of the Reorganizations through its own personnel and Janus
personnel serving as dual employees.
Bay Isle Financial LLC ("Bay Isle"), located at 475 14th Street, Suite
550, Oakland, California 94612, currently serves as subadviser to Berger with
respect to Berger Information Technology Fund. Bay Isle will continue to serve
as subadviser to Berger until the Closing Date of the Reorganization. The
current subadvisory agreement with Bay Isle will terminate as of the
consummation of the Reorganization.
Berger International Fund is a feeder fund that invests all of its
assets in a master fund, the Berger International Portfolio (the "Master
Portfolio"). Bank of Ireland Asset Management (U.S.) Limited ("BIAM"), located
at 75 Holly Hill Lane, Greenwich, Connecticut 06830 (representative office) and
26 Fitzwilliam Place, Dublin 2, Ireland (main office), currently serves as
subadviser to the Master Portfolio. BIAM will continue to serve as subadviser to
Berger through the closing of the Reorganization. The current subadvisory
agreement with BIAM will terminate as of the consummation of the Reorganization.
Although Stilwell owned both Janus and Berger before the Stilwell
Consolidation, the companies historically operated as independent organizations.
In connection with the Stilwell Consolidation, it is expected that Berger will
be consolidated into Janus and will cease to exist.
3
INVESTMENT MANAGEMENT
AND PERFORMANCE
COMPARISON OF FUND POLICIES AND RISKS
This section will help you compare, among other things, the investment
objectives, policies and risks of each Janus Fund with its corresponding Berger
Fund, as well as the historical performance of the Funds. The investment
objective of each Janus Fund may be changed by the Funds' Trustees without a
shareholder vote. The investment objective of each Berger Fund is fundamental
and may not be changed without shareholder approval. The discussion below for
each Berger Fund is based on the historical operation of the Fund prior to the
effectiveness of the Interim Advisory Agreements with Janus. To the extent that
Janus serves as investment adviser pursuant to an Interim Advisory Agreement, it
is expected that such Fund would be managed in a manner similar to the Janus
Funds, subject to the policies and restrictions of the applicable Berger Fund.
Please be aware that this is only a brief discussion. More complete information
may be found in the Funds' prospectuses.
JANUS OLYMPUS FUND --
BERGER GROWTH FUND
Investment Objectives, Policies and Restrictions. While the Funds have
similar investment objectives and policies, there are some differences. Janus
Olympus Fund seeks long-term growth of capital. Berger Growth Fund aims for
long-term capital appreciation. Each Fund invests primarily in common stocks of
companies with the potential for growth. Janus Olympus Fund may invest in growth
companies of any size, from well-established companies to emerging growth
companies. Although Berger Growth Fund also may invest in companies of any size,
it focuses on more established companies and has adopted a fundamental
restriction (i.e., one that cannot be changed without a shareholder vote)
limiting its investments in companies with limited operating histories to no
more than 5% of its total assets. Berger Growth Fund is classified as a
diversified fund and Janus Olympus Fund is classified as a nondiversified Fund.
In selecting companies for Janus Olympus Fund, the portfolio manager
takes a "bottom up" approach, which means that the portfolio manager seeks to
identify individual companies with earnings growth potential that may not be
recognized by the market at large. The portfolio manager does not use specific
selection criteria in making this assessment. Berger Growth Fund focuses on
companies that have demonstrated an ability to generate above-average growth in
revenue and earnings. In selecting companies for Berger Growth Fund, the
portfolio manager looks for companies with strong revenue and earnings growth,
large market potential for their products and services and proven, capable
management teams with clearly defined strategies for future growth. Berger
Growth Fund's investments may be focused in a small number of business sectors.
Portfolio turnover rates are not a factor in making buy and sell decisions for
either Fund, and the portfolio manager may actively trade the Berger Growth
Fund's portfolio in pursuit of its investment objective.
As secondary investment strategies in seeking to achieve their
investment objectives, both Funds are permitted to invest in foreign securities,
convertible securities, investment grade bonds, illiquid and restricted
securities (up to 15% of net assets), special situations (companies about to
undergo a structural, financial or management change that may significantly
affect the value of their securities) and initial public offerings. Each Fund
may also use futures, forwards and options for hedging purposes (and up to 5% of
net assets for nonhedging purposes, such as seeking to enhance return, for Janus
Olympus Fund) and may invest in cash and similar investments when a Fund's
portfolio manager believes market
4
conditions warrant a temporary defensive position. Janus Olympus Fund also may
invest up to 35% of its net assets in high-yield/high-risk bonds.
Janus Olympus Fund has adopted fundamental policies that generally
track the requirements of the 1940 Act; the Berger Growth Fund has adopted more
restrictive fundamental policies. As a result, the fundamental policies of the
Funds vary significantly. For example, Janus Olympus Fund is permitted to lend
portfolio securities in an amount representing up to 33-1/3% of its total
assets, but Berger Growth Fund is prohibited from lending portfolio securities.
In addition, although each Fund may borrow money for temporary or emergency
purposes, Berger Growth Fund is limited to borrowing in an amount up to 5% of
its total assets. Berger Growth Fund has also adopted fundamental policies that
are in addition to those required under the 1940 Act, such as restrictions
regarding companies with limited operating histories, as discussed above, and
other restrictions regarding participating on a joint basis in securities
trading accounts and investing in companies for the purpose of exercising
control of management.
Investment Risks. Because Janus Olympus Fund's investment objective is
similar to that of the Berger Growth Fund and both Funds invest in the common
stocks of growth companies, an investment in Janus Olympus Fund is subject to
many of the same risks as an investment in Berger Growth Fund. Both Funds are
subject to the risks of equity investing. Because the price of common stock
moves up and down in response to corporate earnings and developments, economic
and market conditions and unanticipated events, the price of the Funds'
investments may go down and investors may lose money on their investment. In
addition, to the extent a Fund engages in active trading, the Fund will have an
increased portfolio turnover rate. Higher turnover rates may result in higher
brokerage costs to the Fund and in higher net taxable gains for investors.
Janus Olympus Fund's share price may fluctuate more than the market in
general and most equity funds because of its ability as a nondiversified fund to
take larger positions in a smaller number of companies. As a result, the gains
or losses on a single stock may have a greater impact on Janus Olympus Fund's
share price. Because Berger Growth Fund is a diversified fund, it is not subject
to the risks associated with taking larger positions in a smaller number of
companies. Although Janus Olympus Fund and Berger Growth Fund each invest in
stocks of companies of all sizes, Berger Growth Fund tends to focus on
established companies while Janus Olympus Fund may also invest in emerging
growth companies. Newer or smaller sized companies may pose greater market,
liquidity and information risks because of narrow product lines, limited
financial resources, less depth in management or a limited trading market for
their stocks.
Portfolio Manager. Claire Young is Executive Vice President and
Portfolio Manager of Janus Olympus Fund, which she has managed since August
1997. She is also Portfolio Manager of other Janus accounts. Ms. Young joined
Janus in January 1992. Ms. Young holds a Bachelor of Science degree in
Electrical Engineering from Yale University. Ms. Young has earned the right to
use the Chartered Financial Analyst designation. Ms. Young has acted as
Portfolio Manager of Berger Growth Fund since December 16, 2002.
Performance. The following table shows the Funds' average annual total
returns over different periods and shows how the Funds' performance compares
with relevant broad-based market indices. The table shows returns on a
before-tax and after-tax basis. After-tax returns are calculated using the
highest historical individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on
an investor's tax situation and may differ from those shown. After-tax returns
are not relevant to investors who hold their shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts. The
performance of the Funds and the indices varies over time, and past performance
(before and after taxes) is not necessarily indicative of future
5
results. The Funds' returns assume reinvestment of dividends and distributions
(in the case of after-tax returns, reinvested net of assumed tax rates).
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED OCTOBER 31, 2002 (UNAUDITED)
[TO BE UPDATED THROUGH 12/31/02]
<Table>
<Caption>
LIFE OF
THE
FUND 1 YEAR 5 YEARS 10 YEARS FUND(1)
---- ------ ------- -------- -------
Berger Growth Fund
Return Before Taxes............................... (29.69)% (9.74)% 1.69% N/A
Return After Taxes on Distributions............... (29.69)% (13.82)% (1.15)% N/A
Return After Taxes on Distributions and Sale
of Fund Shares................................. (18.23)% (6.86)% 1.69% N/A
Janus Olympus Fund
Return Before Taxes............................... (15.89)% 4.28% N/A 9.91%
Return After Taxes on Distributions............... (16.02)% 3.67% N/A 9.39%
Return After Taxes on Distributions and Sale
of Fund Shares................................. (9.73)% 3.44% N/A 8.25%
Russell 3000 Growth Index(2) (reflects no
deduction for expenses or taxes).................. (19.72)% (2.93)% 7.07% N/A
S&P 500 Index(3) (reflects no deduction for
expenses or taxes)................................ (15.10)% 0.73% N/A 7.10%
</Table>
- ------------------
(1) As of December 29, 1995 for Janus Olympus Fund. Life of the fund
performance is not included for Berger Growth Fund and its index because
Berger Growth Fund has 10 years of performance.
(2) The Russell 3000 Growth Index is Berger Growth Fund's current benchmark
index. Berger Growth Fund recently changed its benchmark index to
correlate more closely to the investment style of the Fund. The Russell
3000 Growth Index is an unmanaged index, with dividends reinvested,
which measures the performance of those Russell 3000 companies with
higher price-to-book ratios and higher forecasted growth values. The
stocks in this index are also members of either the Russell 1000 Growth
Index or the Russell 2000 Growth Index.
(3) The S&P 500 Index is Janus Olympus Fund's benchmark index. The S&P 500
Index is an unmanaged index, with dividends reinvested, which consists
of the common stocks of 500 publicly traded U.S. companies.
JANUS GROWTH AND INCOME FUND --
BERGER LARGE CAP GROWTH FUND
Investment Objectives, Policies and Restrictions. While the Funds have
similar investment objectives and policies, there are some differences. Janus
Growth and Income Fund seeks long-term capital appreciation and current income.
Berger Large Cap Growth Fund aims for capital appreciation. Both Funds primarily
invest in common stocks of companies with the potential for growth. While Janus
Growth and Income Fund invests in companies regardless of size or length of
operating history, Berger Large Cap Growth Fund focuses on larger,
well-established companies and invests at least 80% of its total assets in
equity securities of companies whose market capitalization, at the time of
purchase, is $10 billion or more. Although Janus Growth and Income Fund normally
invests up to 75% of its assets in equity securities of growth companies, it
also invests at least 25% of its assets in securities with income potential
including equity securities, convertible securities and all types of debt
securities. Berger Large Cap Growth Fund may invest up to 20% of its assets in
convertible securities rated below investment grade.
6
In selecting growth companies for Janus Growth and Income Fund, the
portfolio manager takes a "bottom up" approach, which means that the portfolio
manager seeks to identify individual companies with earnings growth potential
that may not be recognized by the market at large. The portfolio manager does
not use specific criteria in making this assessment. Janus Growth and Income
Fund shifts assets between the growth and income components of its portfolio
based on the portfolio manager's analysis of relevant market, financial and
economic conditions. Berger Large Cap Growth Fund focuses on companies that have
demonstrated a history of growth in revenues and earnings. In selecting
companies for the Berger Large Cap Growth Fund, the portfolio manager looks for
companies with opportunities for above-average revenue and earnings growth,
strong market positions for their products and services and strong, seasoned
management teams with well-established and clearly defined strategies. Portfolio
turnover rates are not a factor in making buy and sell decisions for either
Fund, and the portfolio manager may actively trade the Berger Large Cap Growth
Fund's portfolio in pursuit of its investment objective.
As secondary investment strategies in seeking to achieve their
investment objectives, both Funds are permitted to invest in foreign securities,
illiquid and restricted securities (up to 15% of net assets), special situations
(companies about to undergo a structural, financial or management change that
may significantly affect the value of their securities) and initial public
offerings. Each Fund may also use futures, forwards and options for hedging
purposes (and up to 5% of net assets for nonhedging purposes such as seeking to
enhance returns for Janus Growth and Income Fund) and may invest in cash and
similar investments when the Fund's portfolio manager believes market conditions
warrant a temporary defensive position. Berger Large Cap Growth Fund may also
invest in investment grade bonds and Janus Growth and Income Fund may invest up
to 35% of its net assets in high-yield/high-risk bonds.
Janus Growth and Income Fund has adopted fundamental policies that
generally track the requirements of the 1940 Act; Berger Large Cap Growth Fund
has adopted more restrictive fundamental policies. As a result, the fundamental
policies of the Funds vary significantly. For example, Janus Growth and Income
Fund is permitted to lend portfolio securities representing up to 33-1/3% of its
total assets, but Berger Large Cap Growth Fund is prohibited from lending
portfolio securities. In addition, although each Fund may borrow money for
temporary or emergency purposes, Berger Large Cap Growth Fund is limited to
borrowing in an amount up to 5% of its total assets. Berger Large Cap Growth
Fund has also adopted fundamental policies that are in addition to those
required under the 1940 Act, such as restrictions regarding companies with
limited operating histories, participating on a joint basis in securities
trading accounts and investing in companies for the purposes of exercising
control of management.
Investment Risks. Because Janus Growth and Income Fund's investment
objective is similar to that of Berger Large Cap Growth Fund and both Funds
invest in the common stocks of growth companies, an investment in Janus Growth
and Income Fund is subject to many of the same risks as an investment in Berger
Large Cap Growth Fund. Both Funds are subject to the risks of equity investing.
Because the price of common stock moves up and down in response to corporate
earnings and developments, economic and market conditions and unanticipated
events, the price of the Funds' investments may go down and investors may lose
money on their investment. In addition, to the extent a Fund engages in active
trading, the Fund will have an increased portfolio turnover rate. Higher
turnover rates may result in higher brokerage costs to the Fund and in higher
net taxable gains for investors.
The income component of Janus Growth and Income Fund's portfolio
includes fixed-income securities, which are subject to interest rate and credit
risks. Their value generally decreases when interest rates rise, and there is
the risk that an issuer will be unable to make principal and interest payments
when due. Berger Large Cap Growth Fund's investments in convertible securities
are subject to similar risks. Because Berger Large Cap Growth Fund tends to
focus on more established companies, unlike Janus Growth and Income Fund, it is
not subject the risks of investing in newer companies. Newer
7
companies may pose greater market, liquidity and information risks because of
narrow product lines, limited financial resources, less depth in management or a
limited trading market for their stocks.
Portfolio Manager. David J. Corkins is Executive Vice President and
Portfolio Manager of Janus Growth and Income Fund, which he has managed since
August 1997. Mr. Corkins is also Portfolio Manager of other Janus accounts. He
joined Janus in 1995 as a research analyst. Mr. Corkins holds a Bachelor of Arts
degree in English and Russian from Dartmouth and he received his Master of
Business Administration degree from Columbia University in 1993. Mr. Corkins has
acted as Portfolio Manager of Berger Large Cap Growth Fund since December 16,
2002.
Performance. The following table shows the Funds' average annual total
returns over different periods and shows how the Funds' performance compares
with relevant broad-based market indices. The table shows returns on a
before-tax and after-tax basis. After tax-returns are calculated using the
highest historical individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on
an investor's tax situation and may differ from those shown. After-tax returns
are not relevant to investors who hold their shares through tax-deferred
arrangements, such as 401(k) plan or individual retirement accounts. The
performance of the Funds and the indices varies over time, and past performance
(before and after taxes) is not necessarily indicative of future results. The
Funds' returns assume reinvestment of dividends and distributions (in the case
of after-tax returns, reinvested net of assumed tax rates).
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED OCTOBER 31, 2002 (UNAUDITED)
[TO BE UPDATED THROUGH 12/31/02]
<Table>
<Caption>
FUND 1 YEAR 5 YEARS 10 YEARS
---- ------ ------- --------
Berger Large Cap Growth Fund
Return Before Taxes............................... (26.58)% (2.70)% 6.17%
Return After Taxes on Distributions............... (26.58)% (6.04)% 3.79%
Return After Taxes on Distributions and Sale
of Fund Shares................................. (16.32)% (2.27)% 4.84%
Janus Growth and Income Fund
Return Before Taxes............................... (14.62)% 4.66% 12.27%
Return After Taxes on Distributions............... (14.88)% 3.23% 10.50%
Return After Taxes on Distributions and Sale
of Fund Shares................................. (8.96)% 3.64% 9.84%
Russell 1000 Growth Index(1) (reflects no
deduction for expenses or taxes).................. (19.62)% (2.45)% 7.46%
S&P 500 Index(2) (reflects no deduction for
expenses or taxes)................................ (15.10)% 0.73% 9.88%
</Table>
- ------------------
(1) The Russell 1000 Growth Index is Berger Large Cap Growth Fund's current
benchmark index. Berger Large Cap Growth Fund recently changed its
benchmark index to correlate more closely to the investment style of the
Fund. The Russell 1000 Growth Index is an unmanaged index, with
dividends reinvested, which measures the performance of those Russell
1000 companies with higher price-to-book ratios and higher forecasted
growth values.
(2) The S&P 500 Index is Janus Growth and Income Fund's benchmark index and
Berger Large Cap Growth Fund's previous benchmark index. The S&P 500
Index is an unmanaged index, with dividends reinvested, which consists
of the common stocks of 500 publicly traded U.S. companies.
8
JANUS ENTERPRISE FUND --
BERGER MID CAP GROWTH FUND
Investment Objectives, Policies and Restrictions. While the Funds have
similar investment objectives and policies, there are some differences. Janus
Enterprise Fund seeks long-term growth of capital. Berger Mid Cap Growth Fund
aims for capital appreciation. Both Funds primarily invest in common stocks of
companies with the potential for growth, with an emphasis on medium-sized
companies. Janus Enterprise Fund normally invests at least 50% of its equity
assets in medium-sized companies, which it defines as those companies whose
market capitalization falls within the range of companies in the S&P Mid Cap 400
Index (approximately $225 million to $10.5 billion as of December 31, 2001).
Berger Mid Cap Growth Fund normally invests at least 80% of its assets in equity
securities of companies whose market capitalization falls, at the time of
initial purchase, within the 12-month average of the market capitalization range
of the Russell Midcap Index (which average is updated monthly). Berger Mid Cap
Growth Fund is classified as a diversified fund and Janus Enterprise Fund is
classified as a nondiversified fund.
In selecting companies for Janus Enterprise Fund, the portfolio manager
takes a "bottom up" approach, which means that the portfolio manager seeks to
identify individual companies with earnings growth potential that may not be
recognized by the market at large. The portfolio manager does not use specific
criteria in making this assessment. Berger Mid Cap Growth Fund focuses on
companies that commit their resources to innovative products or services for
unique, changing or rapidly growing markets. In selecting companies for Berger
Mid Cap Growth Fund, the portfolio manager generally looks for companies with
strong revenue and earnings growth fundamentals, leading market share in their
industry or business sector, strong management teams with established
organization structures and strong balance sheets and the ability to efficiently
finance their growth. Berger Mid Cap Growth Fund's investments may be focused in
a small number of business sectors. Portfolio turnover rates are not a factor in
making buy and sell decisions for either Fund, and the portfolio manager may
actively trade the Berger Mid Cap Growth Fund's portfolio in pursuit of its
investment objective.
As secondary investment strategies in seeking to achieve their
investment objectives, both Funds are permitted to invest in foreign securities,
convertible securities, investment grade bonds, illiquid and restricted
securities (up to 15% of net assets), special situations (companies about to
undergo a structural, financial or management change that may significantly
affect the value of their securities), companies with limited operating
histories and initial public offerings. Each Fund may also use futures, forwards
and options for hedging purposes (and up to 5% of net assets for nonhedging
purposes, such as seeking to enhance return, for Janus Enterprise Fund) and may
invest in cash and similar investments when the Fund's portfolio manager
believes market conditions warrant a temporary defensive position. Janus
Enterprise Fund also may invest up to 35% of its net assets in
high-yield/high-risk bonds.
The Funds have substantially similar fundamental investment policies,
except that Janus Enterprise Fund has no fundamental policy regarding
diversification, since it is classified as a nondiversified fund. In addition,
although both Funds may borrow money for temporary or emergency purposes, Berger
Mid Cap Growth Fund is limited to borrowing in an amount up to 25% of its total
assets.
Investment Risk. Because Janus Enterprise Fund's investment objective
is similar to that of Berger Mid Cap Growth Fund and both Funds invest in the
common stocks of growth companies, an investment in Janus Enterprise Fund is
subject to many of the same risks as an investment in Berger Mid Cap Growth
Fund. Both Funds are subject to the risks of equity investing. Because the price
of common stock moves up and down in response to corporate earnings and
developments, economic and market conditions and unanticipated events, the price
of the Funds' investments may go down and investors may
9
lose money on their investment. Each Fund's share price may fluctuate more than
that of funds primarily invested in stock of large companies. Medium-sized
companies may pose greater market, liquidity and information risks because of
narrow product lines, limited financial resources, less depth in management or a
limited trading market for their stocks. In addition, to the extent a Fund
engages in active trading, the Fund will have an increased portfolio turnover
rate. Higher turnover rates may result in higher brokerage costs to the Fund and
in higher net taxable gains for investors.
Janus Enterprise Fund's share price may fluctuate more than the market
in general and most equity funds because of its ability, as a nondiversified
fund, to take larger positions in a smaller number of companies. As a result,
the gains or losses on a single stock may have a greater impact on the Janus
Enterprise Fund's share price. Because Berger Mid Cap Growth Fund is classified
as a diversified fund, it is not subject to the risks associated with taking
larger positions in a smaller number of companies.
Portfolio Manager. Jonathan D. Coleman is Executive Vice President and
Portfolio Manager of Janus Enterprise Fund. He is also Portfolio Manager of
other Janus accounts. Mr. Coleman served as Co-Portfolio Manager for Janus
Venture Fund from 1997 through 2000. He joined Janus in 1993 as a research
analyst and was also a research analyst for Janus from 2000 through 2002. Mr.
Coleman holds a bachelor's degree in political economy and Spanish from Williams
College, where he was a member of Phi Beta Kappa. As a Fulbright Fellow, he
conducted research on economic integration in Central America. Mr. Coleman has
earned the right to use the Chartered Financial Analyst designation. Mr. Coleman
has acted as Portfolio Manager of Berger Mid Cap Growth Fund since December 16,
2002.
Performance. The following table shows the Funds' average annual total
returns over different periods and shows how the Funds' performance compares
with relevant broad-based market indices. The table shows returns on a
before-tax and after-tax basis. After tax-returns are calculated using the
highest historical individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on
an investor's tax situation and may differ from those shown. After-tax returns
are not relevant to investors who hold their shares through tax-deferred
arrangements, such as 401(k) plan or individual retirement accounts. The
performance of the Funds and the indices varies over time, and past performance
(before and after taxes) is not necessarily indicative of future results. The
Funds' returns assume reinvestment of dividends and distributions (in the case
of after-tax returns, reinvested net of assumed tax rates).
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED OCTOBER 31, 2002 (UNAUDITED)
[TO BE UPDATED THROUGH 12/31/02]
<Table>
<Caption>
LIFE OF
THE
FUND 1 YEAR 5 YEARS 10 YEARS FUND(1)
---- ------- ------- -------- -------
Berger Mid Cap Growth Fund
Return Before Taxes............................... (33.22)% N/A N/A (0.02)%
Return After Taxes on Distributions............... (33.22)% N/A N/A (1.73)%
Return After Taxes on Distributions and Sale
of Fund Shares................................. (20.40)% N/A N/A 0.35%
Janus Enterprise Fund
Return Before Taxes............................... (22.72)% (1.33)% 7.20% N/A
Return After Taxes on Distributions............... (22.72)% (2.33)% 6.02% N/A
Return After Taxes on Distributions and Sale
of Fund Shares................................. (13.95)% (0.78)% 5.89% N/A
Russell Midcap Growth Index(2) (reflects no
deduction for expenses or taxes).................. (17.61)% N/A N/A (2.15)%
S&P Midcap 400 Index(3) (reflects no deduction
for expenses or taxes)............................ (4.78)% 7.23% 12.78% N/A
</Table>
10
- ------------------
(1) As of December 31, 1997 for Berger Mid Cap Growth Fund. Life of the fund
performance is not included for Janus Enterprise Fund and its index
because Janus Enterprise Fund has 10 years of performance.
(2) The Russell Midcap Growth Index is Berger Mid Cap Growth Fund's current
benchmark index. Berger Mid Cap Growth Fund recently changed its
benchmark index to correlate more closely to the investment style of the
Fund. The Russell Midcap Growth Index is an unmanaged index, with
dividends reinvested, which measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted
growth values.
(3) The S&P Midcap 400 Index is Janus Enterprise Fund's benchmark index and
Berger Mid Cap Growth Fund's previous benchmark index. The S&P Midcap
400 Index is an unmanaged index, with dividends reinvested, and is
generally representative of the market for mid-sized companies.
JANUS VENTURE FUND --
BERGER SMALL COMPANY GROWTH FUND
Investment Objectives, Policies and Restrictions. While the Funds have
the same investment objective and similar investment policies, there are some
differences. Janus Venture Fund and Berger Small Company Growth Fund each seek
capital appreciation. Both Funds primarily invest in common stocks of companies
with the potential for growth, with an emphasis on small-sized companies. Janus
Venture Fund normally invests at least 50% of its equity assets in small-sized
companies, which are those companies that, at the time of initial purchase, have
market capitalizations of less than $1 billion or annual gross revenues of less
than $500 million. Berger Small Company Growth Fund normally invests at least
80% of its assets in equity securities of companies whose market capitalization,
at the time of initial purchase, is less than the 12-month average of the
maximum market capitalization for companies included in the Russell 2000 Index
(which average is updated monthly). Janus Venture Fund also may invest in larger
companies with strong growth potential or relatively well-known and large
companies with potential for capital appreciation.
In selecting companies for Janus Venture Fund, the portfolio manager
takes a "bottom up" approach, which means that the portfolio manager seeks to
identify individual companies with earnings growth potential that may not be
recognized by the market at large. The portfolio manager does not use specific
criteria in making this assessment. Berger Small Company Growth Fund focuses on
companies that either occupy a dominant position in an emerging industry or have
a growing market share in a larger, fragmented industry. In selecting companies
for Berger Small Company Growth Fund, the portfolio manager generally looks for
companies with an innovative technology, product or service that may enable the
company to be a market share leader, strong entrepreneurial management with
clearly defined strategies for growth and relatively strong balance sheets.
Berger Small Company Growth Fund's investments may be focused in a small number
of business sectors. Portfolio turnover rates are not a factor in making buy and
sell decisions for either Fund, and the portfolio manager may actively trade the
Berger Small Company Growth Fund's portfolio in pursuit of its investment
objective.
As secondary investment strategies in seeking to achieve their
investment objectives, both Funds are permitted to invest in foreign securities,
convertible securities, investment grade bonds, illiquid and restricted
securities (up to 15% of net assets), special situations (companies about to
undergo a structural, financial or management change that may significantly
affect the value of their securities), companies with limited operating
histories and initial public offerings. Each Fund may also use futures, forwards
11
and options for hedging purposes (and up to 5% of net assets for nonhedging
purposes, such as seeking to enhance return, for Janus Venture Fund) and may
invest in cash and similar investments when the Fund's portfolio manager
believes market conditions warrant a temporary defensive position. Janus Venture
Fund also may invest up to 35% of its net assets in high-yield/high-risk bonds.
The Funds have substantially similar fundamental investment policies.
However, although both Funds may borrow money for temporary or emergency
purposes, Berger Small Company Growth Fund is limited to borrowing in an amount
up to 25% of its total assets.
Investment Risks. Because Janus Venture Fund's investment objective is
the same as that of Berger Small Company Growth Fund and both Funds invest in
the common stocks of growth companies, an investment in Janus Venture Fund is
subject to many of the same risks as an investment in Berger Small Company
Growth Fund. Both Funds are subject to the risks of equity investing. Because
the price of common stock moves up and down in response to corporate earnings
and developments, economic and market conditions and unanticipated events, the
price of the Funds' investments may go down and investors may lose money on
their investment. Each Fund's investments focus on small-sized companies, which
tend to be more volatile than larger companies. Small-sized companies may pose
greater market, liquidity and information risks because of narrow product lines,
limited financial resources, less depth in management or a limited trading
market for their stocks. In addition, to the extent a Fund engages in active
trading, the Fund will have an increased portfolio turnover rate. Higher
turnover rates may result in higher brokerage costs to the Fund and in higher
net taxable gains for investors.
Portfolio Manager. William H. Bales is Executive Vice President and
Portfolio Manager of Janus Venture Fund. Mr. Bales has been Portfolio Manager or
a Co-Manager of Janus Venture Fund since February 1997. He is also Portfolio
Manager of other Janus accounts. Mr. Bales joined Janus in 1991 and was a
research analyst from 1993 to 1997. Mr. Bales holds a Bachelor of Science degree
in marketing and a Master of Science degree in marketing and finance from the
University of Colorado. Mr. Bales has earned the right to use the Chartered
Financial Analyst designation. Mr. Bales has acted as Portfolio Manager of
Berger Small Company Growth Fund since December 16, 2002.
Performance. The following table shows the Funds' average annual total
returns over different periods and shows how the Funds' performance compares
with relevant broad-based market indices. The table shows returns on a
before-tax and after-tax basis. After tax-returns are calculated using the
highest historical individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on
an investor's tax situation and may differ from those shown. After-tax returns
are not relevant to investors who hold their shares through tax-deferred
arrangements, such as 401(k) plan or individual retirement accounts. The
performance of the Funds and the indices varies over time, and past performance
(before and after taxes) is not necessarily indicative of future results. The
Funds' returns assume reinvestment of dividends and distributions (in the case
of after-tax returns, reinvested net of assumed tax rates).
12
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED OCTOBER 31, 2002 (UNAUDITED)
[TO BE UPDATED THROUGH 12/31/02]
<Table>
<Caption>
LIFE OF
THE
FUND 1 YEAR 5 YEARS 10 YEARS FUND(1)
---- ------ ------- -------- -------
Berger Small Company Growth Fund --
Investor Shares
Return Before Taxes............................... (39.42)% (7.89)% N/A 3.74%
Return After Taxes on Distributions............... (39.42)% (10.58)% N/A 1.87%
Return After Taxes on Distributions and Sale
of Fund Shares................................. (24.20)% (4.57)% N/A 4.13%
Berger Small Company Growth Fund --
Institutional Shares
Return Before Taxes............................... (38.77)% (7.46)% N/A 4.02%
Return After Taxes on Distributions............... (38.77)% (10.19)% N/A 2.12%
Return After Taxes on Distributions and Sale
of Fund Shares................................. (23.80)% (4.31)% N/A 4.31%
Janus Venture Fund
Return Before Taxes............................... (14.60)% 0.66% 6.80% N/A
Return After Taxes on Distributions............... (14.60)% (2.17)% 3.95% N/A
Return After Taxes on Distributions and Sale N/A
of Fund Shares................................. (8.96)% 1.08% 5.31%
Russell 2000 Growth Index(2) (reflects no
deduction for expenses or taxes).................. (21.57)% (7.45)% N/A 1.26%
Russell 2000 Index(3) (reflects no deduction for
expenses or taxes)................................ (11.57)% (1.70)% 8.01% N/A
</Table>
- ------------------
(1) As of December 30, 1993 for Berger Small Company Growth Fund. Life of
the fund performance is not included for Janus Venture Fund and its
index because Janus Venture Fund has 10 years of performance.
(2) The Russell 2000 Growth Index is Berger Small Company Growth Fund's
current benchmark index. Berger Small Company Growth Fund recently
changed its benchmark index to correlate more closely to the investment
style of the Fund. The Russell 2000 Growth Index is an unmanaged index,
with dividends reinvested, which measures the performance of those
Russell 2000 companies with higher price-to-book ratios and higher
forecasted growth values.
(3) The Russell 2000 Index is Janus Venture Fund's benchmark index and
Berger Small Company Growth Fund's previous benchmark index. The Russell
2000 Index is an unmanaged index, with dividends reinvested, which
consists of the common stocks of 2000 U.S. companies with an average
market capitalization of approximately $417.1 million as of December 31,
2001.
JANUS BALANCED FUND --
BERGER BALANCED FUND
Investment Objectives, Policies and Restrictions. While the Funds have
similar investment objectives and policies, there are some differences. Janus
Balanced Fund seeks long-term capital growth, consistent with preservation of
capital and balanced by current income. Berger Balanced Fund aims for capital
appreciation and current income. Both Funds invest primarily in a diversified
portfolio of equity and fixed-income securities. Janus Balanced Fund normally
invests 40-60% of its assets in equity securities of growth companies and 40-60%
of its assets in securities with income potential, including equity securities,
convertible securities and all types of debt securities. Berger Balanced Fund
invests at least 25% of its total assets in equity securities and normally
invests 45-65% of its total assets in equity securities. Each Fund invests at
least 25% of its assets in fixed-income senior securities.
In selecting growth companies for Janus Balanced Fund, the portfolio
manager takes a "bottom up" approach, which means that the portfolio manager
seeks to identify individual companies with earnings growth potential that may
not be recognized by the market at large. The portfolio manager does not use
specific criteria in making this assessment. Janus Balanced Fund shifts assets
between the growth and income components of its portfolio based on the portfolio
manager's analysis of relevant market, financial and economic conditions. Berger
Balanced Fund allocates assets between equity and fixed-income securities based
on the portfolio manager's assessment of available investment opportunities and
13
relevant market, economic and financial factors. In selecting companies for
Berger Balanced Fund, the portfolio manager looks for companies with strong
fundamentals and strong management, whose stock is trading at a discount
relative to their intrinsic investment value and where there is a specific
catalyst or event that has the potential to drive appreciation of their stock
towards intrinsic value. Portfolio turnover rates are not a factor in making buy
and sell decisions for Janus Balanced Fund.
As secondary investment strategies in seeking to achieve their
investment objectives, both Funds are permitted to invest in foreign securities,
illiquid and restricted securities (up to 15% of net assets), special situations
(companies about to undergo a structural, financial or management change that
may significantly affect the value of their securities), companies with limited
operating histories and initial public offerings. Each Fund may also use
futures, forwards and options for hedging purposes (and up to 5% of net assets
for nonhedging purposes, such as seeking to enhance returns, for Janus Balanced
Fund) and may invest in cash and similar investments when the Fund's portfolio
manager believes market conditions warrant a temporary defensive position. Janus
Balanced Fund may invest up to 35% of its net assets in high-yield/high-risk
bonds, and Berger Balanced Fund may invest up to 20% of its assets in
convertible securities rated below investment grade.
The Funds have substantially similar fundamental investment policies.
However, although both Funds may borrow money for temporary or emergency
purposes, Berger Balanced Fund is limited to borrowing in an amount up to 25% of
its total assets.
Investment Risks. Because Janus Balanced Fund's investment objective is
similar to that of Berger Balanced Fund and both Funds invest in a portfolio of
equity and fixed-income securities, an investment in Janus Balanced Fund is
subject to many of the same risks as an investment in Berger Balanced Fund. Both
Funds are subject to the risks of equity investing. Because the price of common
stock moves up and down in response to corporate earnings and developments,
economic and market conditions and unanticipated events, the price of the Funds'
investments may go down and investors may lose money on their investment. Both
Funds are also subject to risks relating to fixed-income securities, which
include interest rate and credit risks. The value of fixed-income securities
generally decreases when interest rates rise, and there is the risk that an
issuer will be unable to make principal and interest payments when due. In
addition, to the extent Janus Balanced Fund engages in active trading, the Fund
will have an increased portfolio turnover rate. Higher turnover rates may result
in higher brokerage costs to the Fund and in higher net taxable gains for
investors.
Portfolio Manager. Karen L. Reidy is Executive Vice President and
Portfolio Manager of Janus Balanced Fund. She is also Portfolio Manager of other
Janus accounts. Ms. Reidy joined Janus in 1995 as a research analyst. Ms. Reidy
holds an undergraduate degree in accounting from the University of Colorado. Ms.
Reidy has earned the right to use the Chartered Financial Analyst designation.
Ms. Reidy has acted as Portfolio Manager of Berger Balanced Fund since December
16, 2002.
Performance. The following table shows the Funds' average annual total
returns over different periods and shows how the Funds' performance compares
with relevant broad-based market indices. The table shows returns on a
before-tax and after-tax basis. After tax-returns are calculated using the
highest historical individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on
an investor's tax situation and may differ from those shown. After-tax returns
are not relevant to investors who hold their shares through tax-deferred
arrangements, such as 401(k) plan or individual retirement accounts. The
performance of the Funds and the indices vary over time, and past performance
(before and after taxes) is not necessarily indicative of future results. The
Funds' returns assume reinvestment of dividends and distributions (in the case
of after-tax returns, reinvested net of assumed tax rates).
14
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED OCTOBER 31, 2002 (UNAUDITED)
[TO BE UPDATED THROUGH 12/31/02]
<Table>
<Caption>
LIFE OF
THE
FUND 1 YEAR 5 YEARS 10 YEARS FUND(1)
---- ------ ------- -------- -------
Berger Balanced Fund
Return Before Taxes ................................ (18.78)% 6.95% N/A 11.89%
Return After Taxes on Distributions ................ (18.99)% 2.84% N/A 7.67%
Return After Taxes on Distributions and Sale
of Fund Shares .................................. (11.50)% 3.93% N/A 8.04%
Janus Balanced Fund
Return Before Taxes ................................ (3.85)% 7.45% 11.43% N/A
Return After Taxes on Distributions ................ (4.76)% 5.47% 9.30% N/A
Return After Taxes on Distributions and Sale
of Fund Shares .................................. (2.35)% 5.24% 8.59% N/A
Blended Index(2) (reflects no deduction for
expenses or taxes) ................................. (3.63)% 4.69% N/A 4.69%
S&P 500 Index(3) (reflects no deduction for
expenses or taxes) ................................. (15.10)% 0.73% 9.88% N/A
Lehman Brothers U.S. Government/Credit Index
(reflects no deduction for expenses or taxes)(2) ... 5.49% 7.38% 7.50% N/A
</Table>
- ------------------
(1) As of September 30, 1997 for Berger Balanced Fund. Life of the fund
performance is not included for Janus Balanced Fund and its index
because Janus Balanced Fund has 10 years of performance.
(2) Berger Balanced Fund's average annual return is compared to Blended
Index, which consists of 60% of the Russell 1000 Growth Index and 40%
of the Lehman Brothers U.S. Government/Credit Index. Berger Balanced
Fund changed its benchmark index to correlate more closely to the
investment style of the Fund. The Russell 1000 Growth Index is an
unmanaged index, with dividends reinvested, which measures the
performance of those Russell 1000 companies with higher price-to-book
ratios and higher forecasted growth values. The Lehman Brothers U.S.
Government/Credit Index is an unmanaged index, whose issuers include
the U.S. Treasury, U.S. government agencies, quasi-federal
corporations, corporations whose debt is guaranteed by the U.S.
government and other corporations. Janus Balanced Fund's average annual
return is also compared to the Lehman Brothers U.S. Government/Credit
Index.
(3) The S&P 500 Index is Berger Balanced Fund's and Janus Balanced Fund's
benchmark index. The S&P 500 Index is an unmanaged index, with
dividends reinvested, which consists of the common stocks of 500
publicly traded U.S. companies.
JANUS GLOBAL TECHNOLOGY FUND --
BERGER INFORMATION TECHNOLOGY FUND
Investment Objectives, Policies and Restrictions. While the Funds have
similar investment objectives and policies, there are some differences. Janus
Global Technology Fund seeks long-term growth of capital. Berger Information
Technology Fund aims for capital appreciation. Both Funds primarily invest in
equity securities of technology companies. Janus Global Technology Fund normally
invests at least 80% of its net assets in securities of companies that the
portfolio manager believes will benefit significantly from advances or
improvements in technology. Berger Information Technology Fund normally invests
at least 80% of its assets in common stocks of companies in the information
technology group of industries, such as software, hardware, computer consulting
services, communications and Internet services and products. Although Berger
Information Technology Fund may invest in foreign securities, Janus Global
Technology Fund may have significant exposure to the foreign
15
markets. Berger Information Technology Fund is classified as a diversified fund,
and Janus Global Technology Fund is classified as a nondiversified fund.
In selecting companies for Janus Global Technology Fund, the portfolio
manager selects companies for their growth potential that the portfolio manager
believes will benefit significantly from advances or improvements in technology.
These companies are either companies that the portfolio manager believes have or
will develop products, processes or services that will provide significant
technological advances or improvements, or companies that the portfolio manager
believes rely extensively on technology in connection with their operations or
services. Berger Information Technology Fund focuses on companies that the
portfolio manager believes are best positioned to benefit from trends in
information technology spending and demand and generally invests the remainder
of its assets in technology-related companies whose stock price the portfolio
manager believes is undervalued. In selecting companies for Berger Information
Technology Fund, the portfolio manager generally looks for companies that
dominate their industries or a particular market segment, that have developed or
are developing products or services that represent significant technological
advancements or improvements and that have strong fundamentals, strong
management and strong product positioning. Portfolio turnover rates are not a
factor in making buy and sell decisions for Janus Global Technology Fund.
As secondary investment strategies in seeking to achieve their
investment objectives, both Funds are permitted to invest in convertible
securities, investment grade bonds, illiquid and restricted securities (up to
15% of net assets), special situations (companies about to undergo a structural,
financial or management change that may significantly affect the value of their
securities), companies with limited operating histories and initial public
offerings. Each Fund may also use futures, forwards and options for hedging
purposes (and up to 5% of net assets for nonhedging purposes, such as seeking to
enhance return, for Janus Global Technology Fund) and may invest in cash and
similar investments when the Fund's portfolio manager believes market conditions
warrant a temporary defensive position. Janus Global Technology Fund may also
invest up to 35% of its net assets in high-yield/high-risk bonds.
The Funds have substantially similar fundamental investment policies,
except that Janus Global Technology Fund has no fundamental policy regarding
diversification, since it is classified as a nondiversified fund. In addition,
although both Funds may borrow money for temporary or emergency purposes, Berger
Information Technology Fund is limited to borrowing in an amount up to 25% of
its total assets.
Investment Risks. Because Janus Global Technology Fund's investment
objective is similar to that of Berger Information Technology Fund and both
Funds invest in equity securities of technology companies, an investment in
Janus Global Technology Fund is subject to many of the same risks as an
investment in Berger Information Technology Fund. Both Funds are subject to the
risks of equity investing. Because the price of common stock moves up and down
in response to corporate earnings and developments, economic and market
conditions and unanticipated events, the price of the Funds' investments may go
down and investors may lose money on their investment. Each Fund's return and
share price may fluctuate more than that of funds primarily invested in
industries more stable than technology or than that of funds that do not invest
in related industries. Companies in technology industries may react similarly to
market pressures. For example, competition among technology companies may result
in increasingly aggressive pricing of their products and services, which may
affect the profitability of companies in a Fund's portfolio. Because of the
rapid pace of technological development, products or services developed by
companies in a Fund's portfolio may become rapidly obsolete or have relatively
short product cycles. In addition, to the extent Janus Global Technology Fund
engages in active trading, the Fund will have an increased portfolio turnover
rate. Higher turnover rates may result in higher brokerage costs to the Fund and
in higher net taxable gains for investors.
16
Janus Global Technology Fund's share price may fluctuate more than the
market in general and most equity funds because of its ability as a
nondiversified fund to take larger positions in a smaller number of companies.
As a result, the gains or losses on a single stock may have a greater impact on
Janus Global Technology Fund's share price. Because Berger Information
Technology Fund is classified as a diversified fund, it is not subject to the
risks associated with taking larger positions in a smaller number of companies.
To the extent Janus Global Technology Fund is invested in the foreign markets,
the Fund's return and share price may be affected to a large degree by
fluctuations in currency exchange rates or political or economic conditions in a
particular country.
Portfolio Manager. C. Mike Lu is Executive Vice President and Portfolio
Manager of Janus Global Technology Fund, which he has managed since inception.
Mr. Lu is also Portfolio Manager of other Janus accounts. He joined Janus as a
research analyst in 1991. Mr. Lu holds a Bachelor of Arts degree in history and
a Bachelor of Arts degree in economics from Yale University. Mr. Lu has earned
the right to use the Chartered Financial Analyst designation.
Performance. The following table shows the Funds' average annual total
returns over different periods and shows how the Funds' performance compares
with relevant broad-based market indices. The table shows returns on a
before-tax and after-tax basis. After tax-returns are calculated using the
highest historical individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on
an investor's tax situation and may differ from those shown. After-tax returns
are not relevant to investors who hold their shares through tax-deferred
arrangements, such as 401(k) plan or individual retirement accounts. The
performance of the Funds and the indices vary over time, and past performance
(before and after taxes) is not necessarily indicative of future results. The
Funds' returns assume reinvestment of dividends and distributions (in the case
of after-tax returns, reinvested net of assumed tax rates).
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED OCTOBER 31, 2002 (UNAUDITED)
[TO BE UPDATED THROUGH 12/31/02]
<Table>
<Caption>
LIFE OF
THE
FUND 1 YEAR 5 YEARS FUND(1)
---- ------ ------- -------
Berger Information Technology Fund -- Investor
Return Before Taxes ................................ (32.59)% 1.51% 6.20%
Return After Taxes on Distributions ................ (32.59)% 1.42% 6.13%
Return After Taxes on Distributions and Sale
of Fund Shares .................................. (20.01)% 1.27% 5.15%
Berger Information Technology Fund --
Institutional Shares
Return Before Taxes ................................ (32.37)% 1.82% 6.49%
Return After Taxes on Distributions ................ (32.37)% 1.73% 6.42%
Return After Taxes on Distributions and Sale
of Fund Shares .................................. (19.88)% 1.52% 5.39%
Janus Global Technology Fund
Return Before Taxes ................................ (31.67)% N/A (7.03)%
Return After Taxes on Distributions ................ (31.67)% N/A (7.24)%
Return After Taxes on Distributions and Sale
of Fund Shares .................................. (19.45)% N/A (5.46)%
Nasdaq-100 Index(2) (reflects no deduction for
expenses or taxes) ................................. (27.49)% 0.60% 1.33%
Wilshire 5000 Index(3) (reflects no deduction
for expenses or taxes) ............................. (13.40)% 0.11% 3.15%
S&P 500 Index(4) (reflects no deduction for
expenses or taxes) ................................. (15.10)% N/A (6.98)%
</Table>
17
- ------------------
(1) As of April 8, 1997 for Berger Information Technology Fund and as of
December 31, 1998 for Janus Global Technology Fund.
(2) Nasdaq-100 Index is Berger Information Technology Fund's new benchmark
index. Berger Information Technology Fund changed its benchmark index
to correlate more closely to the investment style of the Fund. The
Nasdaq-100 Index is an unmanaged index, with dividends reinvested,
which reflects Nasdaq's largest companies across major industry groups,
including computer hardware and software, telecommunications,
retail/wholesale trade and biotechnology.
(3) The Wilshire 5000 Index is Berger Information Technology Fund's
previous benchmark index. The Wilshire 5000 Index is an unmanaged
index, with dividends reinvested, which measures the performance of all
U.S. headquartered equity securities with readily available price data.
(4) The S&P 500 Index is Janus Global Technology Fund's benchmark index.
The S&P 500 Index is an unmanaged index, with dividends reinvested,
which consists of the common stocks of 500 publicly traded U.S.
companies.
JANUS OVERSEAS FUND --
BERGER INTERNATIONAL FUND
Investment Objectives, Policies and Restrictions. While the Funds have
similar investment objectives and policies, there are some differences. Janus
Overseas Fund seeks long-term growth of capital. Berger International Fund aims
for long-term capital appreciation. Both Funds primarily invest in equity
securities of foreign companies. Berger International Fund is a feeder fund that
invests all of its assets in the Master Portfolio, which has the same investment
goals and policies as Berger International Fund. For purposes of this
discussion, all references to Berger International Fund include the Master
Portfolio. Janus Overseas Fund invests at least 80% of its net assets in
securities of issuers from countries outside the United States. Janus Overseas
Fund normally invests in securities of issuers from at least five countries
outside the United States. Berger International Fund normally invests at least
65% of its total assets in securities of companies from at least five countries
outside the United States. Each Fund may at times invest in fewer than five
countries or even in a single country. Berger International Fund has recently
been weighted toward the United Kingdom, Europe and selectively in Japan and the
Far East, but may also invest in other foreign countries, including developing
countries. Berger International Fund focuses on well-established, mid-sized to
large capitalization companies.
In selecting companies for Janus Overseas Fund, the portfolio manager
takes a "bottom up" approach, which means that the portfolio manager seeks to
identify individual companies with earnings growth potential that may not be
recognized by the market at large. The portfolio manager does not use specific
criteria in making this assessment. Berger International Fund focuses on
companies best positioned to take advantage of identified economic or business
themes. In selecting companies for the Berger International Fund, the portfolio
manager generally looks for companies with securities that are fundamentally
undervalued, business operations predominantly in well-regulated and more stable
foreign markets and substantial size and liquidity, strong balance sheets,
proven management and diversified earnings. Berger International Fund's
investments may be focused in a small number of business sectors. Portfolio
turnover rates are not a factor in making buy and sell decisions for Janus
Overseas Fund.
As secondary investment strategies in seeking to achieve their
investment objectives, both Funds are permitted to invest in convertible
securities, investment grade bonds, illiquid and restricted securities (up to
15% of net assets), special situations (companies about to undergo a structural,
financial or
18
management change that may significantly affect the value of their securities),
companies with limited operating histories and initial public offerings. Each
Fund may also use forwards for hedging purposes (and up to 5% of net assets for
nonhedging purposes, such as seeking to enhance return, for Janus Overseas Fund)
and may invest in cash and similar investments when the Fund's portfolio manager
believes market conditions warrant a temporary defensive position. Janus
Overseas Fund may also invest up to 35% of its net assets in
high-yield/high-risk bonds, and may use futures and options for hedging purposes
(and for nonhedging purposes subject to the 5% limit described above).
The Funds have substantially similar fundamental investment policies.
However, although both Funds may borrow money for temporary or emergency
purposes, Berger International Fund is limited to borrowing in an amount up to
25% of its total assets.
Investment Risks. Because Janus Overseas Fund's investment objective is
similar to that of Berger International Fund and both Funds invest in equity
securities of foreign companies, an investment in Janus Overseas Fund is subject
to many of the same risks as an investment in Berger International Fund. Both
Funds are subject to the risks of equity investing. Because the price of common
stock moves up and down in response to corporate earnings and developments,
economic and market conditions and unanticipated events, the price of the Fund's
investments may go down and investors may lose money on their investment.
Each Fund is also subject to the risk of foreign investing, which may
involve greater risks than investing in domestic securities because a Fund's
performance may depend on issues other than the performance of a particular
company. For example, the value of foreign securities is affected by the value
of the local currency relative to the U.S. dollar. Foreign investments may be
subject to heightened political and economic risks, particularly in emerging
markets which may have relatively unstable governments, immature economic
structures, national policies restricting investments by foreigners, different
legal systems and economies based on only a few industries. In addition, there
may be less government supervision of foreign markets and foreign securities
markets may be less liquid and more volatile than domestic markets. The costs of
buying, selling and holding foreign securities, including brokerage, tax and
custody costs, may also be higher than those involved in domestic transactions.
In addition, to the extent Janus Overseas Fund engages in active trading, the
Fund will have an increased portfolio turnover rate. Higher turnover rates may
result in higher brokerage costs to the Fund and in higher net taxable gains for
investors.
Portfolio Managers. Helen Young Hayes is Executive Vice President and
Co-Manager of Janus Overseas Fund. She joined Janus in 1987 and has served as a
Portfolio Manager or a Co-Manager of Janus Overseas Fund since its inception.
Ms. Hayes is also Portfolio Manager of other Janus accounts. Mr. Hayes is the
Managing Director of Investments and a Director of Janus. Ms. Hayes holds a
Bachelor of Arts degree in economics from Yale University. Ms. Hayes has earned
the right to use the Chartered Financial Analyst designation.
Brent A. Lynn is Executive Vice President and Co-Manager of Janus
Overseas Fund, for which he has served as Co-Manager since January 2001. Mr.
Lynn is also Portfolio Manager of other Janus accounts. He joined Janus as a
research analyst in 1991. Mr. Lynn holds a Bachelor of Arts degree in economics
and industrial engineering from Stanford University. Mr. Lynn has earned the
right to use the Chartered Financial Analyst designation.
Performance. The following table shows the Funds' average annual total
returns over different periods and shows how the Funds' performance compares
with relevant broad-based market indices. The table shows returns on a
before-tax and after-tax basis. After tax-returns are calculated using the
highest historical individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend on
an investor's tax situation and may differ from those shown.
19
After-tax returns are not relevant to investors who hold their shares through
tax-deferred arrangements, such as 401(k) plan or individual retirement
accounts. The performance of the Funds and the indices varies over time, and
past performance (before and after taxes) is not necessarily indicative of
future results. The Funds' returns assume reinvestment of dividends and
distributions (in the case of after-tax returns, reinvested net of assumed tax
rates).
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED OCTOBER 31, 2002 (UNAUDITED)
[TO BE UPDATED THROUGH 12/31/02]
<Table>
<Caption>
LIFE OF
THE
FUND 1 YEAR 5 YEARS FUND(1)
---- ------ ------- ----------
Berger International Fund
Return Before Taxes............................... (15.22)% (2.65)% (1.40)%
Return After Taxes on Distributions............... (16.66)% (3.78)% (2.36)%
Return After Taxes on Distributions and Sale
of Fund Shares................................. (8.76)% (2.20)% (1.20)%
Janus Overseas Fund
Return Before Taxes............................... (15.78)% 0.62% (7.98)%
Return After Taxes on Distributions............... (15.88)% (0.28)% (7.24)%
Return After Taxes on Distributions and Sale
of Fund Shares................................. (9.58)% 0.60% 6.68%
Morgan Stanley Capital International EAFE(R)
Index(2) (reflects no reduction for expenses
or taxes)......................................... (13.21)% (3.12)% 1.87%/0.29%
</Table>
- ------------------
(1) As of November 7, 1996 for Berger International Fund and as of May 2,
1994 for Janus Overseas Fund. As of October 11, 1996 and May 2, 1994,
respectively, for the Index.
(2) The Morgan Stanley Capital International EAFE(R) Index is an unmanaged
market capitalization weighted index, with dividends reinvested,
composed of companies representative of the market structure of 21
developed market countries in Europe, Australasia and the Far East.
SHAREHOLDER FEES AND FUND EXPENSES
The following comparative fee tables show the fees for each Janus Fund
and its corresponding Berger Fund for the year ending October 31, 2002. The
unaudited pro forma table shows Janus Fund's fees assuming that the
Reorganization is approved.
FUND EXPENSES
JANUS OLYMPUS FUND -- BERGER GROWTH FUND
SHAREHOLDER FEES
Shareholders in the Berger Funds and Janus Funds do not pay any sales
loads, redemption fees or exchange fees, but do indirectly bear Annual Fund
Operating Expenses, which vary from year to year.
20
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS) (UNAUDITED)
<Table>
<Caption>
PRO
FORMA--JANUS
JANUS OLYMPUS BERGER GROWTH OLYMPUS FUND
FUND FUND (UNAUDITED)
------------- ------------- ------------
Management Fees ........................ 0.65% 0.73% 0.65%
Distribution (12b-1) Fees .............. -- 0.25% --
Other Expenses ......................... 0.29% 0.56% 0.29%
---- ---- ----
Total Annual Operating Expenses ........ 0.94% 1.54% 0.94%
</Table>
Annual Fund Operating Expenses are paid by each Fund. As a result, they
reduce the Fund's return. Fund expenses include management fees, 12b-1 fees (for
the Berger Growth Fund) and administrative costs such as shareholder
recordkeeping and reports, custodian and pricing services and registration fees.
EXAMPLE
The following example helps you compare the cost of investing in each
Fund with the cost of investing in other mutual funds by showing what your costs
may be over time. It uses the same assumptions that other funds use in their
prospectuses:
o $10,000 initial investment
o 5% return for each year
o each Fund's operating expenses remain the same for each period
o redemption after the end of each period
o reinvestment of all dividends and distributions
Your actual costs may be higher or lower, so this example should be
used for comparison only. Based on these assumptions, your costs at the end of
each time period would be:
<Table>
<Caption>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
Janus Olympus Fund ................ $ 96 $ 300 $ 520 $1,155
Berger Growth Fund ................ $ 157 $ 486 $ 839 $1,835
Pro Forma--Janus Olympus Fund ..... $ 96 $ 300 $ 520 $1,155
</Table>
JANUS GROWTH AND INCOME FUND -- BERGER LARGE CAP GROWTH FUND
SHAREHOLDER FEES
Shareholders in the Funds do not pay any sales loads, redemption fees
or exchange fees, but do indirectly bear Annual Fund Operating Expenses, which
vary from year to year.
21
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS) (UNAUDITED)
<Table>
<Caption>
PRO
FORMA--JANUS
GROWTH AND
JANUS GROWTH AND BERGER LARGE INCOME FUND
INCOME FUND CAP GROWTH FUND (UNAUDITED)
---------------- --------------- ------------
Management Fees ........................ 0.65% 0.73% 0.65%
Distribution (12b-1) Fees .............. -- 0.25% --
Other Expenses ......................... 0.25% 0.41% 0.25%
---- ---- ----
Total Annual Operating Expenses ........ 0.90% 1.41% 0.90%
</Table>
Annual Fund Operating Expenses are paid by each Fund. As a result, they
reduce the Fund's return. Fund expenses include management fees, 12b-1 fees (for
the Berger Large Cap Growth Fund) and administrative costs such as shareholder
recordkeeping and reports, custodian and pricing services and registration fees.
EXAMPLE
The following example helps you compare the cost of investing in each
Fund with the cost of investing in other mutual funds by showing what your costs
may be over time. It uses the same assumptions that other funds use in their
prospectuses:
o $10,000 initial investment
o 5% return for each year
o each Fund's operating expenses remain the same for each period
o redemption after the end of each period
o reinvestment of all dividends and distributions
Your actual costs may be higher or lower, so this example should be
used for comparison only. Based on these assumptions, your costs at the end of
each time period would be:
<Table>
<Caption>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
Janus Growth and Income Fund ..................... $ 92 $ 287 $ 498 $1,108
Berger Large Cap Growth Fund ..................... $ 144 $ 446 $ 771 $1,691
Pro Forma--Janus Growth and Income Fund .......... $ 92 $ 287 $ 498 $1,108
</Table>
JANUS ENTERPRISE FUND -- BERGER MID CAP GROWTH FUND
SHAREHOLDER FEES
Shareholders in the Funds do not pay any sales loads, redemption fees
or exchange fees, but do indirectly bear Annual Fund Operating Expenses, which
vary from year to year.
22
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS) (UNAUDITED)
<Table>
<Caption>
PRO FORMA --
JANUS
ENTERPRISE
JANUS BERGER MID CAP FUND
ENTERPRISE FUND GROWTH FUND (UNAUDITED)
--------------- -------------- -------------
Management Fees .................................. 0.65% 0.75% 0.65%
Distribution (12b-1) Fees ........................ -- 0.25% --
Other Expenses ................................... 0.28% 1.04% 0.29%
---- ---- ----
Total Annual Operating Expenses .................. 0.93% 2.04% 0.94%
Less Fee Waivers .............................. -- (0.04)% --
---- ---- ----
Net Expenses ..................................... 0.93% 2.00% 0.94%
</Table>
Annual Fund Operating Expenses are paid by each Fund. As a result, they
reduce the Fund's return. Fund expenses include management fees, 12b-1 fees (for
the Berger Mid Cap Growth Fund) and administrative costs such as shareholder
recordkeeping and reports, custodian and pricing services and registration fees.
EXAMPLE
The following example helps you compare the cost of investing in each
Fund with the cost of investing in other mutual funds by showing what your costs
may be over time. It uses the same assumptions that other funds use in their
prospectuses:
o $10,000 initial investment
o 5% return for each year
o each Fund's operating expenses remain the same for each period
o redemption after the end of each period
o reinvestment of all dividends and distributions
Your actual costs may be higher or lower, so this example should be
used for comparison only. Based on these assumptions, your costs at the end of
each time period would be:
<Table>
<Caption>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
Janus Enterprise Fund .................. $ 95 $ 296 $ 515 $1,143
Berger Mid Cap Growth Fund ............. $ 207 $ 640 $1,098 $2,369
Pro Forma--Janus Enterprise Fund ....... $ 96 $ 300 $ 520 $1,155
</Table>
JANUS VENTURE FUND -- BERGER SMALL COMPANY GROWTH FUND
SHAREHOLDER FEES
Shareholders in the Funds do not pay any sales loads, redemption fees
or exchange fees, but do indirectly bear Annual Fund Operating Expenses, which
vary from year to year.
23
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS) (UNAUDITED)
<Table>
<Caption>
BERGER BERGER
SMALL SMALL
COMPANY COMPANY PRO FORMA --
GROWTH GROWTH JANUS
JANUS FUND-- FUND-- VENTURE
VENTURE INVESTOR INSTITUTIONAL FUND
FUND SHARES SHARES (UNAUDITED)
------- -------- ------------- -------------
Management Fees ........................ 0.65% 0.84% 0.84% 0.65%
Distribution (12b-1) Fees .............. -- 0.25% -- --
Other Expenses ......................... 0.23% 0.50% 1.25% 0.24%
---- ---- ---- ----
Total Annual Operating Expenses ........ 0.88% 1.59% 2.09% 0.89%
Less Fee Waivers .................... 0.00% 0.00% (0.98%)(1) 0.00%
---- ---- ---- ----
Net Expenses ........................... 0.88% 1.59% 1.11% 0.89%
</Table>
- ------------------
(1) Pursuant to a written agreement, Berger reimburses the Fund's Institutional
Shares class to the extent that normal transfer agency and registration expenses
exceed 0.20% of the Institutional Shares average daily net assets in any fiscal
year.
Annual Fund Operating Expenses are paid by each Fund. As a result, they
reduce the Fund's return. Fund expenses include management fees, 12b-1 fees (for
Investor Shares of the Berger Small Company Growth Fund) and administrative
costs such as shareholder recordkeeping and reports, custodian and pricing
services and registration fees.
EXAMPLE
The following example helps you compare the cost of investing in each
Fund with the cost of investing in other mutual funds by showing what your costs
may be over time. It uses the same assumptions that other funds use in their
prospectuses:
o $10,000 initial investment
o 5% return for each year
o each Fund's operating expenses remain the same for each period
o redemption after the end of each period
o reinvestment of all dividends and distributions
Your actual costs may be higher or lower, so this example should be
used for comparison only. Based on these assumptions, your costs at the end of
each time period would be:
<Table>
<Caption>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
Janus Venture Fund ......................................... $ 90 $ 281 $ 488 $1,084
Berger Small Company Growth Fund--Investor Shares .......... $ 162 $ 502 $ 866 $1,889
Berger Small Company Growth Fund--Institutional Shares ..... $ 212 $ 655 $1,124 $2,421
Pro Forma--Janus Venture Fund .............................. $ 91 $ 284 $ 493 $1,096
</Table>
24
JANUS BALANCED FUND -- BERGER BALANCED FUND
SHAREHOLDER FEES
Shareholders in the Funds do not pay any sales loads, redemption fees
or exchange fees, but do indirectly bear Annual Fund Operating Expenses, which
vary from year to year.
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS) (UNAUDITED)
<Table>
<Caption>
PRO FORMA --
JANUS
JANUS BALANCED BERGER BALANCED FUND
FUND BALANCED FUND (UNAUDITED)
-------------- ------------- -------------
Management Fees ........................ 0.65% 0.70% 0.65%
Distribution (12b-1) Fees .............. -- 0.25% --
Other Expenses ......................... 0.21% 0.37% 0.21%
---- ---- ----
Total Annual Operating Expenses ........ 0.86% 1.32% 0.86%
</Table>
Annual Fund Operating Expenses are paid by each Fund. As a result, they
reduce the Fund's return. Fund expenses include management fees, 12b-1 fees (for
the Berger Balanced Fund) and administrative costs such as shareholder
recordkeeping and reports, custodian and pricing services and registration fees.
EXAMPLE
The following example helps you compare the cost of investing in each
Fund with the cost of investing in other mutual funds by showing what your costs
may be over time. It uses the same assumptions that other funds use in their
prospectuses:
o $10,000 initial investment
o 5% return for each year
o each Fund's operating expenses remain the same for each period
o redemption after the end of each period
o reinvestment of all dividends and distributions
Your actual costs may be higher or lower, so this example should be
used for comparison only. Based on these assumptions, your costs at the end of
each time period would be:
<Table>
<Caption>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
Janus Balanced Fund .................... $ 88 $ 274 $ 477 $1,061
Berger Balanced Fund ................... $ 134 $ 418 $ 723 $1,590
Pro Forma--Janus Balanced Fund ......... $ 88 $ 274 $ 477 $1,061
</Table>
JANUS GLOBAL TECHNOLOGY FUND -- BERGER INFORMATION TECHNOLOGY FUND
SHAREHOLDER FEES
Shareholders in the Funds do not pay any sales loads, redemption fees
or exchange fees, but do indirectly bear Annual Fund Operating Expenses, which
vary from year to year. During the year ended
25
October 31, 2002, Berger Information Technology Fund charged a 1% redemption fee
on shares exchanged if held less than six months, since an exchange is treated
as a redemption followed by a purchase.
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS) (UNAUDITED)
<Table>
<Caption>
BERGER BERGER PRO FORMA --
INFORMATION INFORMATION JANUS
TECHNOLOGY TECHNOLOGY GLOBAL
JANUS GLOBAL FUND-- FUND-- TECHNOLOGY
TECHNOLOGY INVESTOR INSTITUTIONAL FUND
FUND SHARES SHARES (UNAUDITED)
------------ ----------- ------------- ------------
Management Fees ........................ 0.65% 0.88% 0.88% 0.65%
Distribution (12b-1) Fees .............. -- 0.25% -- --
Other Expenses ......................... 0.31% 1.05% 0.49% 0.31%
---- ----- ----- ----
Total Annual Operating Expenses ........ 0.96% 2.18% 1.37% 0.96%
Less Fee Waivers(1) ................. 0.00% (0.18)% (0.07)% 0.00%
---- ----- ----- ----
Net Expenses ........................... 0.96% 2.00% 1.30% 0.96%
</Table>
- ----------
(1) Pursuant to a written agreement, Berger waives its fees to the extent
that the annual operating expenses for the Investor Shares class
including the management fee, but excluding the 12b-1 fees, brokerage
commissions, interest, taxes and extraordinary expenses, exceed 1.50% of
the average daily net assets of the Investor Shares during the fiscal
year. Berger may also waive operating expenses of the Institutional
Shares class to avoid preferential treatment between the classes.
Annual Fund Operating Expenses are paid by each Fund. As a result, they
reduce the Fund's return. Fund expenses include management fees, 12b-1 fees (for
Investor Shares of the Berger Information Technology Fund) and administrative
costs such as shareholder recordkeeping and reports, custodian and pricing
services and registration fees.
EXAMPLE
The following example helps you compare the cost of investing in each
Fund with the cost of investing in other mutual funds by showing what your costs
may be over time. It uses the same assumptions that other funds use in their
prospectuses:
o $10,000 initial investment
o 5% return for each year
o each Fund's operating expenses remain the same for each period
o redemption after the end of each period
o reinvestment of all dividends and distributions
Your actual costs may be higher or lower, so this example should be
used for comparison only. Based on these assumptions, your costs at the end of
each time period would be:
<Table>
<Caption>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
Janus Global Technology Fund ............................... $ 98 $ 306 $ 531 $1,178
Berger Information Technology Fund--Investor Shares ....... $ 221 $ 682 $1,169 $2,513
Berger Information Technology Fund--Institutional Shares ... $ 139 $ 434 $ 750 $1,646
Pro Forma--Janus Global Technology Fund .................... $ 98 $ 306 $ 531 $1,178
</Table>
26
JANUS OVERSEAS FUND -- BERGER INTERNATIONAL FUND
SHAREHOLDER FEES
Shareholders in the Funds do not pay any sales loads, redemption fees
or exchange fees, but do indirectly bear Annual Fund Operating Expenses, which
vary from year to year.
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS) (UNAUDITED)
<Table>
<Caption>
PRO FORMA
BERGER -JANUS
JANUS OVERSEAS INTERNATIONAL OVERSEAS FUND
FUND FUND(1) (UNAUDITED)
-------------- ------------- -------------
Management Fees ........................ 0.65% 0.85% 0.65%
Distribution (12b-1) Fees .............. -- 0.25% --
Other Expenses ......................... 0.26% 0.73% 0.26%
---- ---- ----
Total Annual Operating Expenses ........ 0.91% 1.83% 0.91%
</Table>
- ----------
(1) Annual Fund operating expenses consist of the Fund's expenses plus the
Fund's share of the expenses of the Master Portfolio.
Annual Fund Operating Expenses are paid by each Fund. As a result, they
reduce the Fund's return. Fund expenses include management fees, 12b-1 fees (for
the Berger International Fund) and administrative costs such as shareholder
recordkeeping and reports, custodian and pricing services and registration fees.
EXAMPLE
The following example helps you compare the cost of investing in each
Fund with the cost of investing in other mutual funds by showing what your costs
may be over time. It uses the same assumptions that other funds use in their
prospectuses:
o $10,000 initial investment
o 5% return for each year
o each Fund's operating expenses remain the same for each period
o redemption after the end of each period
o reinvestment of all dividends and distributions
27
Your actual costs may be higher or lower, so this example should be
used for comparison only. Based on these assumptions, your costs at the end of
each time period would be:
<Table>
<Caption>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
Janus Overseas Fund .................... $ 93 $ 290 $ 504 $1,120
Berger International Fund .............. $ 186 $ 576 $ 990 $2,148
Pro Forma--Janus Overseas Fund ......... $ 93 $ 290 $ 504 $1,120
</Table>
INVESTMENT ADVISORY FEES
The following table compares annual investment advisory fees as a
percentage of average net assets paid to Janus for each Janus Fund and to Berger
for each Berger Fund. The table shows fees before any waivers or reimbursements
("Total") and fees after any waivers or reimbursements ("Net"). The fees listed
are for the year ended October 31, 2002.
<Table>
<Caption>
JANUS FUNDS (UNAUDITED) FEE BERGER FUNDS (UNAUDITED) FEE
----------------------- ----- ------------------------ -----
Janus Olympus Fund Berger Growth Fund
Total................................... 0.65% Total................................. 0.73%
Net..................................... 0.65% Net................................... 0.73%
Janus Growth and Income Fund Berger Large Cap Growth Fund
Total................................... 0.65% Total................................. 0.75%
Net..................................... 0.65% Net................................... 0.75%
Janus Enterprise Fund Berger Mid Cap Growth Fund
Total................................... 0.65% Total................................. 0.79%
Net..................................... 0.65% Net................................... 0.75%
Janus Venture Fund Berger Small Company Growth Fund
Total................................... 0.65% Total................................. 0.84%
Net..................................... 0.65% Net................................... 0.84%
Janus Balanced Fund Berger Balanced Fund
Total................................... 0.65% Total................................. 0.70%
Net..................................... 0.65% Net................................... 0.70%
Janus Global Technology Fund Berger Information Technology Fund
Total................................... 0.65% Total................................. 1.06%
Net..................................... 0.65% Net................................... 0.88%
Janus Overseas Fund Berger International Fund(1)
Total................................... 0.65% Total................................. 0.85%
Net..................................... 0.65% Net................................... 0.85%
</Table>
- ------------------
(1) Advisory fee paid by Master Portfolio and indirectly by the Fund.
RULE 12b-1 DISTRIBUTION PLAN
To pay for the costs of promoting the Berger Funds and servicing
shareholder accounts, each Berger Fund (Investor Shares only for Berger Small
Company Growth Fund and Berger Information Technology Fund) has adopted a Rule
12b-1 distribution plan. Under the plan, an annual fee of 0.25% of the average
daily net assets of each Fund (or Class) is paid to Berger to finance activities
primarily intended to result in the sale of Fund shares. Payments to Berger
under the plan may be more or less than actual expenses incurred.
28
The Janus Funds have not adopted a Rule 12b-1 distribution plan.
Accordingly, Berger Fund shareholders will not pay 12b-1 fees after the
Reorganization.
SHAREHOLDER SERVICES
PURCHASE PROCEDURES
Berger Funds. Shares may be purchased directly from the Berger Funds by
mail, by telephone or by wire. Shares may also be purchased through
broker-dealers or other financial organizations. The minimum initial purchase
requirement for Berger Growth Fund, Berger Large Cap Growth Fund, Berger Mid Cap
Growth Fund, Berger Balanced Fund, Berger International Fund and Investor Shares
of the Berger Small Company Growth Fund and Berger Information Technology Fund
is $2,500 for regular accounts and $500 for individual retirement accounts. The
minimum subsequent purchase requirement is $50. Shares purchased through regular
deductions from a designated bank account (i.e., Low Minimum Investment Plan)
may be purchased for a minimum investment of $50 per month and are not subject
to the $2,500 minimum so long as such purchases continue. The minimum initial
purchase requirement for Institutional Shares of Berger Small Company Growth
Fund and Berger Information Technology Fund is $250,000. There is no minimum
subsequent purchase requirement.
Berger Fund shares may be purchased on any business day at a price per
share equal to the NAV next determined after the purchase request is received in
good order and accepted by the Fund. The NAV of each Fund (or Class) is
calculated once each business day as of the close of the regular trading session
on the New York Stock Exchange (normally, 4:00 p.m. Eastern time). The NAV per
share is calculated by dividing the total value of each Fund's investments, cash
and other assets, less any liabilities, by the total outstanding shares of that
Fund.
Janus Funds. Shares may be purchased directly from the Janus Funds by
mail, by telephone, on line or by wire (for existing accounts). Shares may also
be purchased through broker-dealers, banks or other financial organizations. The
minimum initial purchase requirement is $2,500 for regular accounts and $500 for
UGMA/UTMA accounts, individual retirement accounts, SEP plans or Coverdell
Education Savings accounts. Additional shares may also be purchased through
regular deductions from a designated bank account (i.e., Automatic Monthly
Investment Program) or through payroll deductions for a minimum investment of
$100 per month. The minimum subsequent purchase requirement is $100.
The Janus Funds do not offer SIMPLE IRAs. The Janus Funds also do not
offer a Low Minimum Investment Program. Berger Fund shareholders participating
in the Low Minimum Investment Plan will no longer be able to do so after the
Reorganization. If a Berger Fund shareholder has an account balance of $2,500 or
more, such shareholder may participate in the Janus Funds' programs subject to
the minimum investment amount of the Janus Fund (i.e., $100 a month). Berger
Fund shareholders with an account balance of less than $2,500 will have up to
six months following the Reorganization to meet the $2,500 minimum investment
requirement. After such time, Janus may close their accounts after giving the
shareholders notice and the opportunity to add to their accounts.
Janus Venture Fund and Janus Overseas Fund are closed to new investors.
However, current investors and Berger Fund shareholders who become shareholders
of such Funds as a result of the Reorganizations may continue to invest in the
closed Janus Funds and/or open new Fund accounts in the same Fund.
Janus Fund shares may be purchased on any business day at a price per
share equal to the NAV next determined after the purchase request is received
and accepted. The NAV of each Fund is calculated once each business day as of
the close of the regular trading session on the New York Stock Exchange
29
(normally, 4:00 p.m. Eastern time). The NAV per share is calculated by dividing
the total value of each Fund's investments, cash and other assets, less any
liabilities, by the total outstanding shares of that Fund.
EXCHANGE PRIVILEGES
Berger Funds. Shareholders may exchange shares of one Berger Fund for
shares of another Berger Fund within the same class of shares or for money
market shares in the Cash Account Trust Portfolios (the "CAT Portfolios").
Exchanges may be made by mail, by telephone or by wire. Exchanges may also be
made automatically ($50 minimum) through the Systematic Exchange Plan on a
monthly, quarterly, semiannual or annual basis. The exchange price is the NAV
next determined after the exchange request is received in good order and
accepted by the Fund. Exchanges into a new Fund or CAT Portfolio must meet the
Fund or Portfolio's minimum initial and subsequent purchase requirements. The
Berger Funds may terminate or modify the exchange privilege at any time.
Janus Funds. Shareholders may exchange shares of one Janus Fund for
shares of another Janus Fund. Exchanges may be made by mail, by telephone or on
line. Exchanges may also be made automatically ($100 minimum) through Systematic
Exchange on a monthly basis. The exchange price is the NAV next determined after
the exchange request is received and accepted. Exchanges into a new Fund must
meet the minimum initial and subsequent purchase requirements or the total
account value if the value of the Janus Fund account exchanged from is less than
the minimum initial or subsequent purchase requirement. The Janus Funds may
terminate or modify the exchange privilege at any time.
REDEMPTION PROCEDURES
Berger Funds. Shareholders may redeem shares on any business day by
mail, by telephone or on line (for non-retirement accounts). The redemption
price will be the NAV next determined after the redemption request is received
in good order and accepted by the Fund. Redemptions also may be made through a
Systematic Withdrawal Plan in amounts of $50 or more for Berger Growth Fund,
Berger Large Cap Growth Fund, Berger Mid Cap Growth Fund, Berger Balanced Fund
and Berger International Fund and Investor Shares of Berger Small Company Growth
Fund and Berger Information Technology Fund. The Systematic Withdrawal Plan
requires that a shareholder's account have a value of $5,000 or more. Holders of
Institutional Shares of Berger Small Company Growth Fund and Berger Information
Technology Fund are required to maintain a minimum account balance of $250,000.
Generally, if a shareholder's account balance drops below $2,000 due to
redemptions (or $250,000 for Institutional Shares of Berger Small Company Growth
Fund and Berger Information Technology Fund), including redemptions made through
a Systematic Withdrawal Plan, the Fund may redeem the shareholder's remaining
shares and close the account. However, the shareholder will always be given at
least 60 days' notice to add to his account and avoid an involuntary redemption.
Berger Growth Fund shareholders are not subject to involuntary redemptions for
low account balances.
If the shareholder's address of record has changed within the last
fifteen (15) days, the redemption request exceeds $100,000, the shareholder
requests that proceeds be sent to an address or an account that is different
from the address of record or in certain other circumstances, the Berger Funds
require a written redemption request with a signature guarantee from an eligible
guarantor (a notarized signature is not sufficient).
Janus Funds. Shareholders may redeem shares on any business day by
mail, by telephone, on-line or by wire. The redemption price will be the NAV
next determined after the redemption request is received and accepted.
Redemptions also may be made through Systematic Redemption in specific amounts
on a regular basis. If a shareholder's account balance falls below the minimum
initial investment amount ($2,500 or $500, as the case may be), Janus reserves
the right to close the shareholder's account.
30
If the shareholder's address has changed within the last ten (10) days,
the redemption request exceeds $100,000, the shareholder requests that proceeds
be sent to an address or a person that is different from the address or
shareholder of record, as the case may be, or in certain other circumstances,
the Janus Funds require a signature guarantee from an eligible financial
institution (a notarized signature is not sufficient).
REDEMPTIONS IN KIND
Berger Funds. The Berger Funds have elected to pay redemption proceeds
in cash up to $250,000 or 1% of each Fund's total value during any 90-day period
for any one shareholder, whichever is less. Because larger redemptions may be
detrimental to existing shareholders, the Berger Funds reserve the right to make
payments in the form of portfolio securities (a redemption in kind) under
unusual circumstances.
Janus Funds. The Janus Funds also have elected to pay redemption
proceeds in cash up to $250,000 or 1% of each Fund's total value during any
90-day period for any one shareholder, whichever is less. Should redemption by
any shareholder exceed such limitation, the Janus Funds have the option to pay
the excess in cash or in kind.
A redemption in kind will consist of securities equal in value to the
shares redeemed. In the event that a redemption in kind were made, shareholders
would probably have to pay brokerage costs to sell the securities distributed to
them, as well as taxes on any gain from the sale. Shareholders may have
difficulty selling the securities and recovering the amount of their redemption
if the securities are illiquid.
DIVIDEND POLICIES
Berger Funds. The Berger Funds declare and pay dividends annually. The
Berger Funds distribute capital gains, if any, at least annually, normally in
December. Shareholders will receive dividends and distributions in the form of
additional shares unless they have elected to receive payment in cash.
Janus Funds. Janus Growth and Income Fund and Janus Balanced Fund
normally declare and distribute dividends quarterly in March, June, September
and December. The other Janus Funds normally declare and distribute dividends
annually. The Janus Funds normally declare and distribute capital gains annually
in December. Distributions will automatically be reinvested in additional shares
unless shareholders change their distribution options.
INFORMATION RELATING TO THE REORGANIZATIONS
DESCRIPTION OF THE REORGANIZATIONS
The following summary is qualified in its entirety by reference to the
Reorganization Plans in Exhibits A and B. Each Reorganization Plan provides for
the Reorganizations to occur on or about March 24, 2003.
Each Reorganization Plan provides that all of the assets and
liabilities of each Berger Fund will be transferred to the corresponding Janus
Fund on the Closing Date of the Reorganizations. In exchange for the transfer of
these assets and liabilities, the Janus Funds will simultaneously issue on the
Closing Date of the Reorganization a number of full and fractional shares of
each Janus Fund to the corresponding
31
Berger Fund equal in value to the aggregate net asset value of the corresponding
Berger Fund calculated at the Effective Time.
Following the transfer of assets and liabilities in exchange for Janus
Fund shares, each Berger Fund will distribute, in complete liquidation, pro rata
to its shareholders of record, all of the shares of the corresponding Janus Fund
so received. Shareholders of each Berger Fund owning shares at the Effective
Time will receive a number of shares of the corresponding Janus Fund with the
same aggregate value as the shareholder had in the Berger Fund at the Effective
Time. Such distribution will be accomplished by the establishment of accounts in
the names of the Berger Funds' shareholders on the share records of the Janus
Funds' transfer agent. Each account will receive the respective pro rata number
of full and fractional shares of the applicable Janus Fund due to the
shareholders of the corresponding Berger Fund. Each Berger Fund then will be
terminated or dissolved as soon as practicable thereafter. The Janus Funds will
not issue share certificates to Berger Fund shareholders in connection with the
Reorganizations. Shares of the Janus Funds to be issued will have no preemptive
or conversion rights.
Each Reorganization Plan contains customary representations, warranties
and conditions. Each Reorganization Plan provides that the consummation of the
Reorganization with respect to a Berger Fund and its corresponding Janus Fund is
conditioned upon, among other things: (1) approval of the Reorganization by the
Berger Fund's shareholders; (2) the receipt by the Funds of a tax opinion to the
effect that the Reorganization will be tax-free for federal income tax purposes
to the Berger Funds, their shareholders and the Janus Funds; and (3) approval of
the establishment of an advisory board comprised of at least four of the
Independent Board Members of the Companies (the "Advisory Board") by the Board
of Trustees of Janus Investment Fund. The Advisory Board would be authorized to
provide advice and make recommendations to the Board of Trustees of Janus
Investment Fund regarding the Janus Funds into which the Berger Funds are
reorganized. Each member of the Advisory Board would be compensated at an annual
rate of $60,000, and the chairman of the Advisory Board would receive an
additional $5,000 annually, payable by the Janus Funds and by other funds
managed by Janus into which other funds in the Berger family are reorganized.
Each Reorganization Plan may be terminated by mutual agreement of Janus
Investment Fund with respect to a Janus Fund or a Company with respect to a
Berger Fund, or if, before the Closing Date, any of the required conditions have
not been met or the representations and warranties are not true.
COSTS OF REORGANIZATIONS
Janus will bear the following reasonable costs associated with the
Funds' participation in the Reorganizations: (a) expenses associated with the
preparation and filing of this Prospectus/Proxy Statement; (b) postage; (c)
printing; (d) accounting fees; (e) legal fees incurred by each Fund (including
fees of counsel to, and independent consultants retained by, the Independent
Board Members); (f) solicitation costs; (g) fees payable to the Independent
Board Members for participation in any special meetings relating to the
Reorganizations; and (h) other related administrative or operational costs,
including the cost (if any) of continuation of directors' and officers'/errors
and omissions insurance for the Independent Board Members and obtaining
directors' and officers'/errors and omissions insurance for the Advisory Board.
The Funds will not pay any of these expenses. The Berger Funds will pay
brokerage costs of any necessary rebalancing of their investment portfolios
prior to the effective date of the Reorganization.
FEDERAL INCOME TAXES
Each Reorganization is intended to qualify for U.S. federal income tax
purposes as a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"). If it so qualifies, neither the
Berger Funds nor their shareholders will recognize taxable gain or loss as a
result of the Reorganization; the tax basis of the Janus Fund shares received by
shareholders will be the same in the aggregate as the basis of the Berger Fund
shares exchanged; and the holding period of the Janus Fund shares received will
include the holding period of the Berger Fund shares exchanged, provided that
the shares exchanged were held as capital assets at the time of the
Reorganization. As a condition to the closing of the Reorganizations, Janus
Investment Fund and the Companies will receive a tax opinion to that effect. No
tax ruling from the Internal Revenue Service regarding the Reorganizations
32
has been requested. The tax opinion is not binding on the Internal Revenue
Service or a court and does not preclude the Internal Revenue Service from
asserting or adopting a contrary position.
The Berger Funds will continue their investment operations while the
Reorganizations are pending. Accordingly, they may realize taxable income and
gains, which may have to be distributed to shareholders under the tax rules
relating to mutual funds. Even though the Reorganizations are intended to be
tax-free for federal income tax purposes, shareholders should expect that such
distributions would be taxable to them.
33
As of September 30, 2002, each Berger Fund had the following unutilized
capital loss carryovers:
<Table>
Berger Growth Fund..................................... $381,041,258
Berger Large Cap Growth Fund........................... 66,647,380
Berger Mid Cap Growth Fund............................. 147,780,918
Berger Small Company Growth Fund....................... 428,500,788
Berger Balanced Fund................................... 14,741,105
Berger Information Technology Fund..................... 28,139,172
Berger International Fund.............................. 599,748
</Table>
As of October 31, 2002, each Janus Fund had the following unrealized
capital loss carryovers:
<Table>
Janus Olympus Fund $2,048,586,951
Janus Growth and Income Fund 1,040,247,620
Janus Enterprise Fund 4,639,617,198
Janus Venture Fund 278,279,615
Janus Balanced Fund 537,568,467
Janus Global Technology Fund 2,856,603,063
Overseas Fund 1,638,431,220
</Table>
The final amount of unutilized capital loss carryovers for each Berger
Fund is subject to change and will not be determined until the time of the
Reorganization. After and as a result of the Reorganizations, these capital loss
carryovers may be subject to limitations under applicable tax laws on the rate
at which they may be used in the future to offset capital gains of the Janus
Funds. As a result, some or all of the capital loss carryovers may expire
unutilized. The Boards took this factor into account in concluding that the
proposed Reorganizations would be in the best interests of the Berger Funds and
their shareholders.
THE BERGER FUNDS MAY SELL SECURITIES BEFORE THE REORGANIZATIONS,
WHETHER IN THE ORDINARY COURSE OF BUSINESS OR IN ANTICIPATION OF THE
REORGANIZATIONS. AFTER THE CLOSING, THE JANUS FUNDS MAY DISPOSE OF CERTAIN
SECURITIES RECEIVED FROM THE CORRESPONDING BERGER FUNDS. SUCH SALES MAY RESULT
IN TRANSACTION COSTS AND CAPITAL GAINS (OR LOSSES). THE FUNDS EXPECT CAPITAL
GAINS (IF ANY) TO BE INSIGNIFICANT. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISERS CONCERNING THE POTENTIAL TAX CONSEQUENCES OF THE REORGANIZATIONS TO
THEM, INCLUDING FOREIGN, STATE AND LOCAL TAX CONSEQUENCES.
CAPITALIZATION
The following table sets forth, as of October 31, 2002, the
capitalization of each Janus Fund, the capitalization of each Berger Fund, and
the unaudited pro forma combined capitalization of the Janus Funds assuming the
Reorganization has taken place. The capitalizations are likely to be different
on the Closing Date as a result of daily share purchase and redemption activity.
34
<Table>
<Caption>
NET ASSET
VALUE PER SHARES
FUND NET ASSETS SHARE OUTSTANDING
---- -------------- -------------- -----------
Janus Olympus Fund ......................................... $2,136,166,984 $ 20.60 103,705,088
Berger Growth Fund (Unaudited) ............................. $ 466,246,337 $ 5.21 89,508,842
Pro Forma--Janus Olympus Fund (Unaudited) .................. $2,602,413,321 $ 20.60 126,338,937
Janus Growth and Income Fund ............................... $5,327,673,809 $ 23.70 224,802,574
Berger Large Cap Growth Fund (Unaudited) ................... $ 196,313,899 $ 7.46 26,307,676
Pro Forma--Janus Growth and Income Fund (Unaudited) ........ $5,523,987,708 $ 23.70 233,085,860
Janus Enterprise Fund ...................................... $1,854,192,287 $ 22.93 80,861,923
Berger Mid Cap Growth Fund (Unaudited) ..................... $ 91,471,553 $ 7.82 11,703,473
Pro Forma--Janus Enterprise Fund (Unaudited) ............... $1,945,663,840 $ 22.93 84,851,088
Janus Venture Fund ......................................... $ 756,322,769 $ 31.59 23,940,266
Berger Small Company Growth Fund (Unaudited)
Investor Shares ......................................... $ 330,895,806 $ 1.66 198,967,493
Institutional Shares .................................... $ 332,525 $ 1.69 196,446
Pro Forma--Janus Venture Fund (Unaudited) .................. $1,087,551,100 $ 31.59 34,425,493
Janus Balanced Fund ........................................ $3,935,992,717 $ 18.08 217,737,104
Berger Balanced Fund (Unaudited) ........................... $ 53,131,999 $ 10.43 5,094,405
Pro Forma--Janus Balanced Fund (Unaudited) ................. $3,989,124,716 $ 18.08 220,675,821
Janus Global Technology Fund ............................... $1,249,514,126 $ 7.41 168,673,440
Berger Information Technology Fund (Unaudited)
Investor Shares ......................................... $ 17,845,759 $ 3.93 4,543,743
Institutional Shares .................................... $ 4,824,678 $ 3.99 1,208,130
Pro Forma--Janus Global Technology Fund (Unaudited) ........ $1,272,184,563 $ 7.41 171,732,878
Janus Overseas Fund ........................................ $3,242,596,890 $ 15.44 210,076,739
Berger International Fund (Unaudited) ...................... $ 13,898,697 $ 7.45 1,866,386
Pro Forma--Janus Overseas Fund (Unaudited) ................. $3,256,495,587 $ 15.44 210,976,913
</Table>
BOARD CONSIDERATIONS
As discussed above, the Reorganizations are part of an initiative to
restructure and streamline the management and operation of funds advised by
Janus and Berger. Janus first proposed the Reorganization to the Independent
Board Members of the Companies at a meeting held on [__________]. See "Synopsis
- -- Introduction" above. This initiative includes several components: (1) a
change in branding to offer all funds advised by Stilwell affiliates under the
Janus name; (2) the combination of certain Berger Funds with a growth investment
style into similar Janus Funds currently offered to the public; (3) the
combination of certain Berger Funds with a value investment style into
newly-created Janus funds; (4) the liquidation of certain small Berger Funds
that are unlikely to reach an efficient operating size; (5) the elimination of
the master-feeder structure for international products; and (6) the
implementation of the fee structure and services currently in place for the
Janus Funds.
The Independent Board Members of the Companies reviewed the potential
implication of these proposals for the Reorganizations discussed in this Proxy
Statement/Prospectus as well as various other Berger Funds for which they serve
as Board Members. They were assisted in this review by their independent legal
counsel and by independent consultants with special expertise in financial and
mutual fund matters.
On November 26, 2002, the Boards of the Companies, including the
Independent Board Members, voted unanimously to approve the Reorganizations and
to recommend their approval to
35
shareholders. In reviewing the Reorganizations, the Boards, including the
Independent Board Members, were presented with information to assist them in
evaluating the Reorganizations, such as: (1) the terms and conditions of the
Reorganizations; (2) the compatibility of the Funds' objectives, limitations and
policies; (3) performance history for the Funds; (4) pro forma and/or estimated
expense ratios for the Janus Funds and any changes in fees to be paid or borne
by shareholders of the Funds (directly or indirectly) after the Reorganizations;
(5) the potential economies of scale to be gained from the Reorganizations; (6)
the fact that each Reorganization is expected to be free from federal income
taxes; (7) any direct or indirect federal income tax consequences to the
shareholders of the Funds; (8) the fact that the Janus Funds will assume all of
the liabilities of the Berger Funds; (9) the fact that the Reorganization
expenses incurred by the Funds will be borne by Janus and not the Funds; and
(10) the fact that services to be provided to shareholders of the Berger Funds
after the Reorganizations would be similar to those currently provided.
At the meeting, each Board, including all of the Independent Board
Members, determined that the Reorganizations are in the best interests of each
Berger Fund and their shareholders and that the interests of existing Berger
Fund shareholders will not be diluted as a result of the Reorganizations. The
Boards, including the Independent Board Members, concluded that the proposed
Reorganizations were the best course available to the Berger Funds from among
the possible alternatives, including liquidation. In reaching that conclusion,
the Boards noted that each Berger Fund will have substantially similar
investment objectives and compatible policies to those of the corresponding
Janus Fund and that the Berger Funds would not bear any expenses in connection
with the Reorganization. The Boards also noted the lower expense ratios of the
Janus Funds.
BASED ON THIS INFORMATION, THE BOARDS OF THE COMPANIES UNANIMOUSLY
RECOMMEND THAT SHAREHOLDERS OF EACH BERGER FUND APPROVE THE REORGANIZATION FOR
THEIR FUND.
SHAREHOLDER RIGHTS
JANUS INVESTMENT FUND
General. Janus Investment Fund is an open-end management investment
company, which was established as a Massachusetts business trust pursuant to a
Declaration of Trust dated February 11, 1986. Janus Investment Fund is also
governed by its bylaws and applicable state law.
Shares. Janus Investment Fund is authorized to issue an unlimited
number of shares of beneficial interest, with a par value of $.01, from an
unlimited number of series of shares. Currently, Janus Investment Fund consists
of 26 separate investment series, three of which offer three classes of shares.
Shares of each Janus Fund have no preemptive, conversion or subscription rights.
Voting Rights. On any matter submitted to a vote of shareholders of the
Janus Funds, all Funds (and classes, as applicable) generally vote together as a
single group, except where a separate vote by Fund (or class) is required by law
or where the interests of the Fund (or class) differ from the other Funds.
Shareholders of each Janus Fund are entitled to one vote for each dollar of net
asset value of the Fund that they own.
Shareholder Meetings. Janus Investment Fund is not required to hold
annual meetings of shareholders, but may hold special meetings of shareholders
under certain circumstances. A special meeting of shareholders for the purpose
of considering removal of a Trustee may be called by the Trustees or on the
request of shareholders owning at least 10% of the outstanding shares of the
Janus Investment Fund.
36
Election and Term of Trustees. Janus Investment Fund's operations are
overseen by the trustees under Massachusetts law. Subject to 1940 Act
requirements, trustees may be elected by shareholders or appointed by the Board.
Trustees hold office until the termination of Janus Investment Fund or their
earlier death, retirement, resignation, incapacity or removal. A trustee of
Janus Investment Fund may be removed at any time by written instrument signed by
two-thirds of the remaining trustees or by a vote or written declaration of
shareholders holding two-thirds of the outstanding shares.
Shareholder Liability. Under Massachusetts law, shareholders of a
series of Janus Investment Fund could, under certain circumstances, be held
liable for the obligations of their Fund. However, Janus Investment Fund's
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Funds and provides indemnification for all losses and expenses of any Fund
shareholder held liable for the obligations of their Fund.
Trustee Liability. The trustees of Janus Investment Fund generally are
not liable for any obligation of Janus Investment Fund. Janus Investment Fund
will indemnify its trustees against all liabilities and expenses, except for
those arising from the trustee's willful misfeasance, bad faith, gross
negligence or reckless disregard of such trustee's duties.
THE COMPANIES
General. The Companies are open-end management investment companies.
Berger Growth Fund, Inc. and Berger Large Cap Growth Fund, Inc. were each
incorporated in Maryland on March 10, 1966. Berger Investment Portfolio Trust
and Berger Worldwide Funds Trust were established as Delaware statutory trusts
pursuant to Trust Instruments dated August 23, 1993 and May 31, 1996,
respectively. The Companies are also governed by their bylaws and applicable
state law.
Shares. Berger Growth Fund is authorized to issue 200,000,000 shares of
its capital stock, with a par value of $.01. Berger Large Cap Growth Fund is
authorized to issue 100,000,000 shares of its capital stock, with a par value of
$.01. Currently, Berger Growth Fund and Berger Large Cap Growth Fund do not
offer separate classes of shares. Berger Investment Portfolio Trust is
authorized to issue an unlimited number of shares of beneficial interest, with a
par value of $.01, from an unlimited number of series of shares. Currently,
Berger Investment Portfolio Trust consists of six separate investment series
offering up to three classes of shares: Investor Shares, Institutional Shares
and Service Shares. The three classes differ with respect to distribution fees.
Berger Worldwide Funds Trust is authorized to issue an unlimited number of
shares of beneficial interest, with a par value of $.01, from an unlimited
number of series of shares. Currently, Berger Worldwide Funds Trust consists of
[three] separate investment series. Each series of Berger Worldwide Funds Trust
is organized as a "feeder" fund in a "master/feeder" structure, which means that
all of the assets of each series are invested in a larger "master" portfolio of
securities, the Berger International Portfolio, which has investment goals and
policies identical to those of each series of Berger Worldwide Funds Trust. The
shares of each Berger Fund have no preference as to conversion features,
exchange privileges or other attributes and have no preemptive rights.
Voting Rights. On any matter submitted to a vote of shareholders of
Berger Growth Fund or shareholders of Berger Large Cap Growth Fund, each full
share is entitled to one vote.
On any matter submitted to a vote of shareholders of Berger Investment
Portfolio Trust or Berger Worldwide Funds Trust, all shares entitled to vote are
voted on by individual series or class, except that shares are voted in the
aggregate and not by individual series or class in the election of trustees of
the Company and on all matters relating to the Company as a whole. Each full
share of each Fund has one vote, and each fractional share has a proportionate
fractional vote.
37
Whenever a series of Berger Worldwide Funds Trust is requested to vote
as an investor in the Master Portfolio on matters pertaining to the Master
Portfolio (other than a vote by a series to continue the operation of the master
portfolios upon the withdrawal of another investor in the master portfolio), the
series will hold a meeting of its investors and will cast all of its votes as an
investor in the master portfolio in the name proportion as directed by the votes
of the series' investors. Investors of a series who do not vote will not affect
the votes cast by the series at the meeting of the Master Portfolio's investors.
The percentage of the votes representing the series' investors who do not vote
will be voted by the series in the same proportion as the series' investors who
do, in fact, vote.
Shareholder Meetings. Berger Growth Fund and Berger Large Cap Growth
Fund are not required to hold annual meetings of shareholders unless required by
the 1940 Act. Special meetings of shareholders may be called by the President, a
majority of the Board Members or at the request of shareholders entitled to vote
at least 25% of all the votes entitled to be cast at the meeting. The other
Companies are not required to hold annual meetings of shareholders, but may hold
special meetings of shareholders under certain circumstances. A special meeting
of shareholders for the purpose of considering the removal of a Board Member may
be called by the Board Members or on the request of shareholders owning at least
10% of the outstanding shares of a Company. Special meetings for other purposes
may be called by the Board Members or at the request of shareholders owning at
least 25% of the outstanding shares of a Company.
Election and Term of Board Members. Each Company's affairs are
supervised by Board Members under applicable state law. Subject to 1940 Act
requirements, Board Members may be elected by shareholders or appointed by the
Board.
Board Members of Berger Growth Fund and Berger Large Cap Growth Fund
hold office until their successors are duly elected and qualified. A Board
Member may be removed by the affirmative vote of a majority of all the votes
entitled to be cast for the election of Board Members.
Board Members of Berger Investment Portfolio Trust and Berger Worldwide
Funds Trust hold office until their successors are duly elected and qualified,
or until their death, resignation, retirement, removal or mental or physical
incapacity. A Board Member may be removed at any time by unanimous written
consent of the remaining Board Members or by a vote of shareholders holding
two-thirds of the outstanding shares.
Shareholder Liability. Pursuant to Maryland law and the charters of
Berger Growth Fund and Berger Large Cap Growth Fund, shareholders of each Fund
generally are not personally liable for the debts of the Company or any Fund.
Pursuant to Delaware law and the Trust Instruments of Berger Investment
Portfolio Trust and Berger Worldwide Funds Trust, shareholders of each Trust are
not personally liable for the acts, omissions, liabilities or obligations of any
kind of the Company or any Fund.
Board Member Liability. Pursuant to the Bylaws of Berger Growth Fund
and Berger Large Cap Growth Fund, each Fund indemnifies Board Members against
all liabilities and expenses incurred by reason of being a Board Member to the
fullest extent permitted by Maryland law.
The Board Members of each of Berger Investment Portfolio Trust and
Berger Worldwide Funds Trust generally are not personally liable for any
obligation of the Company. Each Company will indemnify its Board Members against
all liabilities and expenses, except for those arising from a Board Members'
willful misfeasance, bad faith, gross negligence or reckless disregard of his or
her duties.
38
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN RIGHTS OF SHAREHOLDERS OF
JANUS INVESTMENT FUND AND THE COMPANIES UNDER THEIR GOVERNING CHARTER DOCUMENTS,
BYLAWS AND STATE LAW AND IS NOT A COMPLETE DESCRIPTION OF PROVISIONS CONTAINED
IN THOSE SOURCES. SHAREHOLDERS SHOULD REFER TO THE PROVISIONS OF THOSE DOCUMENTS
AND STATE LAW DIRECTLY FOR A MORE THOROUGH DESCRIPTION.
ADDITIONAL INFORMATION
Information concerning the operation and management of the Janus Funds
is included in the current prospectus relating to those Funds, which is
incorporated herein by reference. A copy of the prospectus for the Janus Fund(s)
into which your Berger Fund(s) is reorganizing accompanies this Proxy
Statement/Prospectus. Additional information about the Janus Funds is included
in the Statements of Additional Information dated February 25, 2002, as amended
and/or supplemented, which are available upon request and without charge by
calling 1-800-525-3713.
Information about the Berger Funds is included in the current
prospectuses relating to those Funds dated January 29, 2002 or June 14, 2002, as
the case may be, which are incorporated herein by reference insofar as such
prospectuses relate to the Berger Funds participating in the Reorganizations.
Additional information is included in the Statements of Additional Information
of the Berger Funds dated January 29, 2002, which are available upon request and
without charge by calling 1-800-551-5849.
The Janus Funds and the Berger Funds are subject to the informational
requirements of the Securities Exchange Act of 1934 and the 1940 Act and in
accordance therewith file reports and other information, including proxy
material and charter documents, with the SEC. These items may be inspected and
copied at the Public Reference Facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices in New
York at 233 Broadway, New York, New York 10279, and in Chicago at 175 West
Jackson Boulevard, Suite 900, Chicago, Illinois 60604. Copies of such items can
be obtained from the Public Reference Branch, Office of Consumer Affairs, SEC,
Washington, D.C. 20549, at prescribed rates.
FISCAL YEAR END AND FINANCIAL STATEMENTS
The fiscal year end of each Janus Fund is October 31. The fiscal year
end of each Berger Fund is September 30.
The financial statements of the Janus Funds contained in the Janus
Funds' annual report(s) to shareholders for the fiscal year ended October 31,
2002 have been audited by PricewaterhouseCoopers LLP, their independent
accountants. These financial statements are incorporated by reference into this
Proxy Statement/Prospectus insofar as such financial statements relate to the
Janus Funds participating in the Reorganizations.
The financial statements of the Berger Funds are contained in the
Berger Funds' annual report to shareholders for the fiscal year ended September
30, 2002 and have been audited by PricewaterhouseCoopers LLP, their independent
accountants. These financial statements are incorporated by reference into this
Proxy Statement/Prospectus insofar as such financial statements relate to the
Berger Funds participating in the Reorganizations.
The Janus Funds and the Berger Funds each will furnish, without charge,
a copy of their most recent semiannual report succeeding such annual report, if
any, on request. Requests should be directed to the Janus Funds at P.O. Box
173375, Denver, Colorado 80217-3375, or by calling 1-800-525-3713,
39
and to the Berger Funds at P.O. Box 219958, Kansas City, Missouri 64121-9958, or
by calling 1-800-551-5849.
THE BOARDS OF THE COMPANIES UNANIMOUSLY RECOMMEND THAT YOU VOTE FOR
APPROVAL OF THE REORGANIZATION FOR YOUR FUND.
PROPOSAL 3: TO RATIFY AN INTERIM ADVISORY AGREEMENT WITH JANUS (BERGER GROWTH
FUND, BERGER LARGE CAP GROWTH FUND, BERGER MID CAP GROWTH FUND, BERGER SMALL
COMPANY GROWTH FUND AND BERGER BALANCED FUND ONLY)
Until December 16, 2002, Berger served as investment adviser to each
Berger Fund pursuant to an investment advisory agreement between Berger and the
respective Company on behalf of each Berger Fund (the "Berger Advisory
Agreements"). As a result of the Stilwell Consolidation, Berger will become a
wholly owned subsidiary of Janus on or before December 31, 2002. It is expected
that Berger will be consolidated into Janus in 2003 and will cease to exist. On
November 26, 2002, the Boards of each Company voted to terminate the Berger
Advisory Agreements with respect to Berger Growth Fund, Berger Large Cap Growth
Fund, Berger Mid Cap Growth Fund, Berger Small Company Growth Fund and Berger
Balanced Fund as of December 16, 2002, and Berger waived its rights to notice of
termination under the Agreement. For information about the Stilwell
Consolidation, see "Proposal 2: Synopsis -- Introduction."
In connection with their approval of the Reorganizations and in
anticipation of the Stilwell Consolidation, the Board Members of each Company,
including the Independent Board Members, approved an Interim Advisory Agreement
for each Fund with Janus at a meeting held on November 26, 2002. For more
information about Janus, please see "Proposal 2: Investment Management and
Performance -- Investment Adviser." Pursuant to the Interim Advisory Agreements,
Janus began serving as investment adviser to Berger Growth Fund, Berger Large
Cap Growth Fund, Berger Mid Cap Growth Fund, Berger Small Company Growth Fund
and Berger Balanced Fund on December 16, 2002. The Interim Advisory Agreements
provide that compensation earned by Janus thereunder between December 16, 2002
and the Closing Date of the Reorganization will be held in an interest-bearing
account. The Interim Advisory Agreements are being proposed for ratification by
shareholders of each Berger Fund. A form of Interim Advisory Agreement is
attached as Exhibit D. The differences between the Interim Advisory Agreement
and Berger Advisory Agreement for each Fund are described below. If shareholders
of a Berger Fund ratify the Interim Advisory Agreement, the amount held in the
escrow account under the Interim Advisory Agreement with respect to that Fund,
plus interest, will be paid to Janus. If shareholders of a Berger Fund do not
ratify the Interim Advisory Agreement, Janus will be paid the lesser of its
costs incurred in performing its services under the Interim Advisory Agreement
with respect to that Fund or the total amount in the escrow account, plus
interest earned.
COMPARISON OF THE BERGER AND INTERIM ADVISORY AGREEMENTS
Investment Advisory Services. Under each Berger Advisory Agreement,
Berger managed the overall investment operations of the Fund. Pursuant to each
Berger Advisory Agreement, Berger was responsible for determining what
securities and other assets of the Fund would be acquired, held, disposed of or
loaned, in conformity with the investment objective, policies and restrictions
and the other statements concerning the Fund in the Company's charter documents
and registration statements, the Advisers Act, all other applicable federal and
state law and regulations, and the provisions of the Code, applicable to the
Fund as a registered investment company. Each Berger Advisory Agreement provided
40
that Berger would also cause its officers to attend meetings and furnish certain
oral and written reports and place orders for or supervise the purchase and sale
of securities for investments of each Fund.
Each Berger Advisory Agreement authorized and directed Berger, absent
instructions from the Company to the contrary, to place Fund portfolio
transactions only with brokers and dealers who render satisfactory service in
the execution of orders at the most favorable prices and at reasonable
commission rates. Each Berger Advisory Agreement also described the
circumstances under which Berger would pay a broker an amount of commission for
effecting a securities transaction in excess of the amount of commission another
broker would have charged, as well as Berger's other brokerage practices with
respect to the Fund.
The Berger Advisory Agreements for Berger Growth Fund, Berger Large Cap
Growth Fund and Berger Small Company Growth Fund provided that Berger's
investment advice and recommendations would be treated as being advisory only
and that the Board Members, or officers to whom the Board Members have so
delegated, would have the power to authorize actions with respect to portfolio
transactions.
Each Interim Advisory Agreement contains provisions substantially
similar to the corresponding Berger Advisory Agreement, except that the Interim
Advisory Agreements for Berger Growth Fund, Berger Large Cap Growth Fund and
Berger Small Company Growth Fund do not contain the provisions relating to
treating the adviser's advice as advisory only and to the Board having the power
to authorize actions with respect to portfolio transactions.
The Berger Advisory Agreements for Berger Mid Cap Growth Fund and
Berger Balanced Fund provided that Berger would give instructions to the
custodian regarding Fund transactions; maintain all books and records required
to be maintained under the 1940 Act; provide the Board with data and reports;
and comply with the Company's charter documents, currently effective
registration statements, written policies, procedures and guidelines of the
Fund, written instructions and directions of the Board and the requirements of
the 1940 Act, the Advisers Act and all other applicable federal and state laws
and regulations. Each Interim Advisory Agreement, including the Interim Advisory
Agreements for Berger Growth Fund, Berger Large Cap Growth Fund and Berger Small
Company Growth Fund, contain these provisions. The Berger Advisory Agreements
for Berger Mid Cap Growth Fund and Berger Balanced Fund also provided that
Berger would assist in the calculation of the Fund's net asset value and
exercise voting rights on behalf of the Fund. The Interim Advisory Agreements do
not contain these provisions. In addition, the Berger Advisory Agreements for
Berger Mid Cap Growth Fund and Berger Balanced Fund provided that Berger may
aggregate purchase or sell orders for the Fund with simultaneous purchase or
sell orders for other clients of Berger and set forth the method for allocating
such orders among clients. Each Interim Advisory Agreement contains the same
provisions.
Expenses. Each Berger Advisory Agreement provided that Berger would pay
all its own costs and expenses incurred in fulfilling its obligations under the
Agreement, as well as rental of offices of the Company, fees of any subadviser
engaged by Berger and compensation, fees and related expenses of the Company's
officers and Board Members, except for Board Members who are not interested
persons of Berger. Each Berger Advisory Agreement also provided that the Company
would pay all expenses incidental to its operations and business not
specifically assumed or agreed to be paid by Berger thereunder, provided,
however, that, to the extent Berger performed certain administrative and
clerical functions, the Company would compensate or reimburse Berger for its
expenses incurred as Berger and the Company agreed from time to time. Berger
provided administrative services to each Fund pursuant to a separate agreement
for no additional compensation. The Interim Advisory Agreements contain
substantially similar provisions.
41
The Berger Advisory Agreements for Berger Growth Fund, Berger Large Cap
Growth Fund and Berger Small Company Growth Fund provided that Berger would pay
all expenses of promoting the sales of shares of the Fund other than expenses
incurred in complying with the laws applicable to the offer, issue or sale of
Fund shares. The Interim Advisory Agreements do not contain this provision.
Compensation. In return for the services provided under each Berger
Advisory Agreement, each Fund paid Berger an advisory fee which was accrued
daily and payable monthly. The advisory fee rates under the Berger Advisory
Agreements are as follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
------------------------ ---------------
Growth Fund on the first $500 million 0.75%
on the next $500 million 0.70%
over $1 billion 0.65%
Large Cap Growth Fund on the first $500 million 0.75%
on the next $500 million 0.70%
over $1 billion 0.65%
Mid Cap Growth Fund on the first $500 million 0.75%
on the next $500 million 0.70%
over $1 billion 0.65%
Small Company Growth Fund on the first $500 million 0.85%
on the next $500 million 0.80%
over $1 billion 0.75%
Balanced Fund on the first $1 billion 0.70%
over $1 billion 0.65%
</Table>
For information on the advisory fees paid to Berger with respect to
each Fund for the annual period ended October 31, 2002, please see "Proposal 2:
Investment Management and Performance -- Investment Advisory Fees."
The advisory fee rates under each Interim Advisory Agreement are the
same as the rates under the corresponding Berger Advisory Agreement. Each
Interim Advisory Agreement also contains the escrow provisions described above.
Liability of Investment Adviser. Each Berger Advisory Agreement (except
for the Berger Advisory Agreements for Berger Growth Fund and Berger Large Cap
Growth Fund) provided that Berger, any affiliate of Berger performing services
for the Company contemplated thereunder and any managers, members, owners and
officers of Berger and such affiliates would not be liable for any error of
judgment or mistake of law or for any loss arising out of any investment or for
any act or omission taken with respect to the Fund, except for willful
misfeasance, bad faith or gross negligence in the performance of their
respective duties, or by reason of reckless disregard of their respective
obligations and duties under the Agreement and except to the extent otherwise
provided by law. Each Interim Advisory Agreement, including the Interim Advisory
Agreements for Berger Growth Fund and Berger Large Cap Growth Fund, contains
substantially similar provisions.
The Berger Advisory Agreement for Berger Balanced Fund provided that
Berger would maintain errors and omissions insurance in an amount at least equal
to that disclosed to the Board Members in connection with their approval of the
Agreement. Each Interim Advisory Agreement contains the same provision.
42
Termination of the Agreements. Each Berger Advisory Agreement provided
that it would terminate automatically in the event of its assignment. Each
Berger Advisory Agreement also provided that it could be terminated without
penalty upon sixty (60) days' written notice by either party. Each Fund could
terminate its Berger Advisory Agreement either by the vote of a majority of the
outstanding voting securities of the Fund or by the Board. Each Interim Advisory
Agreement contains substantially similar provisions, except that each Interim
Advisory Agreement may be terminated by the Board without penalty upon ten (10)
days' written notice to Janus. In addition, unless terminated sooner, each
Interim Advisory Agreement remains in effect until the earlier of May 15, 2003
(which is 150 days from the effective date of the Agreement) or the Closing Date
of the Reorganizations.
The Berger Advisory Agreements for Berger Mid Cap Growth Fund, Berger
Small Company Growth Fund and Berger Balanced Fund provided that, as soon as
reasonably practicable following termination of the Agreement, the Company will
cease to use "Berger" in the Fund's name if Berger ceases to serve as investment
adviser. The Interim Advisory Agreements do not contain this provision.
If shareholders of a Fund ratify the Interim Advisory Agreement but do
not approve the Reorganization for their Fund, Janus will receive the fees held
in escrow but the Interim Advisory Agreement would terminate by its terms on May
15, 2003.
BOARD CONSIDERATIONS
In connection with their approval of the Reorganizations, the Boards
considered the anticipated consolidation of Berger into Janus and the likely
retention of Berger portfolio management personnel through the Closing of the
Reorganizations. (See Proposal 2 for more information regarding the Boards'
evaluation.) As a result, the Boards proposed that Janus assume management
responsibility for the Berger Funds in the interim except for those Funds that
currently engage a subadviser. In determining whether Janus should assume
management responsibility of the Berger Funds on an interim basis, the Boards
requested and reviewed various materials, including materials provided by Janus
and by independent parties. These materials included information regarding Janus
and its affiliates, and their respective personnel, operations and financial
condition. Janus also provided its Form ADV filed with the SEC, and information
regarding the performance records of mutual funds currently managed by Janus.
The Board Members met with senior officers of Janus and its affiliates, and such
personnel were available to discuss the operations of Janus.
The Board Members considered a number of factors in reviewing the
Interim Advisory Agreements with Janus, including the similarities between the
Berger Advisory Agreements and the Interim Advisory Agreements, particularly the
fact that the advisory fee rates are the same. [The Board Members also
considered the nature and quality of the services provided by Janus to funds
already managed by Janus. In reviewing the quality of services provided to those
funds, the Board Members considered comparative performance information.] The
Board Members reviewed the financial condition and profitability of Janus and
the quality and depth of Janus's organization in general. The Board Members also
considered the soft-dollar practices of Janus. The Board Members considered the
fees to be paid to Janus for investment advisory services. In connection with
their review of such fees, the Board Members noted that the advisory fee rates
of the Interim Advisory Agreements are identical to the current rates.
Based on their review, the Board Members, including the Independent
Board Members, concluded that the proposed advisory fees under the Interim
Advisory Agreements are fair and that shareholders should receive reasonable
value in return for paying such fees.
43
BASED ON THIS INFORMATION, THE BOARDS OF THE COMPANIES RECOMMEND THAT
THE SHAREHOLDERS OF EACH APPLICABLE BERGER FUND VOTE FOR RATIFYING THE INTERIM
ADVISORY AGREEMENT FOR THEIR FUND.
PROPOSAL 4: TO ELECT BOARD MEMBERS (BERGER MID CAP GROWTH FUND,
BERGER SMALL COMPANY GROWTH FUND, BERGER BALANCED FUND AND BERGER
INFORMATION TECHNOLOGY FUND ONLY)
In order to effectuate the Reorganization of certain series of the
Berger Investment Portfolio Trust to which this Proxy Statement/Prospectus does
not relate, the persons named as proxies on the enclosed proxy card will vote
for the election of all of the nominees named below unless authority to vote for
any or all of the nominees is withheld in the proxy. The Board Members, if
elected, will take office immediately prior to the Closing of the Reorganization
and will serve until the Closing of the Reorganization. The election and
qualification of the nominees is contingent upon shareholder approval of the
Reorganizations [of each series of Berger Investment Portfolio Trust]. If the
Reorganizations are not approved by shareholders, the current Board Members of
the Berger Investment Portfolio Trust will continue to serve as that Company's
Board. All of the nominees have consented to serve as Board Members. However, if
any nominee should become unavailable for election due to events not now known
or anticipated, the persons named as proxies will vote for such other nominees
as the current Board Members may recommend.
None of the nominees are currently Board Members of Berger Investment
Portfolio Trust. The following are the names of the nominees, together with a
brief description of their principal occupations during the last five years.
<Table>
<Caption>
NOMINEES
- ---------------------------------------------------------------------------------------------------------
Number of
Funds in Fund Other
Positions Principal Complex to be Directorships
Name, Age and Held with Length of Occupations During Overseen by Held by
Address Funds Time Served the Past Five Years Nominee Nominee
- ------------- --------- ----------- ------------------- ------------- -------------
INTERESTED NOMINEE
Thomas H. Bailey* N/A Nominee Formerly, President 7 Trustee, Janus
100 Fillmore Street 1978-2002) and Chief Funds (59
Denver, CO 80206 Executive Officer portfolios).
Age: 65 (1994-2002) of
Janus; President
and Director
(1994-2002) of the
Janus Foundation;
Chairman and
Director
(1978-2002) of
Janus Capital
Corporation and
Director
(1997-2001) of
Janus Distributors,
Inc.
- -----------------------------------------------------------------------------------------------------------
</Table>
44
<Table>
<Caption>
NOMINEES
- ---------------------------------------------------------------------------------------------------------
Number of
Funds in Fund Other
Positions Principal Complex to be Directorships
Name, Age and Held with Length of Occupations During Overseen by Held by
Address Funds Time Served the Past Five Years Nominee Nominee
- ------------- --------- ----------- ------------------- ------------- -------------
INDEPENDENT NOMINEES
William F. McCalpin N/A Nominee Executive Vice 7 Founding
100 Fillmore Street President and Chief Director and
Denver, CO 80206 Operating Officer of Board Chair,
Age: 45 The Rockefeller Solar
Brothers Fund (a Development
private family Foundation;
foundation). Trustee and
Formerly, Director Vice
of Investments President,
(1991-1998) of The Asian Cultural
John D. and Council;
Catherine T. Trustee, Janus
MacArthur Foundation Funds (59
(a private family portfolios).
foundation).
John W. McCarter, Jr. N/A Nominee President and Chief 7 Chairman of
100 Fillmore Street Executive Officer of the Board,
Denver, CO 80206 The Field Museum of Divergence
Age: 64 Natural History. LLC; Director
Formerly, Senior of A.M. Castle
Vice President & Co., Harris
(1987-1997) of Insight Funds Trust
Booz-Allen & (22 portfolios),
Hamilton, Inc. (a W.W. Grainger,
management Inc.; Trustee
consulting firm). of WTTW (Chicago
public
television
station), the
University of
Chicago and
Chicago Public
Education
Fund; Trustee,
Janus Funds
(59
portfolios).
Dennis B. Mullen N/A Nominee Private Investor. 7 Trustee, Janus
100 Fillmore Street Formerly (1997-1998) Funds (59
Denver, CO 80206 Chief Financial portfolios).
Age: 59 Officer - Boston
market Concepts,
Boston Chicken,
Inc., Golden, CO (a
restaurant chain).
- -----------------------------------------------------------------------------------------------------------
</Table>
45
<Table>
<Caption>
NOMINEES
- ----------------------------------------------------------------------------------------------------------
Number of
Funds in Fund Other
Positions Principal Complex to be Directorships
Name, Age and Held with Length of Occupations During Overseen by Held by
Address Funds Time Served the Past Five Years Nominee Nominee
- ------------- --------- ----------- ------------------- ------------- -------------
James T. Rothe N/A Nominee Professor of 7 Director,
100 Fillmore Street Business, University Optika, Inc.;
Denver, CO 80206 of Colorado, Director
Age: 59 Colorado Springs, NeoCore Corp.;
CO. Formerly, Trustee, Janus
Distinguished Funds (59
Visiting Professor portfolios).
of Business
(2001-2002),
Thunderbird
(American Graduate
School of
International
Management),
Phoenix, AZ; and
Principal (1988 -
1999) of
Phillips-Smith
Retail Group,
Colorado Springs,
CO (a venture
capital firm).
William D. Stewart N/A Nominee Corporate Vice 7 Trustee, Janus
100 Fillmore Street President and Funds (59
Denver, CO 80206 General Manager of portfolios).
Age: 58 MKS Instruments -
HPS Products,
Boulder, CO (a
manufacturer of
vacuum fittings and
valves).
Martin H. Waldinger Nominee N/A Consultant. 7 Trustee, Janus
100 Fillmore Street Funds (59
Denver, CO 80206 portfolios).
Age: 64
</Table>
- ----------
* Mr. Bailey will be treated as an "interested person" of Berger Investment
Portfolio Trust by virtue of his past positions and continuing
relationships with Janus.
[Confirm that nominees own no shares of these four Berger growth funds
or any other Berger funds. If they own shares, add dollar range for Berger
growth funds and other Berger funds, and number and percentage of shares owned
in Berger growth funds, all as of a recent date.]
[Describe any other material interests the nominees have in the Berger
Funds or with Berger, Janus and any affiliates other than the Janus Funds.]
The Board currently has five standing committees that each perform
specialized functions as described below: an Audit Committee, Nominating
Committee, Compensation Committee, Pricing Committee and Brokerage Committee.
During the fiscal year ended September 30, 2002, the Board met seven times.
46
The Audit Committee reviews the financial reporting process, the system
of internal control, the audit process and the Company's process for monitoring
compliance with investment restrictions and applicable laws as well as the
Company's Code of Ethics. The Audit Committee is currently comprised of only
Independent Board Members, none of whom is standing for re-election as a Board
Member. The current members of the Audit Committee are Michael Owen (Chair),
Katherine A. Cattanach (Vice Chair), Dennis E. Baldwin, Paul R. Knapp, Harry T.
Lewis, Jr., William Sinclaire and Albert C. Yates. The Audit Committee held four
meetings during the fiscal year ended September 30, 2002.
The Nominating Committee identifies and recommends individuals for
Board membership. The Nominating Committee does not consider nominees
recommended by shareholders. The Nominating Committee is currently comprised of
only Independent Board Members, none of whom is standing for re-election as a
Board Member. The current members of the Nominating Committee are Katherine A.
Cattanach (Chair), Michael Owen, Dennis E. Baldwin, Harry T. Lewis, Jr., William
Sinclaire and Albert C. Yates. The Nominating Committee did not meet during the
fiscal year ended September 30, 2002.
The Compensation Committee determines and review the level of
compensation for Independent Board Members. The Compensation Committee is
currently comprised of only Independent Board Members, none of whom is standing
for re-election as a Board Member. The current members of the Compensation
Committee are Katherine A. Cattanach (Chair), William Sinclaire and Albert C.
Yates. The Compensation Committee did not meet during the fiscal year ended
September 30, 2002.
The Pricing Committee determines the fair value of restricted
securities and other securities for which market quotations are not readily
available pursuant to procedures adopted by the Board Members. All of the
members of the Pricing Committee are currently Independent Board Members, none
of whom is standing for re-election as a Board Member. The Pricing Committee
members are Harry T. Lewis, Jr. (Chair), Dennis E. Baldwin and Albert C. Yates.
The Pricing Committee did not meet during the fiscal year ended September 30,
2002.
The Brokerage Committee reviews and makes recommendations regarding
matters related to the Company's use of brokerage commissions and placement of
portfolio transactions. All of the members of the Brokerage Committee are
currently Independent Board Members, none of whom is standing for re-election as
a Board Member. The Brokerage Committee members are Dennis E. Baldwin (Chair),
Katherine A. Cattanach and Harry T. Lewis, Jr. The Brokerage Committee held two
meetings during the fiscal year ended September 30, 2002.
Independent Board Members are compensated for their services according
to a fee schedule, allocated among the Berger Funds. Neither the officers of the
Company nor the Board Members receive any form of pension or retirement benefit
from the Company. None of the nominees were compensated by any Berger Funds
during the fiscal year ended September 30, 2002, and none of the current Board
Members are standing for re-election as Board Members.
The names of the current Board Members and officers of the Berger
Investment Portfolio Trust, together with a brief description of their principal
occupations during the last five years, are included in Appendix A.
THE BOARD OF BERGER INVESTMENT PORTFOLIO TRUST UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR THE ELECTION OF EACH NOMINEE.
47
VOTING MATTERS
GENERAL INFORMATION
This solicitation is being made primarily by the mailing of this Proxy
Statement/Prospectus and the accompanying proxy card. Supplementary
solicitations may be made by mail, telephone, telegraph, facsimile, electronic
means or by personal interview by representatives of Janus. In addition,
Georgeson Shareholder Communications Inc. ("GS"), a professional proxy
solicitation firm, may be paid to solicit shareholders of the Berger Funds. The
total cost of such services is estimated to be $475,000. The cost of preparing,
printing and mailing the Proxy Statement/Prospectus, and all other costs
incurred in connection with the solicitation of proxies, including the fees of
GS, will be paid by Janus. Janus also will reimburse brokerage firms and other
financial intermediaries for their reasonable expenses in forwarding
solicitation materials to the beneficial owners of shares.
The Companies may arrange to have proxies authorized by telephone. If
the Companies solicit proxies by telephone, they will use procedures designed to
authenticate shareholders' identities, to allow shareholders to authorize voting
in accordance with their instructions and to confirm that their instructions
have been properly recorded. Telephonic proxies may be revoked in the same
manner as proxies voted by mail may be revoked.
The Companies may also arrange to have proxies authorized over the
Internet. In order to use this feature, you should go to www.proxyvote.com and
enter the control number set forth on your proxy card(s). You will be prompted
to follow a simple set of instructions. Internet proxies may be revoked in the
same manner as proxies voted by mail may be revoked.
VOTING RIGHTS AND REQUIRED VOTE
Shareholders of each Berger Fund are entitled to one vote for each full
share held, and shareholders of each Berger Fund (except for Berger Growth Fund
and Berger Large Cap Growth Fund) are entitled to fractional votes for
fractional shares. Any shareholder giving a proxy may revoke it at any time
before it is exercised by submitting to the applicable Company a written notice
of revocation or a subsequently executed proxy or by attending the Meeting and
voting in person.
For Berger Growth Fund and Berger Large Cap Growth Fund, a majority of
the outstanding shares of each Fund entitled to vote, present in person or by
proxy, constitutes a quorum. For the Berger Mid Cap Growth Fund, Berger Small
Company Growth Fund, Berger Balanced Fund, Berger Information Technology Fund
and Berger International Fund, one-third of the outstanding shares of each Fund
entitled to vote, present in person or by proxy, constitutes a quorum.
For the purposes of determining the presence of a quorum for
transacting business at the Meeting, abstentions and broker "nonvotes" (that is,
proxies from brokers or nominees indicating that such persons have not received
instructions from the beneficial owners or other persons entitled to vote shares
on a particular matter with respect to which the brokers or nominees do not have
discretionary power) will be treated as shares that are present but which have
not been voted. Accordingly, shareholders are encouraged to forward their voting
instructions promptly. Abstentions and broker nonvotes will have the effect of a
"no" vote for purposes of obtaining the requisite approval of Proposals 1, 2 and
3. Abstentions and broker nonvotes will not be counted in favor of, but will
have no other effect, on Proposal 4.
For the Berger Large Cap Growth Fund, approval of Proposal 1, the
amendment to the Fund's Charter, requires the affirmative vote of the holders of
a majority of the outstanding shares of the Fund.
48
For the Berger Growth Fund, approval of Proposal 2, the Reorganization,
requires the affirmative vote of the holders of two-thirds of the outstanding
shares of the Fund. For the Berger Large Cap Growth Fund, assuming shareholders
approve the amendment to the Fund's Charter, approval of the Reorganization
requires the affirmative vote of the holders of a majority of the outstanding
shares of the Fund. If shareholders of the Berger Large Cap Growth Fund do not
approve the amendment to the Fund's Charter, approval of the Reorganization
requires the affirmative vote of the holders of two-thirds of the outstanding
shares of the Fund. For the Berger Mid Cap Growth Fund, Berger Small Company
Growth Fund, Berger Balanced Fund, Berger Information Technology Fund and Berger
International Fund, approval of a Reorganization requires the affirmative vote
with respect to any Fund of the lesser of (1) 67% of the outstanding shares of
the Fund present at the Meetings if more than 50% of the shares of the Fund
outstanding on the Record Date are present in person or by proxy or (2) more
than 50% of the shares of the Fund outstanding on the Record Date.
For Berger Growth Fund, Berger Large Cap Growth Fund, Berger Mid Cap
Growth Fund, Berger Small Company Growth Fund and Berger Balanced Fund, Proposal
3, ratification of the Interim Advisory Agreement with Janus, requires the
affirmative vote with respect to any Fund of the lesser of (1) 67% of the
outstanding shares of the Fund present at the Meetings if more than 50% of the
shares of the Fund outstanding on the Record Date are present in person or by
proxy or (2) more than 50% of the shares of the Fund outstanding on the Record
Date.
For Proposal 4, election of Board Members to the Berger Investment
Portfolio Trust, Berger Mid Cap Growth Fund, Berger Small Company Growth Fund,
Berger Balanced Fund, Berger Information Technology Fund and two other series of
the Berger Investment Portfolio Trust to which this Proxy Statement/Prospectus
does not relate, vote together in the aggregate. Election of Board Members
requires the affirmative vote of a plurality of the shares of the Berger
Investment Portfolio Trust present at the Meetings, which means the nominees
receiving the greatest number of votes will be elected.
Shares represented by a properly executed proxy will be voted in
accordance with the instructions thereon, or, if no specification is made, the
shares will be voted "FOR" the approval of each proposal. It is not anticipated
that any matters will be brought before the Meetings. Should other business
properly be brought before the Meetings, it is intended that the accompanying
proxies will be voted in the discretion with the judgment of the persons named
as such proxies.
If sufficient votes in favor of the proposals set forth in the Notice
of Special Meetings are not received by the time scheduled for a Meeting, the
holders of shares present in person or by proxy at the Meeting and entitled to
vote at the Meeting, whether or not sufficient to constitute a quorum, may
adjourn the Meeting by the affirmative vote of a majority of votes cast on the
matter. The persons named as proxies will vote in favor of such adjournment if
they determine that each adjournment and additional solicitation are reasonable
and in the interests of shareholders. Any business that might have been
transacted at a Meeting originally called may be transacted at any such
adjourned session(s) at which a quorum is present. The costs of any additional
solicitation and of any adjourned session(s) will be borne by Janus.
RECORD DATE AND OUTSTANDING SHARES
Only shareholders of record of the Berger Funds at the close of
business on January 7, 2003 (the "Record Date") are entitled to notice of and to
vote at the Meeting and any postponement or adjournment thereof. At the close of
business on the Record Date, the following number of shares were outstanding and
entitled to vote:
49
<Table>
<Caption>
NAME OF FUND TOTAL NUMBER OF SHARES OUTSTANDING
- ------------------------------------------ -----------------------------------
Berger Growth Fund........................
Berger Large Cap Growth Fund..............
Berger Mid Cap Growth Fund................
Berger Small Company Growth Fund..........
Berger Balanced Fund......................
Berger Information Technology Fund........
Berger International Fund.................
</Table>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Janus Funds. [As of the Record Date, the officers and trustees of Janus
Investment Fund as a group beneficially owned less than 1% of the outstanding
shares of each Janus Fund.] As of the Record Date, to the best of the knowledge
of Janus Investment Fund, the following persons owned of record or beneficially
5% or more of the outstanding shares of the following Janus Funds:
<Table>
<Caption>
NAME AND ADDRESS FUND PERCENTAGE OWNERSHIP TYPE OF OWNERSHIP
- ---------------- ---- -------------------- -----------------
</Table>
Berger Funds. [As of the Record Date, the officers and trustees of the
Companies as a group beneficially owned less than 1% of the outstanding shares
of each Berger Fund.] As of the Record Date, to the best of the knowledge of the
Companies, the following persons owned of record or beneficially 5% or more of
the outstanding shares of the following Berger Funds:
<Table>
<Caption>
NAME AND ADDRESS FUND PERCENTAGE OWNERSHIP TYPE OF OWNERSHIP
- ---------------- ---- -------------------- -----------------
</Table>
OTHER BUSINESS
The Boards of the Companies know of no other business to be brought
before the Meetings. However, if any other matters come before the Meetings, it
is the intention that proxies that do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Berger Funds in writing
at P.O. Box 219958, Kansas City, Missouri 64121-9958, or by calling
1-800-551-5849.
50
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE
REQUESTED TO VOTE USING THE METHODS DESCRIBED ON THE ENCLOSED PROXY CARD OR IN
PERSON AT THE MEETING.
By Order of the Boards of Directors and Boards
of Trustees,
Sue Vreeland
Secretary
51
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
(ALL BERGER FUNDS EXCEPT BERGER INTERNATIONAL FUND)
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this [10th day of December, 2002,] by and among Janus Investment Fund, a
Massachusetts business trust (the "Acquiring Trust"), with respect to Janus
Balanced Fund, Janus Olympus Fund, Janus Growth and Income Fund, Janus
Enterprise Fund, Janus Venture Fund and Janus Global Technology Fund, each a
separate series of the Acquiring Trust (each an "Acquiring Fund" and,
collectively, the "Acquiring Funds"); Berger Investment Portfolio Trust, a
Delaware statutory trust, with respect to Berger Balanced Fund, Berger Mid Cap
Growth Fund, Berger Small Company Growth Fund and Berger Information Technology
Fund, each a separate series of the Berger Investment Portfolio Trust; Berger
Growth Fund, Inc., a Maryland corporation; Berger Large Cap Growth Fund, Inc., a
Maryland corporation; and Janus Capital Management LLC ("Janus"), the investment
adviser to the Acquiring Funds (for purposes of paragraph 9.1 of the Agreement
only). Each Berger trust and corporation referenced above shall be referred to
as a "Selling Company" and each series thereof as a "Selling Fund." The
principal place of business of each Janus entity is 100 Fillmore Street, Denver,
Colorado 80206. The principal place of business of each Berger entity is 210
University Boulevard, Denver, Colorado 80206.
This Agreement is intended to be, and is adopted as, a plan of
reorganization within the meaning of Section 368(a)(1) of the United States
Internal Revenue Code of 1986, as amended (the "Code"), and the Treasury
Regulations promulgated thereunder. The reorganization will consist of: (i) the
transfer of all of the assets of each Selling Fund in exchange for shares of
beneficial interest, $.01 par value per share, of its corresponding Acquiring
Fund ("Acquiring Fund Shares") as set forth on Schedule A attached hereto; (ii)
the assumption by each Acquiring Fund of all of the liabilities of each Selling
Fund; and (iii) the distribution, after the Closing Date(s) hereinafter referred
to, of each Acquiring Fund Shares to the shareholders of each Selling Fund and
the termination, dissolution and complete liquidation of each Selling Fund as
provided herein, all upon the terms and conditions set forth in this Agreement
(each a "Reorganization").
WHEREAS, each Acquiring Fund is a separate series of the Acquiring
Trust, and each Selling Fund is either: (i) a separate series of a Selling
Company or (ii) a Selling Company; and the Acquiring Trust and the Selling
Companies are open-end, registered management investment companies and each
Selling Fund owns securities that generally are assets of the character in which
its corresponding Acquiring Fund is permitted to invest;
WHEREAS, each Acquiring Fund is authorized to issue its shares of
beneficial interest;
WHEREAS, the trustees of the Acquiring Trust have determined that the
Reorganization, with respect to each Acquiring Fund, is in the best interests of
such Acquiring Fund and that the interests of the existing shareholders of such
Acquiring Fund will not be diluted as a result of the Reorganization;
WHEREAS, the board members of the Selling Companies have determined
that the Reorganization, with respect to each Selling Fund, is in the best
interests of such Selling Fund and that the interests of the existing
shareholders of such Selling Fund will not be diluted as a result of the
Reorganization;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
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ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUNDS IN EXCHANGE FOR ACQUIRING FUND
SHARES AND THE ASSUMPTION OF SELLING FUNDS' LIABILITIES AND LIQUIDATION
OF THE SELLING FUNDS
1.1 THE EXCHANGE. Subject to the terms and conditions contained herein
and on the basis of the representations and warranties contained herein, each
Selling Fund agrees to transfer all of its assets, as set forth in paragraph
1.2, to the Acquiring Fund set forth on Schedule A. In exchange, each Acquiring
Fund agrees: (i) to deliver to the Selling Fund the number of full and
fractional Acquiring Fund Shares, determined by dividing the value of the
Selling Fund's assets net of any liabilities of the Selling Fund, computed in
the manner and as of the time and date set forth in paragraph 2.1, by the net
asset value of one Acquiring Fund Share, computed in the manner and as of the
time and date set forth in paragraph 2.2; and (ii) to assume all of the
liabilities of the Selling Fund. Such transactions shall take place at the
closing (the "Closing") provided for in paragraph 3.1.
1.2 ASSETS TO BE ACQUIRED. The assets of each Selling Fund to be
acquired by an Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities, interests in futures and
dividends or interest receivables, owned by the Selling Fund and any deferred or
prepaid expenses shown as an asset on the books of such Selling Fund on its
respective Closing Date.
Each Selling Fund has provided its corresponding Acquiring Fund with
its most recent audited financial statements, which contain a list of all of the
Selling Fund's assets as of the date of such statements. Each Selling Fund
hereby represents that, as of the date of the execution of this Agreement, there
have been no changes in its financial position as reflected in such financial
statements other than those occurring in the ordinary course of business in
connection with the purchase and sale of securities, the issuance and redemption
of Selling Fund shares and the payment of normal operating expenses, dividends
and capital gains distributions.
Each Selling Fund will, within a reasonable period of time before the
Closing Date, furnish each Acquiring Fund with a list of the Selling Fund's
portfolio securities and other investments. Each Acquiring Fund will, within a
reasonable time before the Closing Date, furnish its corresponding Selling Fund
with a list of the securities, if any, on the Selling Fund's list referred to
above that do not conform to the Acquiring Fund's investment objectives,
policies and restrictions. If requested by its corresponding Acquiring Fund, the
Selling Fund will dispose of securities on the Acquiring Fund's list before its
Closing Date. In addition, if it is determined that the portfolios of a Selling
Fund and its Acquiring Fund, when aggregated, would contain investments
exceeding certain percentage limitations imposed upon the Acquiring Fund with
respect to such investments, the Selling Fund, if requested by the Acquiring
Fund, will dispose of a sufficient amount of such investments as may be
necessary to avoid violating such limitations as of its Closing Date.
Notwithstanding the foregoing, nothing herein will require a Selling Fund to
dispose of any investments or securities if, in the reasonable judgment of the
Selling Fund's board members or investment adviser, such disposition would
adversely affect the tax-free nature of the Reorganization for federal income
tax purposes or would otherwise not be in the best interests of the Selling
Fund.
1.3 LIABILITIES TO BE ASSUMED. Each Selling Fund will endeavor to
discharge all of its known liabilities and obligations to the extent possible
before its respective Closing Date. Notwithstanding the foregoing, any
liabilities not so discharged shall be assumed by the Acquiring Fund, which
assumed liabilities shall include all of the Selling Fund's liabilities, debts,
obligations and duties of whatever kind or nature, whether absolute, accrued,
contingent or otherwise, whether or not arising in the
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ordinary course of business, whether or not determinable at the Closing Date and
whether or not specifically referred to in this Agreement. Each Selling Fund's
liabilities specifically include obligations to the independent board members of
the Selling Companies under any deferred compensation plan.
1.4 STATE FILINGS. Prior to each Closing Date, the Selling Companies
shall make any filings with the State of Delaware or the State of Maryland that
may be required under the laws of the State of Delaware or the State of
Maryland, effective as of each respective Closing Date.
1.5 LIQUIDATION AND DISTRIBUTION. On or as soon after its Closing Date
as is conveniently practicable, but in no event later than 12 months after the
Closing Date (the "Liquidation Date"): (a) each Selling Fund will distribute in
complete liquidation of the Selling Fund, pro rata to its shareholders of
record, determined as of the close of business on the Valuation Date (as defined
in paragraph 2.1) (the "Selling Fund Shareholders"), all of the Acquiring Fund
Shares received by the Selling Fund pursuant to paragraph 1.1; and (b) the
Selling Fund will thereupon proceed to dissolve and terminate as set forth in
paragraph 1.9 below. Such distribution will be accomplished by the transfer of
Acquiring Fund Shares credited to the account of the Selling Fund on the books
of the Acquiring Fund to open accounts on the share records of the Acquiring
Fund in the name of the Selling Fund Shareholders, and representing the
respective pro rata number of Acquiring Fund Shares due such shareholders. The
Acquiring Funds shall assume the share records received from the Selling Funds
are valid, current and accurate and that such transfers to shareholders are
valid, proper and correct. All issued and outstanding shares of the Selling Fund
will simultaneously be canceled on the books of the Selling Fund. The Acquiring
Fund shall not issue certificates representing Acquiring Fund Shares in
connection with such transfer.
1.6 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be
shown on the books of each Acquiring Fund's transfer agent. Shares of each
Acquiring Fund will be issued simultaneously to its corresponding Selling Fund,
in an amount equal in value to the aggregate net asset value of the Selling
Fund's shares, to be distributed to the Selling Fund Shareholders.
1.7 TRANSFER TAXES. Any transfer taxes payable upon the issuance of
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.8 REPORTING RESPONSIBILITY. Any reporting responsibility of each
Selling Fund, including, without limitation, the responsibility for filing of
regulatory reports, tax returns or other documents with the Securities and
Exchange Commission (the "Commission"), any state securities commission, and any
federal, state or local tax authorities or any other relevant regulatory
authority, is and shall remain the responsibility of the Selling Fund.
1.9 TERMINATION AND DISSOLUTION. Each Selling Fund shall be terminated
and dissolved promptly following its respective Closing Date and the making of
all distributions pursuant to paragraph 1.5.
1.10 BOOKS AND RECORDS. All books and records of each Selling Fund,
including all books and records required to be maintained under the Investment
Company Act of 1940 (the "1940 Act") and the rules and regulations thereunder,
shall be available to the corresponding Acquiring Fund from and after its
respective Closing Date and shall be turned over to the Acquiring Fund as soon
as practicable following its respective Closing Date.
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1.11 RELATIONSHIP OF TRANSACTIONS. Subject to the conditions set forth
in this Agreement, the failure of one of the Selling Funds to consummate the
transactions contemplated hereby shall not affect the consummation or validity
of the Reorganization with respect to any other Selling Fund, and the provisions
of this Agreement shall be construed to effect this intent, including, without
limitation, as the context requires, construing the terms "Acquiring Fund" and
"Selling Fund" as meaning only those series of the Acquiring Trust and the
Selling Company which are involved in the Reorganization as of the Closing
Date(s).
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of a Selling Fund's assets to be
acquired by its corresponding Acquiring Fund hereunder shall be the value of
such assets as of the close of regular trading on the New York Stock Exchange
("NYSE") on the business day immediately prior to each Closing Date (such time
and date being hereinafter called a "Valuation Date"), after the declaration and
payment of any dividends on that date, using the valuation procedures set forth
in the trust instrument of the Acquiring Trust and the Acquiring Fund's
then-current prospectus and statement of additional information or such other
valuation procedures as shall be mutually agreed upon by the parties.
2.2 VALUATION OF SHARES. The net asset value per share of Acquiring
Fund Shares shall be the net asset value per share computed on the Valuation
Date, using the valuation procedures set forth in the trust instrument of the
Acquiring Trust and the Acquiring Fund's then-current prospectus and statement
of additional information or such other valuation procedures as shall be
mutually agreed upon by the parties.
2.3 SHARES TO BE ISSUED. The number of Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the corresponding
Selling Fund's assets shall be determined by dividing the value of the assets
with respect to shares of the Selling Fund determined in accordance with
paragraph 2.1 by the net asset value of an Acquiring Fund Share determined in
accordance with paragraph 2.2.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
or under the direction of each Selling or Acquiring Fund's respective accounting
agent, if applicable, in accordance with its regular practice and the
requirements of the 1940 Act.
ARTICLE III
CLOSINGS AND CLOSING DATES
3.1 CLOSING DATES. The Closing shall occur on [March 24, 2003], or such
other date(s) as the parties may agree to in writing (each a "Closing Date" and
collectively, the "Closing Dates"). Unless otherwise provided, all acts taking
place at the Closing(s) shall be deemed to take place as of immediately after
the close of regular trading on the Valuation Date. The Closing shall be held at
the offices of Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street,
Chicago, Illinois 60601, or at such other time and/or place as the parties may
agree.
3.2 CUSTODIAN'S CERTIFICATE. Each Selling Fund shall cause its
Custodian, State Street Bank and Trust Company (the "Custodian"), to deliver at
the Closing(s) a certificate of an authorized officer stating that: (a) each
Selling Fund's portfolio securities, cash and any other assets have been
delivered in proper form to its corresponding Acquiring Fund on the Closing
Date; and (b) all
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necessary taxes including all applicable federal and state stock transfer
stamps, if any, have been paid, or provision for payment shall have been made,
in conjunction with the delivery of portfolio securities by the Selling Fund.
The Selling Fund's portfolio securities represented by a certificate or other
written instrument shall be presented by the Custodian for the Selling Fund to
the custodian for the Acquiring Fund for examination no later than five (5)
business days preceding the Closing Date and transferred and delivered by the
Selling Fund as of the Closing Date for the account of the Acquiring Fund, duly
endorsed in proper form for transfer in such condition as to constitute good
delivery thereof.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that, on the
Valuation Date, either: (a) the NYSE or another primary exchange on which the
portfolio securities of an Acquiring Fund or a Selling Fund are purchased or
sold shall be closed to trading or trading on such exchange shall be restricted;
or (b) trading or the reporting of trading on the NYSE or elsewhere shall be
disrupted so that accurate appraisal of the value of the net assets of an
Acquiring Fund or a Selling Fund is impracticable, the Valuation Date shall be
postponed until the first business day after the day when trading is fully
resumed and reporting is restored.
3.4 TRANSFER AGENT'S CERTIFICATE. Each Selling Fund shall cause its
transfer agent, DST Systems, Inc., to deliver at the Closing a certificate of an
authorized officer stating that its records contain the names and addresses of
Selling Fund Shareholders as of the applicable Closing Date, and the number and
percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closing. Each Acquiring Fund shall issue and deliver or
cause Janus Services LLC, its transfer agent, to issue and deliver a
confirmation evidencing Acquiring Fund Shares to be credited on the Closing
Dates to the Secretary of the Selling Companies, or provide evidence
satisfactory to the Selling Fund that such Acquiring Fund Shares have been
credited to the Selling Fund's account on the books of the Acquiring Fund. At
the Closing(s), each party shall deliver to the other such bills of sale,
checks, assignments, share certificates, receipts and other documents, if any,
as such other party or its counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE SELLING FUNDS. The Selling Companies, on
behalf of each Selling Fund, represent and warrant to the Acquiring Trust, on
behalf of each Acquiring Fund, as follows:
(a) The Selling Fund is either (i) a legally designated,
separate series of a statutory trust that is duly organized, validly existing
and in good standing under laws of the State of Delaware, or (ii) a corporation
duly organized, validly existing and in good standing under the laws of the
State of Maryland.
(b) The Selling Company is registered as an open-end
management investment company under the 1940 Act, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect.
(c) The current prospectus and statement of additional
information of the Selling Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933 (the "1933 Act") and the
1940 Act and the rules and regulations thereunder and do not include any untrue
statement of a material fact or omit to state any material fact required to be
stated or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
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(d) The Selling Fund is not in violation of, and the
execution, delivery and performance of this Agreement (subject to shareholder
approval) will not result in the violation of, any provision of its trust
instrument or bylaws, or its articles of incorporation or bylaws, as applicable,
or of any material agreement, indenture, instrument, contract, lease or other
undertaking to which the Selling Fund is a party or by which it is bound.
(e) The Selling Fund has no material contracts or other
commitments (other than this Agreement) that will be terminated with liability
to it before its applicable Closing Date, except for liabilities, if any, to be
discharged or reflected in the Statement of Assets and Liabilities as provided
in paragraph 1.2 hereof.
(f) Except as otherwise disclosed in writing to and accepted
by the Acquiring Fund, no litigation, administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Selling Fund or any of its properties or assets
which, if adversely determined, would materially and adversely affect its
financial condition, the conduct of its business or the ability of the Selling
Fund to carry out the transactions contemplated by this Agreement. The Selling
Fund knows of no facts that might form the basis for the institution of such
proceedings and is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transactions
contemplated herein.
(g) The financial statements of the Selling Fund as of
September 30, 2002 and for the fiscal year then ended have been prepared in
accordance with generally accepted accounting principles and have been audited
by independent auditors, and such statements (copies of which have been
furnished to the Acquiring Funds) fairly reflect the financial condition of the
Selling Fund as of September 30, 2002, and there are no known contingent
liabilities of the Selling Fund as of such date that are not disclosed in such
statements.
0 (h) Since the date of the financial statements referred to in
paragraph (g) above, there have been no material adverse changes in the Selling
Fund's financial condition, assets, liabilities or business (other than changes
occurring in the ordinary course of business), or any incurrence by the Selling
Fund of indebtedness maturing more than one year from the date such indebtedness
was incurred, except as otherwise disclosed to and accepted by the Acquiring
Fund. For the purposes of this paragraph (h), a decline in the net asset value
of the Selling Fund shall not constitute a material adverse change.
(i) All federal and other tax returns and reports of the
Selling Fund required by law to be filed have been filed, and all federal and
other taxes shown due on such returns and reports have been paid, or provision
shall have been made for the payment thereof. To the best of the Selling Fund's
knowledge, no such return is currently under audit, and no assessment has been
asserted with respect to such returns.
(j) All issued and outstanding shares of the Selling Fund are
duly and validly issued and outstanding, fully paid and nonassessable by the
Selling Fund. All of the issued and outstanding shares of the Selling Fund will,
at the time of the Closing Date, be held by the persons and in the amounts set
forth in the records of the Selling Fund's transfer agent as provided in
paragraph 3.4. The Selling Fund has no outstanding options, warrants or other
rights to subscribe for or purchase any of the Selling Fund shares and has no
outstanding securities convertible into any of the Selling Fund shares.
(k) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2, and full right,
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power and authority to sell, assign, transfer and deliver such assets hereunder,
free of any lien or other encumbrance, except those liens or encumbrances to
which the Acquiring Fund has received notice, and, upon delivery and payment for
such assets and the filing of any documents that may be required under Delaware,
Maryland or Massachusetts state law, as applicable, the Acquiring Fund will
acquire good and marketable title, subject to no restrictions on the full
transfer of such assets, other than such restrictions as might arise under the
1933 Act and other than as disclosed to and accepted by the Acquiring Fund.
(l) The execution, delivery and performance of this Agreement
have been duly authorized by all necessary action on the part of the Selling
Fund. Subject to approval by the Selling Fund Shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable in
accordance with its terms, subject as to enforcement to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights and to general equity principles.
(m) The information to be furnished by the Selling Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials and other documents that may be necessary in connection with the
transactions contemplated herein shall be accurate and complete in all material
respects and shall comply in all material respects with federal securities and
other laws and regulations.
(n) From the effective date of the Registration Statement (as
defined in paragraph 5.8) through the time of the meeting of the Selling Fund
Shareholders and on each Closing Date, any written information furnished by the
Selling Company with respect to the Selling Fund for use in the Proxy Materials
(as defined in paragraph 5.8) or any other materials provided in connection with
the Reorganization does not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated or
necessary to make the statements, in light of the circumstances under which such
statements were made, not misleading.
(o) The Selling Fund has elected to qualify and has qualified
as a "regulated investment company" under the Code (a "RIC") as of and since its
first taxable year; has been a RIC under the Code at all times since the end of
its first taxable year when it so qualified; and qualifies and will continue to
qualify as a RIC under the Code for its taxable year ending upon its
liquidation.
(p) No governmental consents, approvals, authorizations or
filings are required under the 1933 Act, the Securities Exchange Act of 1934
(the "1934 Act"), the 1940 Act or Delaware, Maryland or Massachusetts state law,
as applicable, for the execution of this Agreement by the Selling Companies on
behalf of each Selling Fund, except for the effectiveness of the Registration
Statement and the filing of any documents that may be required under Delaware,
Maryland or Massachusetts state law and except for such other consents,
approvals, authorizations and filings as have been made or received and such
consents, approvals, authorizations and filings as may be required subsequent to
the Closing Date, it being understood, however, that this Agreement and the
transactions contemplated herein must be approved by the shareholders of the
Selling Fund as described in paragraph 5.2.
4.2 REPRESENTATIONS OF THE ACQUIRING FUNDS. The Acquiring Trust, on
behalf of each Acquiring Fund, represents and warrants to the Selling Companies
on behalf of each Selling Fund, as follows:
(a) The Acquiring Fund is a legally designated, separate
series of a business trust that is duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts.
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(b) The Acquiring Trust is registered as an open-end
management investment company under the 1940 Act, and the Acquiring Trust's
registration with the Commission as an investment company under the 1940 Act is
in full force and effect.
(c) The current prospectus and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated or necessary to
make such statements therein, in light of the circumstances under which they
were made, not misleading.
(d) The Acquiring Fund is not in violation of, and the
execution, delivery and performance of this Agreement will not result in, a
violation of, the Acquiring Trust's trust instrument or bylaws or of any
material agreement, indenture, instrument, contract, lease or other undertaking
to which the Acquiring Fund is a party or by which it is bound.
(e) Except as otherwise disclosed in writing to and accepted
by the Selling Fund, no litigation, administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquiring Fund or any of its properties or
assets which, if adversely determined, would materially and adversely affect its
financial condition, the conduct of its business or the ability of the Acquiring
Fund to carry out the transactions contemplated by this Agreement. The Acquiring
Fund knows of no facts that might form the basis for the institution of such
proceedings and it is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transaction
contemplated herein.
(f) The financial statements included in the Registration
Statement of the Acquiring Fund as of October 31, 2002 and for the fiscal year
then ended have been prepared in accordance with generally accepted accounting
principles and have been audited by independent auditors, and such statements
(copies of which have been furnished to the Selling Funds) fairly reflect the
financial condition of the Acquiring Fund as of such dates, and there are no
known contingent liabilities of the Acquiring Fund as of such date that are not
disclosed in such statements.
(g) Since the date of the financial statements referred to in
paragraph (f) above, there have been no material adverse changes in the
Acquiring Fund's financial condition, assets, liabilities or business (other
than changes occurring in the ordinary course of business), or any incurrence by
the Acquiring Fund of indebtedness maturing more than one year from the date
such indebtedness was incurred, except as otherwise disclosed to and accepted by
the Selling Fund. For the purposes of this paragraph (g), a decline in the net
asset value of the Acquiring Fund shall not constitute a material adverse
change.
(h) All federal and other tax returns and reports of the
Acquiring Fund required by law to be filed have been filed. All federal and
other taxes shown due on such returns and reports have been paid or provision
shall have been made for their payment. To the best of the Acquiring Fund's
knowledge, no such return is currently under audit, and no assessment has been
asserted with respect to such returns.
(i) All issued and outstanding Acquiring Fund Shares are duly
and validly issued and outstanding, fully paid and nonassessable by the
Acquiring Fund. The Acquiring Fund has no outstanding options, warrants or other
rights to subscribe for or purchase any Acquiring Fund Shares, and there are no
outstanding securities convertible into any Acquiring Fund Shares.
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(j) The execution, delivery and performance of this Agreement
have been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund, enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights and to general equity principles.
(k) Acquiring Fund Shares to be issued and delivered to the
Selling Fund for the account of the Selling Fund Shareholders pursuant to the
terms of this Agreement will, at the Closing Date, have been duly authorized.
When so issued and delivered, such shares will be duly and validly issued
Acquiring Fund Shares and will be fully paid and nonassessable.
(l) The information to be furnished by the Acquiring Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials and other documents that may be necessary in connection with the
transactions contemplated herein shall be accurate and complete in all material
respects and shall comply in all material respects with federal securities and
other laws and regulations.
(m) From the effective date of the Registration Statement (as
defined in paragraph 5.8) through the time of the meeting of the Selling Fund
Shareholders and on each Closing Date, any written information furnished by the
Acquiring Trust with respect to the Acquiring Fund for use in the Proxy
Materials (as defined in paragraph 5.8), or any other materials provided in
connection with the Reorganization, does not and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated or necessary to make the statements, in light of the circumstances under
which such statements were made, not misleading.
(n) The Acquiring Fund has elected to qualify and has
qualified as a RIC under the Code as of and since its first taxable year, has
been a RIC under the Code at all times since the end of its first taxable year
when it so qualified, and qualifies and shall continue to qualify as a RIC under
the Code.
(o) No governmental consents, approvals, authorizations or
filings are required under the 1933 Act, the 1934 Act, the 1940 Act or
Massachusetts law for the execution of this Agreement by the Acquiring Trust,
for itself and on behalf of the Acquiring Fund, or the performance of the
Agreement by the Acquiring Trust, for itself and on behalf of the Acquiring
Fund, except for the effectiveness of the Registration Statement and the filing
of any documents that may be required under Massachusetts law and such other
consents, approvals, authorizations and filings as have been made or received
and except for such consents, approvals, authorizations and filings as may be
required subsequent to the Closing Date.
(p) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act
and any state blue sky or securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF EACH ACQUIRING FUND AND THE SELLING FUND
5.1 OPERATION IN ORDINARY COURSE. Subject to paragraph 8.5, each
Acquiring Fund and Selling Fund will operate its business in the ordinary course
between the date of this Agreement and the respective Closing Date, it being
understood that such ordinary course of business will include customary
dividends and shareholder purchases and redemptions. No party shall take any
action that would, or reasonably would be expected to, result in any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect.
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5.2 APPROVAL OF SHAREHOLDERS. The Selling Companies will call a special
meeting of Selling Fund Shareholders to consider and act upon this Agreement (or
transactions contemplated hereby) and to take all other appropriate action
necessary to obtain approval of the transactions contemplated herein.
5.3 INVESTMENT REPRESENTATION. Each Selling Fund covenants that the
Acquiring Fund Shares to be issued pursuant to this Agreement are not being
acquired for the purpose of making any distribution, other than in connection
with the Reorganization and in accordance with the terms of this Agreement.
5.4 ACCESS TO BOOKS AND RECORDS. Upon reasonable notice, the Acquiring
Trust's officers and agents shall have reasonable access to the Selling Fund's
books and records necessary to maintain current knowledge of the Selling Fund
and to ensure that the representations and warranties made by the Selling Fund
are accurate.
5.5 ADDITIONAL INFORMATION. Each Selling Fund will assist its
corresponding Acquiring Fund in obtaining such information as the Acquiring Fund
reasonably requests concerning the beneficial ownership of the Selling Fund's
shares.
5.6 FURTHER ACTION. Subject to the provisions of this Agreement, each
Acquiring Fund and its corresponding Selling Fund will take or cause to be taken
all action and do or cause to be done all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the applicable
Closing Date. In particular, each Selling Fund covenants that it will, as and
when reasonably requested by the Acquiring Fund, execute and deliver or cause to
be executed and delivered all such assignments and other instruments and will
take or cause to be taken such further action as the Acquiring Fund may
reasonably deem necessary or desirable in order to vest in and confirm the
Acquiring Fund's title to and possession of all the assets and otherwise to
carry out the intent and purpose of this Agreement.
5.7 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but
in any case within sixty (60) days after the applicable Closing Date, each
Selling Fund shall furnish its corresponding Acquiring Fund, in such form as is
reasonably satisfactory to the Acquiring Fund, a statement of the earnings and
profits of the Selling Fund for federal income tax purposes that will be carried
over by the Acquiring Fund as a result of Section 381 of the Code, and which
will be certified by the Treasurer of the Selling Company.
5.8 PREPARATION OF REGISTRATION STATEMENT AND PROXY STATEMENT. The
Acquiring Trust will prepare and file with the Commission a registration
statement on Form N-14 (the "Registration Statement") relating to the Acquiring
Fund Shares to be issued to shareholders of the Selling Funds. The Registration
Statement shall include a proxy statement of the Selling Funds and a prospectus
of each Acquiring Fund relating to the transactions contemplated by this
Agreement. The Registration Statement shall be in compliance with the 1933 Act,
the 1934 Act and the 1940 Act, as applicable. Each party will provide the other
party with the materials and information necessary to prepare the proxy
statement of the Selling Funds contained in the Registration Statement (the
"Proxy Materials"), for inclusion therein, in connection with the meeting(s) of
the Selling Fund Shareholders to consider the approval of this Agreement and the
transactions contemplated herein.
5.9 LIABILITY INSURANCE. For the period beginning at the Closing Date
and ending not less than five years thereafter, the Acquiring Trust, its
successors or assigns shall provide, or cause to be provided, reasonable
liability insurance covering the actions of the former independent board members
of the Selling Companies for the period they served as such. The Acquiring Trust
shall ensure that the
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members of the newly created advisory board are covered persons under the
current liability insurance policies of the Acquiring Trust for the duration of
the advisory board and shall use commercially reasonable efforts to maintain
such coverage for three years thereafter.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of each Selling Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by its
corresponding Acquiring Fund of all the obligations to be performed by the
Acquiring Fund pursuant to this Agreement on or before the applicable Closing
Date and, in addition, subject to the following conditions:
6.1 All representations, covenants and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and as of the Closing Date, with the same force and effect
as if made on and as of the Closing Date. Each Acquiring Fund shall have
delivered to its corresponding Selling Fund a certificate executed in the
Acquiring Fund's name by the Acquiring Trust's President or Vice President and
its Treasurer or Assistant Treasurer, in form and substance satisfactory to the
Selling Fund and dated as of the Closing Date, to such effect and as to such
other matters as the Selling Fund shall reasonably request.
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Vedder, Price, Kaufman & Kammholz, dated as of the Closing Date, in a form
reasonably satisfactory to the Selling Fund, covering the following points:
(a) The Acquiring Trust is a business trust validly existing
under the laws of the Commonwealth of Massachusetts.
(b) To such counsel's knowledge, and without any independent
investigation, the Acquiring Trust is registered as an open-end management
investment company under the 1940 Act and the Acquiring Trust's registration
with the Commission as an investment company under the 1940 Act is in full force
and effect.
(c) This Agreement has been duly authorized, executed and
delivered by the Acquiring Trust on behalf of each Acquiring Fund and, assuming
due authorization, execution and delivery of this Agreement by the Selling
Company, is a valid and binding obligation of the Acquiring Trust on behalf of
each Acquiring Fund enforceable against each Acquiring Fund in accordance with
its terms, subject as to enforcement to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other laws relating to or affecting
creditors' rights generally and to general equity principles.
(d) Assuming that the Acquiring Fund Shares have been issued
in accordance with the terms of this Agreement, Acquiring Fund Shares to be
issued and delivered to each Selling Fund on behalf of the Selling Fund
Shareholders, as provided by this Agreement, are duly authorized and upon such
delivery will be legally issued and outstanding and fully paid and
nonassessable, and no shareholder of an Acquiring Fund has any preemptive rights
with respect to Acquiring Fund Shares.
(e) The Registration Statement has been declared effective by
the Commission, and to such counsel's knowledge no stop order under the 1933 Act
pertaining thereto has been issued, and to the knowledge of such counsel, and
without any independent investigation, all regulatory consents, authorizations,
approvals or filings required to be obtained or made by the Selling Funds under
the federal
A-11
laws of the United States or the laws of the States of Delaware, Maryland and
Massachusetts for the exchange of the Selling Funds' assets for Acquiring Fund
Shares pursuant to this Agreement have been obtained or made.
(f) The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated herein will not, result in a
violation of the Acquiring Trust's trust instrument or bylaws.
(g) To such counsel's knowledge, and without any independent
investigation, the Acquiring Trust is not subject to any litigation or other
proceedings that might have a materially adverse effect on the operations of the
Acquiring Funds.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of each Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
each corresponding Selling Fund of all the obligations to be performed by the
Selling Fund pursuant to this Agreement on or before the applicable Closing Date
and, in addition, shall be subject to the following conditions:
7.1 All representations, covenants and warranties of a Selling Fund
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and as of the Closing Date, with the same force and effect
as if made on and as of such Closing Date. Each Selling Fund shall have
delivered to its corresponding Acquiring Fund on such Closing Date a certificate
executed in the Selling Fund's name by the Selling Company's President or Vice
President and the Treasurer or Assistant Treasurer, in form and substance
satisfactory to the Acquiring Fund and dated as of such Closing Date, to such
effect and as to such other matters as the Acquiring Fund shall reasonably
request.
7.2 The Selling Fund shall have delivered to its corresponding
Acquiring Fund a statement of the Selling Fund's assets and liabilities,
together with a list of the Selling Fund's portfolio securities showing the tax
costs of such securities by lot and the holding periods of such securities, as
of the Closing Date, certified by the Treasurer of the Selling Company.
7.3 The Acquiring Fund shall have received on the applicable Closing
Date an opinion of Vedder, Price, Kaufman & Kammholz, dated as of such Closing
Date, in a form reasonably satisfactory to the Acquiring Fund, covering the
following points:
(a) Each Selling Company is either (i) a statutory trust
validly existing under the laws of the State of Delaware, or (ii) a corporation
validly existing under the laws of the State of Maryland.
(b) To such counsel's knowledge, and without any independent
investigation, the Selling Company is registered as an investment company under
the 1940 Act and such registration with the Commission as an investment company
under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and
delivered by the Selling Company on behalf of each Selling Fund and, assuming
due authorization, execution and delivery of this Agreement by the Acquiring
Trust on behalf of each Acquiring Fund, is a valid and binding obligation of the
Selling Company on behalf of each Selling Fund enforceable against the Selling
Fund in accordance with its terms, subject as to enforcement to bankruptcy,
insolvency, fraudulent transfer, reorganization,
A-12
moratorium and other laws relating to or affecting creditors' rights generally
and to general equity principles.
(d) To the knowledge of such counsel, and without any
independent investigation, all regulatory consents, authorizations, approvals or
filings required to be obtained or made by the Acquiring Funds under the federal
laws of the United States or the laws of Delaware, Maryland and Massachusetts
for the exchange of the Selling Funds' assets for Acquiring Fund Shares pursuant
to this Agreement have been obtained or made.
(e) The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby will not, result in a
violation of the Selling Company's trust instrument, articles of incorporation
or bylaws, as applicable (assuming shareholder approval has been obtained).
(f) To such counsel's knowledge, and without any independent
investigation, the Selling Companies are not subject to any litigation or other
proceedings that might have a materially adverse effect on the operations of the
Selling Funds.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH
ACQUIRING FUND AND SELLING FUND
If any of the conditions set forth below do not exist on or before the
applicable Closing Date with respect to each Selling Fund or its corresponding
Acquiring Fund, the other party to this Agreement shall, at its option, not be
required to consummate the transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein, with
respect to each Selling Fund, shall have been approved by the requisite vote of
the holders of the outstanding shares of each Selling Fund in accordance with
the provisions of the applicable trust instrument or articles of incorporation,
and bylaws, applicable Delaware or Maryland law and the 1940 Act. Certified
copies of the resolutions evidencing such approval shall have been delivered to
the corresponding Acquiring Fund. Notwithstanding anything herein to the
contrary, neither an Acquiring Fund nor a Selling Fund may waive the conditions
set forth in this paragraph 8.1.
8.2 On each Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, or instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act. Furthermore, no action,
suit or other proceeding shall be threatened or pending before any court or
governmental agency in which it is sought to restrain or prohibit, or obtain
damages or other relief in connection with, this Agreement or the transactions
contemplated herein.
8.3 All required consents of other parties and all other consents,
orders and permits of federal, state and local regulatory authorities (including
those of the Commission and of state securities authorities, including any
necessary "no-action" positions and exemptive orders from such federal
authorities) to permit consummation of the transactions contemplated herein
shall have been obtained, except where failure to obtain any such consent, order
or permit would not involve a risk of a material adverse effect on the assets or
properties of an Acquiring Fund or a Selling Fund, provided that either party
hereto may waive any such conditions for itself.
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8.4 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued. To the best knowledge of the parties to this Agreement, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the 1933 Act.
8.5 Each Selling Fund shall have declared and paid a dividend or
dividends that, together with all previous such dividends, shall have the effect
of distributing to its shareholders all of the Selling Fund's investment company
taxable income for all taxable periods ending on or before the applicable
Closing Date (computed without regard to any deduction for dividends paid), if
any, plus the excess of its interest income, if any, excludable from gross
income under Section 103(a) of the Code over its deduction disallowed under
Sections 265 and 171(a)(2) of the Code for all taxable years ending on or before
such Closing Date and all of its net capital gains realized in all taxable
periods ending on or before such Closing Date (after reduction for any capital
loss carryforward).
8.6 The parties shall have received an opinion of Vedder, Price,
Kaufman & Kammholz addressed to each Acquiring Fund and Selling Fund
substantially to the effect that, based on certain facts, assumptions and
representations of the parties, for federal income tax purposes:
(a) the transfer of all of the Selling Fund's assets in
exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of
all of the liabilities of the Selling Fund (followed by the distribution of
Acquiring Fund Shares to the Selling Fund Shareholders in dissolution and
liquidation of the Selling Fund) will constitute a "reorganization" within the
meaning of Section 368(a)(1) of the Code and the Acquiring Fund and the Selling
Fund will each be a "party to a reorganization" within the meaning of Section
368(b) of the Code;
(b) no gain or loss will be recognized by the Acquiring Fund
upon the receipt of the assets of the Selling Fund solely in exchange for
Acquiring Fund Shares and the assumption by the Acquiring Fund of all of the
liabilities of the Selling Fund;
(c) no gain or loss will be recognized by the Selling Fund
upon the transfer of the Selling Fund's assets to the Acquiring Fund solely in
exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of
all of the liabilities of the Selling Fund or upon the distribution (whether
actual or constructive) of Acquiring Fund Shares to Selling Fund Shareholders in
exchange for such shareholders' shares of the Selling Fund;
(d) no gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for Acquiring Fund
Shares in the Reorganization;
(e) the aggregate tax basis of Acquiring Fund Shares received
by each Selling Fund Shareholder pursuant to the Reorganization will be the same
as the aggregate tax basis of the Selling Fund shares exchanged therefor by such
shareholder. The holding period of Acquiring Fund Shares to be received by each
Selling Fund Shareholder will include the period during which the Selling Fund
shares exchanged therefor were held by such shareholder, provided the Selling
Fund shares are held as capital assets at the time of the Reorganization; and
(f) the tax basis of the Selling Fund's assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the Selling
Fund immediately before the Reorganization. The holding period of the assets of
the Selling Fund in the hands of the Acquiring Fund will include the period
during which those assets were held by the Selling Fund.
A-14
Such opinion shall be based on customary assumptions and such
representations as Vedder, Price, Kaufman & Kammholz may reasonably request, and
each Selling Fund and Acquiring Fund will cooperate to make and certify the
accuracy of such representations. Notwithstanding anything herein to the
contrary, neither an Acquiring Fund nor a Selling Fund may waive the condition
set forth in this paragraph 8.6.
8.7 The Acquiring Trust's Trustees shall have approved the
establishment of an advisory board comprised of at least four of the former
independent board members of the Selling Companies.
ARTICLE IX
EXPENSES
9.1 Janus will pay reasonable expenses associated with the Acquiring
Funds' and the Selling Funds' participation in the Reorganization, including but
not limited to: (a) expenses associated with the preparation and filing of the
Proxy Materials; (b) postage; (c) printing; (d) accounting fees; (e) legal fees
incurred by each Fund (including fees of counsel to, and independent consultants
retained by, the independent trustees); (f) solicitation costs of the
transaction; (g) fees payable to the Selling Companies' independent board
members for participation in any special meetings related to the
Reorganizations; and (h) other related administrative or operational costs,
including the cost (if any) of continuation of directors' and officers'/errors
and omissions insurance for the independent board members of the Selling
Companies and obtaining directors' and officers'/errors and omissions insurance
for the advisory board contemplated by paragraph 8.7 hereof. Brokerage costs
payable by any Selling Fund in connection with the realignment of its portfolio
pursuant to paragraph 1.2 hereof are payable by the applicable Selling Fund.
9.2 The Acquiring Trust, on behalf of the Acquiring Funds, and the
Selling Companies, on behalf of the Selling Funds, represent and warrant that
they have no obligations to pay any brokers' or finders' fees in connection with
the transactions provided for herein.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Trust, on behalf of each Acquiring Fund, and the
Selling Companies, on behalf of each Selling Fund, agree that no party has made
to the other party any representation, warranty and/or covenant not set forth
herein and that this Agreement constitutes the entire agreement between the
parties.
10.2 Except as specified in the next sentence set forth in this
paragraph 10.2, the representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant to or in connection with this
Agreement shall not survive the consummation of the transactions contemplated
hereunder. The covenants to be performed after each Closing Date and the
obligations of each of the Acquiring Funds in paragraph 5.6 shall continue in
effect beyond the consummation of the transactions contemplated hereunder.
A-15
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Trust and the Selling Companies as to a Selling Fund. In addition,
either the Acquiring Trust or the Selling Companies may at their option
terminate this Agreement with respect to a Reorganization at or before the
applicable Closing Date due to:
(a) a breach by the other of any representation, warranty or
agreement contained herein to be performed at or before the Closing Date, if not
cured within 30 days; or
(b) a condition herein expressed to be precedent to the
obligations of the terminating party that has not been met if it reasonably
appears that it will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either an
Acquiring Fund, a Selling Fund, the Acquiring Trust or a Selling Company, or
their respective board members or officers, to the other party or its board
members or officers. In the event of willful default, all remedies at law or in
equity of the party adversely affected shall survive.
ARTICLE XII
AMENDMENTS
12.1 This Agreement may be amended, modified or supplemented in such
manner as may be mutually agreed upon in writing by the officers of the
Acquiring Trust and the Selling Companies as specifically authorized by their
respective board members; provided, however, that, following the meeting of the
Selling Fund Shareholders called by a Selling Fund pursuant to paragraph 5.2 of
this Agreement, no such amendment may have the effect of changing the provisions
for determining the number of Acquiring Fund Shares to be issued to the Selling
Fund Shareholders under this Agreement to the detriment of such Shareholders
without their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but, except as provided in
this paragraph, no assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be construed to
confer upon or
A-16
give any person, firm or corporation, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason of
this Agreement.
13.5 It is expressly agreed that the obligations of each Acquiring Fund
hereunder shall not be binding upon any of the trustees, shareholders, nominees,
officers, agents or employees of the Acquiring Trust personally, but shall bind
only the trust property of the Acquiring Fund, as provided in the trust
instrument of the Acquiring Trust. Moreover, no series of the Acquiring Trust
other than the Acquiring Funds shall be responsible for the obligations of the
Acquiring Trust hereunder, and all persons shall look only to the assets of the
applicable Acquiring Fund to satisfy the obligations of the Acquiring Fund
hereunder. The execution and delivery of this Agreement have been authorized by
the trustees of the Acquiring Trust on behalf of each Acquiring Fund and signed
by authorized officers of the Acquiring Trust, acting as such. Neither the
authorization by such trustees nor the execution and delivery by such officers
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
each Acquiring Fund as provided in the Acquiring Trust's trust instrument.
13.6 It is expressly agreed that the obligations of each Selling Fund
hereunder shall not be binding upon any of the trustees, directors,
shareholders, nominees, officers, agents or employees of the Selling Companies
personally, but shall bind only the property of the Selling Fund, as provided in
the applicable trust instrument or articles of incorporation. Moreover, no
series of the Selling Companies other than the Selling Funds shall be
responsible for the obligations of the Selling Companies hereunder, and all
persons shall look only to the assets of the applicable Selling Fund to satisfy
the obligations of the Selling Fund hereunder. The execution and delivery of
this Agreement have been authorized by the board members of the Selling
Companies on behalf of each Selling Fund and signed by authorized officers of
the applicable Selling Company, acting as such. Neither the authorization by
such board members nor the execution and delivery by such officers shall be
deemed to have been made by any of them individually or to impose any liability
on any of them personally, but shall bind only the trust property of each
Selling Fund as provided in the Selling Company's applicable trust instrument.
ARTICLE XIV
NOTICES
14.1 Any notice, report, statement or demand required or permitted by
any provisions of this Agreement shall be in writing and shall be deemed duly
given if delivered by hand (including by FedEx or similar express courier) or
transmitted by facsimile or three days after being mailed by prepaid registered
or certified mail, return receipt requested, addressed to the applicable party:
to the Selling Companies, 210 University Boulevard, Denver, Colorado 80206,
Attention: General Counsel, or to the Acquiring Trust, 100 Fillmore Street,
Denver, Colorado 80206, Attention: General Counsel, or to any other address that
the Acquiring Trust or the Selling Companies shall have last designated by
notice to the other party.
A-17
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all
as of the date first written above.
BERGER INVESTMENT PORTFOLIO TRUST
By:
----------------------------------
Name:
Title: President
ACKNOWLEDGED:
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
BERGER GROWTH FUND, INC.
By:
----------------------------------
Name:
Title: President
ACKNOWLEDGED:
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
BERGER LARGE CAP GROWTH FUND, INC.
By:
----------------------------------
Name:
Title: President
ACKNOWLEDGED:
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
JANUS INVESTMENT FUND
By:
----------------------------------
Name:
Title: President
ACKNOWLEDGED:
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
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The Undersigned is a party to this
Agreement for the purposes of
paragraph 9.1 only:
JANUS CAPITAL MANAGEMENT LLC
By:
----------------------------------
Name:
Title:
ACKNOWLEDGED:
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
A-19
SCHEDULE A TO THE AGREEMENT AND PLAN OF REORGANIZATION
SUMMARY OF THE REORGANIZATION
(shareholders of each Selling Fund will receive shares
of the Acquiring Fund as designated below)
<Table>
<Caption>
SELLING FUND ACQUIRING FUND
- ----------------------------------- ----------------------------
Berger Balanced Fund Janus Balanced Fund
Berger Growth Fund Janus Olympus Fund
Berger Large Cap Growth Fund Janus Growth and Income Fund
Berger Mid Cap Growth Fund Janus Enterprise Fund
(Investor and Institutional Shares)
Berger Small Company Growth Fund Janus Venture Fund
(Investor and Institutional Shares)
Berger Information Technology Fund Janus Global Technology Fund
(Investor and Institutional Shares)
</Table>
A-20
EXHIBIT B
AGREEMENT AND PLAN OF REORGANIZATION
(BERGER INTERNATIONAL FUND)
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this [10th day of December, 2002,] by and among:
Janus Investment Fund, a Massachusetts business trust, with its
principal place of business at 100 Fillmore Street, Denver, Colorado 80206 (the
"Acquiring Trust), with respect to Janus Overseas Fund, a separate series of the
Acquiring Trust (the "Acquiring Fund");
Berger Worldwide Funds Trust, a Delaware statutory trust, with its
principal place of business at 210 University Boulevard, Denver, Colorado 80206
(the "Feeder Trust"), with respect to Berger International Fund (the "Selling
Fund"), a separate series of the Feeder Trust (collectively with the Acquiring
Fund, the "Funds");
Berger Worldwide Portfolios Trust, a Delaware statutory trust, with its
principal place of business at 210 University Boulevard, Denver, Colorado 80206
(the "Master Trust"), with respect to Berger International Portfolio, the only
series of the Master Trust (the "Master Series"); and
Janus Capital Management LLC ("Janus"), the investment adviser to the
Acquiring Fund (for purposes of paragraph 9.1 of the Agreement only).
This Agreement is intended to be and is adopted as a plan of
reorganization within the meaning of Section 368(a)(1) of the United States
Internal Revenue Code of 1986, as amended (the "Code"), and the Treasury
Regulations promulgated thereunder. The transactions described herein will
consist of: (i) the distribution by the Master Series to the Selling Fund of its
proportionate share of the assets and liabilities (i.e., a redemption in kind)
of the Master Series, in exchange for all of the beneficial interests in the
Master Series held by the Selling Fund, (ii) the transfer of all of the assets
of the Selling Fund in exchange for shares of beneficial interest, $.01 par
value per share, of the Acquiring Fund (the "Acquiring Fund Shares"), (iii) the
assumption by the Acquiring Fund of all of the liabilities of the Selling Fund,
and (iv) the distribution, after the Closing Date hereinafter referred to, of
the Acquiring Fund Shares to the shareholders of the Selling Fund and the
termination, dissolution and complete liquidation of Selling Fund as provided
herein, all upon the terms and conditions set forth in this Agreement. The
transactions described in clauses (ii), (iii) and (iv) are referred to as the
"Reorganization."
WHEREAS, the Acquiring Fund, the Selling Fund and the Master Series
each is a separate series of the Acquiring Trust, the Feeder Trust and the
Master Trust, respectively, and the Acquiring Trust, the Feeder Trust and the
Master Trust are open-end, registered management investment companies;
WHEREAS, the Acquiring Fund is authorized to issue its shares of
beneficial interest;
WHEREAS, the Trustees of the Acquiring Trust have determined that the
Reorganization is in the best interest of the Acquiring Fund and that the
interests of the existing shareholders of the Acquiring Fund will not be diluted
as a result of the Reorganization;
B-1
WHEREAS, the Trustees of the Feeder Trust have determined that the
Reorganization is in the best interest of the Selling Fund and that the
interests of the existing shareholders of the Selling Fund will not be diluted
as a result of the Reorganization; and
WHEREAS, if shareholder approval of this Agreement is obtained, the
first step of the transactions described herein will be the distribution to the
Selling Fund of its proportionate share of the assets and liabilities (i.e., a
redemption in kind) of the Master Series in exchange for its beneficial
interests in the Master Series.
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR ACQUIRING FUND
SHARES AND THE ASSUMPTION OF SELLING FUND'S LIABILITIES AND LIQUIDATION
OF THE SELLING FUND
1.1 THE EXCHANGE. Subject to the terms and conditions contained herein
and on the basis of the representations and warranties contained herein, the
Selling Fund agrees to transfer all of its assets, as set forth in paragraph
1.2, to its corresponding Acquiring Fund. In exchange, each Acquiring Fund
agrees: (i) to deliver to the Selling Fund the number of full and fractional
Acquiring Fund Shares, determined by dividing the value of the Selling Fund's
assets net of any liabilities of the Selling Fund, computed in the manner and as
of the time and date set forth in paragraph 2.1, by the net asset value of one
Acquiring Fund Share, computed in the manner and as of the time and date set
forth in paragraph 2.2; and (ii) to assume all of the liabilities of the Selling
Fund. Such transactions shall take place at the closing (the "Closing") provided
for in paragraph 3.1.
1.2 ASSETS TO BE ACQUIRED. The assets of the Selling Fund to be
acquired by the Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities, interests in futures and
dividends or interest receivables, owned by the Selling Fund and any deferred or
prepaid expenses shown as an asset on the books of the Selling Fund on the
Closing Date.
The Selling Fund has provided its most recent audited financial
statements to the Acquiring Fund, including the Selling Fund's assets as of the
date of such statements (including its pro rata share of the assets of the
Master Series). The Selling Fund hereby represents that, as of the date of the
execution of this Agreement, there have been no changes in its financial
position as reflected in such financial statements other than those occurring in
the ordinary course of business in connection with the purchase and sale of
securities, the issuance and redemption of Selling Fund shares and the payment
of normal operating expenses, dividends and capital gains distributions.
The Master Trust will, within a reasonable period of time before the
Closing Date, furnish the Acquiring Fund and Selling Fund with a list of the
Master Series' portfolio securities. The Acquiring Fund will, within a
reasonable time before the Closing Date, furnish the Selling Fund and the Master
Series with a list of the securities, if any, on the Master Series' list
referred to above that do not conform to the Acquiring Fund's investment
objectives, policies, and restrictions. The Master Series, if requested by the
Acquiring Fund, will dispose of securities on the Acquiring Fund's list before
the Closing Date only if those securities also do not conform to the investment
policies of the Acquiring Fund. Notwithstanding the foregoing, nothing herein
will require the Master Series to dispose of any investments or securities if,
in the reasonable judgment of the Feeder Trust's trustees, such disposition
would adversely affect the tax-free nature of the Reorganization for federal
income tax purposes.
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1.3 LIABILITIES TO BE ASSUMED. The Selling Fund will endeavor to
discharge all of its known liabilities and obligations to the extent possible
before the Closing Date. Notwithstanding the foregoing, any liabilities not so
discharged shall be assumed by the Acquiring Fund, which assumed liabilities
shall include all of the Selling Fund's liabilities, debts, obligations and
duties of whatever kind or nature, whether absolute, accrued, contingent or
otherwise, whether or not arising in the ordinary course of business, whether or
not determinable at the Closing Date and whether or not specifically referred to
in this Agreement. The Selling Fund's liabilities specifically include
obligations to the independent Trustees of the Master Trust or the Feeder Trust
under any deferred compensation plan.
1.4 STATE FILINGS. Prior to the Closing Date, the Feeder Trust shall
make any filings with the State of Delaware that may be required under the laws
of the State of Delaware, effective as of the Closing Date.
1.5 LIQUIDATION AND DISTRIBUTION. On or as soon after the Closing Date
as is practicable, but in no event later than 12 months after the Closing Date
(the "Liquidation Date"): (a) the Selling Fund will distribute in complete
liquidation of the Selling Fund, pro rata to its shareholders of record,
determined as of the close of business on the Valuation Date (as defined in
paragraph 2.1) (the "Selling Fund Shareholders"), all of the Acquiring Fund
Shares received by the Selling Fund pursuant to paragraph 1.1; and (b) the
Selling Fund will thereupon proceed to dissolve and terminate as set forth in
paragraph 1.9 below. Such distribution will be accomplished by the transfer of
Acquiring Fund Shares credited to the account of the Selling Fund on the books
of the Acquiring Fund to open accounts on the share records of the Acquiring
Fund in the name of the Selling Fund Shareholders, and representing the
respective pro rata number of Acquiring Fund Shares due such Shareholders. The
Acquiring Fund shall assume the share records received from the Selling Fund are
valid, current and accurate and that such transfers to Shareholders are valid,
proper and correct. All issued and outstanding shares of the Selling Fund will
simultaneously be canceled on the books of the Selling Fund. The Acquiring Fund
shall not issue certificates representing Acquiring Fund Shares in connection
with such transfer.
1.6 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be
shown on the books of the Acquiring Fund's transfer agent. Shares of the
Acquiring Fund will be issued simultaneously to the Selling Fund, in an amount
equal in value to the aggregate net asset value of the Selling Fund's shares, to
be distributed to the Selling Fund Shareholders.
1.7 TRANSFER TAXES. Any transfer taxes payable upon the issuance of
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.8 REPORTING RESPONSIBILITY. Any reporting responsibility of the
Selling Fund, including, without limitation, the responsibility for filing of
regulatory reports, tax returns or other documents with the Securities and
Exchange Commission (the "Commission"), any state securities commission, and any
federal, state or local tax authorities or any other relevant regulatory
authority, is and shall remain the responsibility of the Selling Fund.
1.9 TERMINATION AND DISSOLUTION. The Selling Fund shall be terminated
and dissolved promptly following the Closing Date and the making of all
distributions pursuant to paragraph 1.5. In addition, the Master Series shall be
terminated and the Master Trust and Feeder Trust shall be dissolved following
the Closing Date.
1.10 BOOKS AND RECORDS. All books and records of the Selling Fund,
including all books and records required to be maintained under the Investment
Company Act of 1940 (the
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"1940 Act") and the rules and regulations thereunder, shall be available to the
Acquiring Fund from and after the Closing Date and shall be turned over to the
Acquiring Fund as soon as practicable following the Closing Date.
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets as of
the close of regular trading on the New York Stock Exchange ("NYSE") on the
business day immediately prior to the Closing Date (such time and date being
hereinafter called the "Valuation Date"), after the declaration and payment of
any dividends on that date, using the valuation procedures set forth in the
trust instrument of the Acquiring Trust and the Acquiring Fund's then-current
prospectus and statement of additional information or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 VALUATION OF SHARES. The net asset value per share of Acquiring
Fund Shares shall be the net asset value per share computed on the Valuation
Date, using the valuation procedures set forth in the trust instrument of the
Acquiring Trust and the Acquiring Fund's then-current prospectus and statement
of additional information or such other valuation procedures as shall be
mutually agreed upon by the parties.
2.3 SHARES TO BE ISSUED. The number of Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the Selling Fund's
assets shall be determined by dividing the value of the assets with respect to
shares of the Selling Fund determined in accordance with paragraph 2.1 by the
net asset value of an Acquiring Fund Share determined in accordance with
paragraph 2.2.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
or under the direction of each Fund's respective accounting agent, if
applicable, in accordance with its regular practice and the requirements of the
1940 Act.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 CLOSING DATE. The Closing shall occur on [March 24, 2003], or such
other date as the parties may agree to in writing (the a "Closing Date"). Unless
otherwise provided, all acts taking place at the Closing shall be deemed to take
place as of immediately after the close of regular trading on the Valuation
Date. The Closing shall be held at the offices of Vedder, Price, Kaufman &
Kammholz, 222 North LaSalle Street, Chicago, Illinois 60601, or at such other
time and/or place as the parties may agree.
3.2 CUSTODIAN'S CERTIFICATE. The Selling Fund shall cause its
Custodian, State Street Bank and Trust Company (the "Custodian"), to deliver at
the Closing a certificate of an authorized officer stating that: (a) the Selling
Fund's portfolio securities, cash and any other assets have been delivered in
proper form to the Acquiring Fund on the Closing Date; and (b) all necessary
taxes including all applicable federal and state stock transfer stamps, if any,
have been paid, or provision for payment shall have been made, in conjunction
with the delivery of portfolio securities by the Selling Fund. The Selling
Fund's portfolio securities represented by a certificate or other written
instrument shall be presented by the Custodian for the Selling Fund to the
custodian for the Acquiring Fund for examination
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no later than five (5) business days preceding the Closing Date and transferred
and delivered by the Selling Fund as of the Closing Date for the account of the
Acquiring Fund, duly endorsed in proper form for transfer in such condition as
to constitute good delivery thereof.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that, on the
Valuation Date, either: (a) the NYSE or another primary exchange on which the
portfolio securities of the Acquiring Fund or the Selling Fund are purchased or
sold shall be closed to trading or trading on such exchange shall be restricted;
or (b) trading or the reporting of trading on the NYSE or elsewhere shall be
disrupted so that accurate appraisal of the value of the net assets of the
Acquiring Fund or the Selling Fund is impracticable, the Valuation Date shall be
postponed until the first business day after the day when trading is fully
resumed and reporting is restored.
3.4 TRANSFER AGENT'S CERTIFICATE. The Selling Fund shall cause its
transfer agent, DST Systems, Inc., to deliver at the Closing a certificate of an
authorized officer stating that its records contain the names and addresses of
the Selling Fund Shareholders as of the Closing Date, and the number and
percentage ownership of outstanding shares owned by such shareholders
immediately prior to the Closing. The Acquiring Fund shall issue and deliver or
cause Janus Services LLC, its transfer agent, to issue and deliver a
confirmation evidencing Acquiring Fund Shares to be credited on the Closing Date
to the Secretary of the Feeder Trust or provide evidence satisfactory to the
Selling Fund that such Acquiring Fund Shares have been credited to the Selling
Fund's account on the books of the Acquiring Fund. At the Closing, each party
shall deliver to the other such bills of sale, checks, assignments, share
certificates, receipts and other documents, if any, as such other party or its
counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE SELLING FUND. The Feeder Trust, on behalf of
the Selling Fund, represents and warrants to the Acquiring Trust, on behalf of
the Acquiring Fund, as follows:
(a) The Selling Fund is a legally designated, separate series
of a statutory trust that is duly organized, validly existing and in good
standing under laws of the State of Delaware.
(b) The Feeder Trust is registered as an open-end management
investment company under the 1940 Act and the Feeder Trust's registration with
the Commission as an investment company under the 1940 Act is in full force and
effect.
(c) The current prospectus and statement of additional
information of the Selling Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933 (the "1933 Act") and the
1940 Act, and the rules and regulations thereunder, and do not include any
untrue statement of a material fact or omit to state any material fact required
to be stated or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Selling Fund is not in violation of, and the
execution, delivery and performance of this Agreement (subject to shareholder
approval) will not result in the violation of, any provision of the Feeder
Trust's trust instrument or bylaws or of any material agreement, indenture,
instrument, contract, lease or other undertaking to which the Selling Fund is a
party or by which it is bound.
(e) The Selling Fund has no material contracts or other
commitments (other than this Agreement) that will be terminated with liability
to it before the Closing Date, except for liabilities, if
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any, to be discharged or reflected in the Statement of Assets and Liabilities as
provided in paragraph 1.2 hereof.
(f) Except as otherwise disclosed in writing to and accepted
by the Acquiring Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Selling Fund or any of its properties
or assets which, if adversely determined, would materially and adversely affect
its financial condition, the conduct of its business, or the ability of the
Selling Fund to carry out the transactions contemplated by this Agreement. The
Selling Fund knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transactions
contemplated herein.
(g) The financial statements of the Selling Fund as of
September 30, 2002 and for the fiscal year then ended have been prepared in
accordance with generally accepted accounting principles and have been audited
by independent auditors, and such statements (copies of which have been
furnished to the Acquiring Fund) fairly reflect the financial condition of the
Selling Fund as of September 30, 2002, and there are no known contingent
liabilities of the Selling Fund as of such date that are not disclosed in such
statements.
(h) Since the date of the financial statements referred to in
subparagraph (g) above, there have been no material adverse changes in the
Selling Fund's financial condition, assets, liabilities or business (other than
changes occurring in the ordinary course of business), or any incurrence by the
Selling Fund of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund. For the purposes of this subparagraph (h), a decline in the net
asset value of the Selling Fund shall not constitute a material adverse change.
(i) All federal and other tax returns and reports of the
Selling Fund required by law to be filed have been filed, and all federal and
other taxes shown due on such returns and reports have been paid, or provision
shall have been made for the payment thereof. To the best of the Selling Fund's
knowledge, no such return is currently under audit, and no assessment has been
asserted with respect to such returns.
(j) All issued and outstanding shares of the Selling Fund are
duly and validly issued and outstanding, fully paid and nonassessable by the
Selling Fund. All of the issued and outstanding shares of the Selling Fund will,
at the time of the Closing Date, be held by the persons and in the amounts set
forth in the records of the Selling Fund's transfer agent as provided in
paragraph 3.4. The Selling Fund has no outstanding options, warrants, or other
rights to subscribe for or purchase any of the Selling Fund shares and has no
outstanding securities convertible into any of the Selling Fund shares.
(k) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2 and full right, power and authority to sell,
assign, transfer and deliver such assets hereunder, free of any lien or other
encumbrance, except those liens or encumbrances to which the Acquiring Fund has
received notice, and, upon delivery and payment for such assets and the filing
of any documents that may be required under Delaware state law or Massachusetts
state law, the Acquiring Fund will acquire good and marketable title, subject to
no restrictions on the full transfer of such assets, other than such
restrictions as might arise under the 1933 Act and other than as disclosed to
and accepted by the Acquiring Fund.
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(l) The execution, delivery and performance of this Agreement
have been duly authorized by all necessary action on the part of the Selling
Fund. Subject to approval by the Selling Fund Shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable in
accordance with its terms, subject as to enforcement to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights and to general equity principles.
(m) The information to be furnished by the Selling Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated herein shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations.
(n) From the effective date of the Registration Statement (as
defined in paragraph 5.8) through the time of the meeting of the Selling Fund
Shareholders and on the Closing Date, any written information furnished by the
Feeder Trust with respect to the Selling Fund for use in the Proxy Materials (as
defined in paragraph 5.8) or any other materials provided in connection with the
Reorganization does not and will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated or necessary to make
the statements, in light of the circumstances under which such statements were
made, not misleading.
(o) The Selling Fund has elected to qualify and has qualified
as a "regulated investment company" under the Code (a "RIC") as of and since its
first taxable year; has been a RIC under the Code at all times since the end of
its first taxable year when it so qualified; and qualifies and will continue to
qualify as a RIC under the Code for its taxable year ending upon its
liquidation.
(p) No governmental consents, approvals, authorizations or
filings are required under the 1933 Act, the Securities Exchange Act of 1934
(the "1934 Act"), the 1940 Act or Delaware state law for the execution of this
Agreement by the Feeder Trust, for itself and on behalf of the Selling Fund,
except for the effectiveness of the Registration Statement and the filing of any
documents that may be required under Delaware state law and except for such
other consents, approvals, authorizations and filings as have been made or
received and such consents, approvals, authorizations and filings as may be
required subsequent to the Closing Date, it being understood, however, that this
Agreement and the transactions contemplated herein must be approved by the
shareholders of the Selling Fund as described in paragraph 5.2.
4.2 REPRESENTATIONS OF THE ACQUIRING FUND. The Acquiring Trust, on
behalf of the Acquiring Fund, represents and warrants to the Feeder Trust on
behalf of the Selling Fund, as follows:
(a) The Acquiring Fund is a legally designated, separate
series of a business trust, which is duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts.
(b) The Acquiring Trust is registered as an open-end
management investment company under the 1940 Act, and the Acquiring Trust's
registration with the Commission as an investment company under the 1940 Act is
in full force and effect.
(c) The current prospectus and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations thereunder and do not include any untrue statement of a material
fact or omit
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to state any material fact required to be stated or necessary to make such
statements therein, in light of the circumstances under which they were made,
not misleading.
(d) The Acquiring Fund is not in violation of, and the
execution, delivery and performance of this Agreement will not result in a
violation of, the Acquiring Trust's trust instrument or bylaws or of any
material agreement, indenture, instrument, contract, lease or other undertaking
to which the Acquiring Fund is a party or by which it is bound.
(e) Except as otherwise disclosed in writing to and accepted
by the Selling Fund, no litigation, administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquiring Fund or any of its properties or
assets which, if adversely determined, would materially and adversely affect its
financial condition, the conduct of its business or the ability of the Acquiring
Fund to carry out the transactions contemplated by this Agreement. The Acquiring
Fund knows of no facts that might form the basis for the institution of such
proceedings and it is not a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transaction
contemplated herein.
(f) The financial statements included in the Registration
Statement of the Acquiring Fund as of October 31, 2002, and for the fiscal year
then ended have been prepared in accordance with generally accepted accounting
principles and have been audited by independent auditors, and such statements
(copies of which have been furnished to the Selling Fund) fairly reflect the
financial condition of the Acquiring Fund as of such date, and there are no
known contingent liabilities of the Acquiring Fund as of such date that are not
disclosed in such statements.
(g) Since the date of the financial statements referred to in
subparagraph (f) above, there have been no material adverse changes in the
Acquiring Fund's financial condition, assets, liabilities or business (other
than changes occurring in the ordinary course of business), or any incurrence by
the Acquiring Fund of indebtedness maturing more than one year from the date
such indebtedness was incurred, except as otherwise disclosed to and accepted by
the Selling Fund. For the purposes of this subparagraph (g), a decline in the
net asset value of the Acquiring Fund shall not constitute a material adverse
change.
(h) All federal and other tax returns and reports of the
Acquiring Fund required by law to be filed have been filed. All federal and
other taxes shown due on such returns and reports have been paid or provision
shall have been made for their payment. To the best of the Acquiring Fund's
knowledge, no such return is currently under audit, and no assessment has been
asserted with respect to such returns.
(i) All issued and outstanding Acquiring Fund Shares are duly
and validly issued and outstanding, fully paid and nonassessable by the
Acquiring Fund. The Acquiring Fund has no outstanding options, warrants or other
rights to subscribe for or purchase any Acquiring Fund Shares, and there are no
outstanding securities convertible into any Acquiring Fund Shares.
(j) The execution, delivery and performance of this Agreement
have been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund, enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights and to general equity principles.
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(k) Acquiring Fund Shares to be issued and delivered to the
Selling Fund for the account of Selling Fund Shareholders pursuant to the terms
of this Agreement will, at the Closing Date, have been duly authorized. When so
issued and delivered, such shares will be duly and validly issued Acquiring Fund
Shares and will be fully paid and nonassessable.
(l) The information to be furnished by the Acquiring Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated herein shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations.
(m) From the effective date of the Registration Statement (as
defined in paragraph 5.8) through the time of the meeting of the Selling Fund
Shareholders and on the Closing Date, any written information furnished by the
Acquiring Trust with respect to the Acquiring Fund for use in the Proxy
Materials (as defined in paragraph 5.8), or any other materials provided in
connection with the Reorganization, does not and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated or necessary to make the statements, in light of the circumstances under
which such statements were made, not misleading.
(n) The Acquiring Fund has elected to qualify and has
qualified as a RIC under the Code as of and since its first taxable year, has
been a RIC under the Code at all times since the end of its first taxable year
when it so qualified, and qualifies and shall continue to qualify as a RIC under
the Code.
(o) No governmental consents, approvals, authorizations or
filings are required under the 1933 Act, the 1934 Act, the 1940 Act or
Massachusetts state law for the execution of this Agreement by the Acquiring
Trust, for itself and on behalf of the Acquiring Fund, or the performance of the
Agreement by the Acquiring Trust, for itself and on behalf of the Acquiring
Fund, except for the effectiveness of the Registration Statement and the filing
of any documents that may be required under Massachusetts or Delaware state law
and such other consents, approvals, authorizations and filings as have been made
or received and except for such consents, approvals, authorizations and filings
as may be required subsequent to the Closing Date.
(p) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act
and any state blue sky or securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 OPERATION IN ORDINARY COURSE. Subject to paragraph 8.5, the
Acquiring Fund and the Selling Fund each will operate its business in the
ordinary course between the date of this Agreement and the Closing Date, it
being understood that such ordinary course of business will include customary
dividends and shareholder purchases and redemptions. No party shall take any
action that would, or reasonably would be expected to, result in any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect.
5.2 APPROVAL OF SHAREHOLDERS. The Feeder Trust will call a special
meeting of Selling Fund Shareholders to consider and act upon this Agreement (or
transactions contemplated hereby) and to take all other appropriate action
necessary to obtain approval of the transactions contemplated herein.
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5.3 INVESTMENT REPRESENTATION. The Selling Fund covenants that the
Acquiring Fund Shares to be issued pursuant to this Agreement are not being
acquired for the purpose of making any distribution, other than in connection
with the Reorganization and in accordance with the terms of this Agreement.
5.4 ACCESS TO BOOKS AND RECORDS. Upon reasonable notice, the Acquiring
Trust's officers and agents shall have reasonable access to the Selling Fund's
books and records necessary to maintain current knowledge of the Selling Fund
and to ensure that the representations and warranties made by the Selling Fund
are accurate.
5.5 ADDITIONAL INFORMATION. The Selling Fund will assist the Acquiring
Fund in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund's shares.
5.6 FURTHER ACTION. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take or cause to be taken all
action and do or cause to be done all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date. In
particular, the Selling Fund covenants that it will, as and when reasonably
requested by the Acquiring Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments and will take or cause to
be taken such further action as the Acquiring Fund may reasonably deem necessary
or desirable in order to vest in and confirm the Acquiring Fund's title to and
possession of all the assets and otherwise to carry out the intent and purpose
of this Agreement.
5.7 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but
in any case within sixty (60) days after the applicable Closing Date, the
Selling Fund shall furnish to the Acquiring Fund, in such form as is reasonably
satisfactory to the Acquiring Fund, a statement of the earnings and profits of
the Selling Fund for federal income tax purposes that will be carried over by
the Acquiring Fund as a result of Section 381 of the Code, and which will be
certified by the Feeder Trust's Treasurer.
5.8 PREPARATION OF REGISTRATION STATEMENT AND PROXY STATEMENT. The
Acquiring Trust will prepare and file with the Commission a registration
statement on Form N-14 (the "Registration Statement") relating to the Acquiring
Fund Shares to be issued to shareholders of the Selling Fund. The Registration
Statement shall include a proxy statement of the Selling Fund and a prospectus
of the Acquiring Fund relating to the transactions contemplated by this
Agreement. The Registration Statement shall be in compliance with the 1933 Act,
the 1934 Act and the 1940 Act, as applicable. Each party will provide the other
party with the materials and information necessary to prepare the proxy
statement of the Selling Fund contained in the Registration Statement (the
"Proxy Materials"), for inclusion therein, in connection with the meeting of the
Selling Fund Shareholders to consider the approval of this Agreement and the
transactions contemplated herein.
5.9 LIABILITY INSURANCE. For the period beginning at the Closing Date
and ending not less than five years thereafter, the Acquiring Trust, its
successors or assigns shall provide, or cause to be provided, reasonable
liability insurance covering the actions of the former independent trustees of
the Feeder Trust and the Master Trust for the period they served as such. The
Acquiring Trust shall ensure that the members of the newly created advisory
board are covered persons under the current liability insurance policies of the
Acquiring Trust for the duration of the advisory board and shall use
commercially reasonable efforts to maintain such coverage for three years
thereafter.
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ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by the Acquiring Fund
pursuant to this Agreement on or before the Closing Date and, in addition,
subject to the following conditions:
6.1 All representations, covenants and warranties of each Acquiring
Fund contained in this Agreement shall be true and correct in all material
respects as of the date hereof and as of the Closing Date, with the same force
and effect as if made on and as of the Closing Date. The Acquiring Fund shall
have delivered to the Selling Fund a certificate executed in the Acquiring
Fund's name by the Acquiring Trust's President or Vice President and its
Treasurer or Assistant Treasurer, in form and substance satisfactory to the
Selling Fund and dated as of the Closing Date, to such effect and as to such
other matters as the Selling Fund shall reasonably request.
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Vedder, Price, Kaufman & Kammholz, dated as of the Closing Date, in a form
reasonably satisfactory to the Selling Fund, covering the following points:
(a) The Acquiring Trust is a business trust validly existing
under the laws of the Commonwealth of Massachusetts.
(b) To such counsel's knowledge, and without any independent
investigation, the Acquiring Trust is registered as an open-end management
investment company under the 1940 Act and the Acquiring Trust's registration
with the Commission as an investment company under the 1940 Act is in full force
and effect.
(c) This Agreement has been duly authorized, executed and
delivered by the Acquiring Trust on behalf of the Acquiring Fund and, assuming
due authorization, execution and delivery of this Agreement by the Feeder Trust
and Master Trust, is a valid and binding obligation of the Acquiring Trust on
behalf of the Acquiring Fund, enforceable against the Acquiring Fund in
accordance with its terms, subject as to enforcement to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and to general equity principles.
(d) Assuming that the Acquiring Fund Shares have been issued
in accordance with the terms of this Agreement, Acquiring Fund Shares to be
issued and delivered to the Selling Fund on behalf of the Selling Fund
Shareholders, as provided by this Agreement, are duly authorized and upon such
delivery will be legally issued and outstanding and fully paid and
nonassessable, and no shareholder of an Acquiring Fund has any preemptive rights
with respect to Acquiring Fund Shares.
(e) The Registration Statement has been declared effective by
the Commission, and to such counsel's knowledge no stop order under the 1933 Act
pertaining thereto has been issued, and to the knowledge of such counsel, and
without any independent investigation, all regulatory consents, authorizations,
approvals or filings required to be obtained or made by the Selling Fund under
the federal laws of the United States or the laws of the State of Delaware for
the exchange of the Selling Fund's assets for Acquiring Fund Shares pursuant to
this Agreement have been obtained or made.
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(f) The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated herein will not, result in a
violation of the Acquiring Trust's trust instrument or bylaws.
(g) To such counsel's knowledge, and without any independent
investigation, the Acquiring Trust is subject to any litigation or other
proceedings that might have a materially adverse effect on the operations of the
Acquiring Fund.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Selling Fund of all the obligations to be performed by the Selling Fund pursuant
to this Agreement on or before the Closing Date and, in addition, shall be
subject to the following conditions:
7.1 All representations, covenants and warranties of the Selling Fund
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and as of the Closing Date, with the same force and effect
as if made on and as of the Closing Date. The Selling Fund shall have delivered
to the Acquiring Fund on the Closing Date a certificate executed in the Selling
Fund's name by the Feeder Trust's President or Vice President and the Treasurer
or Assistant Treasurer, in form and substance satisfactory to the Acquiring Fund
and dated as of the Closing Date, to such effect and as to such other matters as
the Acquiring Fund shall reasonably request.
7.2 The Selling Fund shall have delivered to the Acquiring Fund a
statement of the Selling Fund's assets and liabilities, together with a list of
the Selling Fund's portfolio securities showing the tax costs of such securities
by lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of the Feeder Trust.
7.3 The Acquiring Fund shall have received on the Closing Date an
opinion of Vedder, Price, Kaufman & Kammholz, dated as of the Closing Date, in a
form reasonably satisfactory to the Acquiring Fund, covering the following
points:
(a) The Feeder Trust is a statutory trust validly existing
under the laws of the State of Delaware.
(b) To such counsel's knowledge, and without any independent
investigation, the Feeder Trust is registered as an investment company under the
1940 Act and such registration with the Commission as an investment company
under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and
delivered by the Feeder Trust on behalf of the Selling Fund and, assuming due
authorization, execution and delivery of this Agreement by the Master Trust and
the Acquiring Trust on behalf of the Acquiring Fund, is a valid and binding
obligation of the Feeder Trust on behalf of the Selling Fund, enforceable
against the Selling Fund in accordance with its terms, subject as to enforcement
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other laws relating to or affecting creditors' rights generally and to general
equity principles.
(d) To the knowledge of such counsel, and without any
independent investigation, all regulatory consents, authorizations, approvals or
filings required to be obtained or made by the Selling
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Fund under the federal laws of the United States, the laws of the State of
Delaware, or the laws of the Commonwealth of Massachusetts, for the exchange of
each Selling Fund's assets for the corresponding Acquiring Fund Shares pursuant
to this Agreement have been obtained or made.
(e) The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby will not, result in a
violation of the trust instrument of the Feeder Trust (assuming shareholder
approval has been obtained) or bylaws.
(f) To such counsel's knowledge, and without any independent
investigation, the Feeder Trust is not subject to any litigation or other
proceedings that might have a materially adverse effect on the operations of the
Selling Fund.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
ACQUIRING FUND AND SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein, with
respect to the Selling Fund, shall have been approved by the requisite vote of
the holders of the outstanding shares of the Selling Fund in accordance with the
provisions of the Feeder Trust's trust instrument and bylaws, applicable
Delaware state law and the 1940 Act. Certified copies of the resolutions
evidencing such approval shall have been delivered to the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Selling Fund may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, or instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act. Furthermore, no action,
suit or other proceeding shall be threatened or pending before any court or
governmental agency in which it is sought to restrain or prohibit, or obtain
damages or other relief in connection with, this Agreement or the transactions
contemplated herein.
8.3 All required consents of other parties and all other consents,
orders and permits of federal, state and local regulatory authorities (including
those of the Commission and of state securities authorities, including any
necessary "no-action" positions and exemptive orders from such federal
authorities) to permit consummation of the transactions contemplated herein
shall have been obtained, except where failure to obtain any such consent, order
or permit would not involve a risk of a material adverse effect on the assets or
properties of an Acquiring Fund or a Selling Fund, provided that either party
hereto may waive any such conditions for itself.
8.4 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued. To the best knowledge of the parties to this Agreement, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the 1933 Act.
8.5 The Selling Fund shall have declared and paid a dividend or
dividends that, together with all previous such dividends, shall have the effect
of distributing to its shareholders all of the Selling
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Fund's investment company taxable income for all taxable periods ending on or
before the Closing Date (computed without regard to any deduction for dividends
paid), if any, plus the excess of its interest income, if any, excludable from
gross income under Section 103(a) of the Code over its deduction disallowed
under Sections 265 and 171(a)(2) of the Code for all taxable years ending on or
before the Closing Date and all of its net capital gains realized in all taxable
periods ending on or before the Closing Date (after reduction for any capital
loss carryforward).
8.6 The parties shall have received an opinion of Vedder, Price,
Kaufman & Kammholz addressed to the Acquiring Fund and the Selling Fund
substantially to the effect that, based upon certain facts, assumptions and
representations of the parties, for federal income tax purposes:
(a) the transfer of all of the Selling Fund's assets in
exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of
all of the liabilities of the Selling Fund (followed by the distribution of
Acquiring Fund Shares to the Selling Fund Shareholders in dissolution and
liquidation of the Selling Fund) will constitute a "reorganization" within the
meaning of Section 368(a)(1) of the Code and the Acquiring Fund and the Selling
Fund will each be a "party to a reorganization" within the meaning of Section
368(b) of the Code;
(b) no gain or loss will be recognized by the Acquiring Fund
upon the receipt of the assets of the Selling Fund solely in exchange for
Acquiring Fund Shares and the assumption by the Acquiring Fund of all of the
liabilities of the Selling Fund;
(c) no gain or loss will be recognized by the Selling Fund
upon the transfer of the Selling Fund's assets to the Acquiring Fund solely in
exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of
all of the liabilities of the Selling Fund or upon the distribution (whether
actual or constructive) of Acquiring Fund Shares to Selling Fund Shareholders in
exchange for such shareholders' shares of the Selling Fund;
(d) no gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for Acquiring Fund
Shares in the Reorganization;
(e) the aggregate tax basis of Acquiring Fund Shares received
by each Selling Fund Shareholder pursuant to the Reorganization will be the same
as the aggregate tax basis of the Selling Fund shares exchanged therefor by such
shareholder. The holding period of Acquiring Fund Shares to be received by each
Selling Fund Shareholder will include the period during which the Selling Fund
shares exchanged therefor were held by such shareholder, provided the Selling
Fund shares are held as capital assets at the time of the Reorganization; and
(f) the tax basis of the Selling Fund's assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the Selling
Fund immediately before the Reorganization. The holding period of the assets of
the Selling Fund in the hands of the Acquiring Fund will include the period
during which those assets were held by the Selling Fund.
Such opinion shall be based on customary assumptions and such
representations as Vedder, Price, Kaufman & Kammholz may reasonably request, and
the Selling Fund and the Acquiring Fund will cooperate to make and certify the
accuracy of such representations. Notwithstanding anything herein to the
contrary, neither the Acquiring Fund nor the Selling Fund may waive the
condition set forth in this paragraph 8.6.
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8.7 The Acquiring Trust's Trustees shall have approved the
establishment of an advisory board comprised of at least four of the former
independent Trustees of the Feeder Trust and the Master Trust.
ARTICLE IX
EXPENSES
9.1 Janus will pay reasonable expenses associated with the Acquiring
Funds' and the Selling Funds' participation in the Reorganization, including but
not limited to: (a) expenses associated with the preparation and filing of the
Proxy Materials; (b) postage; (c) printing; (d) accounting fees; (e) legal fees
incurred by each Fund (including fees of counsel to, and independent consultants
retained by, the independent Trustees); (f) solicitation costs of the
transaction; (g) fees payable to the independent Trustees for participation in
any special meetings related to the Reorganization; and (h) other related
administrative or operational costs, including the cost (if any) of continuation
of directors' and officers'/errors and omissions insurance for the independent
Trustees of the Master Trust and the Feeder Trust and obtaining directors' and
officers'/errors and omissions insurance for the advisory board contemplated by
Section 8.7. Brokerage costs payable by any Selling Fund in connection with the
realignment of its portfolio pursuant to paragraph 1.2 hereof are payable by the
applicable Selling Fund.
9.2 The Acquiring Trust, on behalf of the Acquiring Fund, and the
Feeder Trust, on behalf of the Selling Fund, represent and warrant that they
have no obligations to pay any brokers' or finders' fees in connection with the
transactions provided for herein.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Trust, on behalf of the Acquiring Fund, and the
Feeder Trust, on behalf of the Selling Fund, agree that neither party has made
to the other party any representation, warranty and/or covenant not set forth
herein and that this Agreement constitutes the entire agreement between the
parties.
10.2 Except as specified in the next sentence set forth in this
paragraph 10.2, the representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant to or in connection with this
Agreement shall not survive the consummation of the transactions contemplated
hereunder. The covenants to be performed after the Closing Date and the
obligations of the Acquiring Fund in paragraph 5.6 shall continue in effect
beyond the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Trust and the Feeder Trust. In addition, the Acquiring Trust or the
Feeder Trust may, at its option, terminate this Agreement with respect to the
Reorganization at or before the Closing Date due to:
(a) a breach by the other of any representation, warranty or
agreement contained herein to be performed at or before the Closing Date, if not
cured within 30 days; or
B-15
(b) a condition herein expressed to be precedent to the
obligations of the terminating party that has not been met if it reasonably
appears that it will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Selling Fund, the Acquiring Trust, the Feeder Trust or the
Master Trust, or their respective Trustees or officers, to the other party or
its Trustees or officers. In the event of willful default, all remedies at law
or in equity of the party adversely affected shall survive.
ARTICLE XII
AMENDMENTS
12.1 This Agreement may be amended, modified or supplemented in such
manner as may be mutually agreed upon in writing by the officers of the
Acquiring Trust and the Feeder Trust as specifically authorized by their
respective Board of Trustees; provided, however, that, following the meeting of
the Selling Fund Shareholders called by the Feeder Trust pursuant to paragraph
5.2 of this Agreement, no such amendment may have the effect of changing the
provisions for determining the number of Acquiring Fund Shares to be issued to
the Selling Fund Shareholders under this Agreement to the detriment of such
Shareholders without their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but, except as provided in
this paragraph, no assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
13.5 It is expressly agreed that the obligations of the Acquiring Fund
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Acquiring Trusts personally, but shall bind
only the trust property of the Acquiring Fund, as provided in the trust
instrument of the Acquiring Trust. Moreover, no series of the Acquiring Trust,
other than the Acquiring Fund, shall be responsible for the obligations of the
Trust hereunder, and all persons shall look only to the assets of the Acquiring
Fund to satisfy the obligations of the Acquiring Fund hereunder. The execution
and delivery of this Agreement has been authorized by the Trustees of the
Acquiring Trust on behalf of the Acquiring Fund and signed by authorized
officers of the Acquiring Trust, acting as such. Neither the authorization by
such Trustees nor the execution and delivery by such officers shall be deemed to
have
B-16
been made by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of the Acquiring Fund as
provided in the Acquiring Trust's trust instrument.
13.6 It is expressly agreed that the obligations of the Selling Fund
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Feeder Trust personally, but shall bind
only the trust property of the Selling Fund, as provided in the trust instrument
of the Feeder Trust. Moreover, no series of the Feeder Trust other than the
Selling Fund shall be responsible for the obligations of the Feeder Trust
hereunder, and all persons shall look only to the assets of the Selling Fund to
satisfy the obligations of the Selling Fund hereunder. The execution and
delivery of this Agreement have been authorized by the Trustees of the Feeder
Trust on behalf of the Selling Fund and signed by authorized officers of the
Feeder Trust, acting as such. Neither the authorization by such Trustees nor the
execution and delivery by such officers shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Selling Fund as provided in the Feeder
Trust's trust instrument.
ARTICLE XIV
NOTICES
14.1 Any notice, report, statement or demand required or permitted by
any provisions of this Agreement shall be in writing and shall be deemed duly
given if delivered by hand (including by FedEx or similar express courier) or
transmitted by facsimile or three (3) days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the Master
Trust or the Feeder Trust, 210 University Boulevard, Denver, Colorado 80206,
Attention: General Counsel, or to the Acquiring Trust, 100 Fillmore Street,
Denver, Colorado 80206, Attention: General Counsel, or to any other address that
the Feeder Trust or the Acquiring Trusts shall have last designated by notice to
the other party.
B-17
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all
as of the date first written above.
BERGER WORLDWIDE FUNDS TRUST
By:
-----------------------------------
Name:
Title: President
ACKNOWLEDGED:
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
BERGER WORLDWIDE PORTFOLIOS TRUST
By:
-----------------------------------
Name:
Title: President
ACKNOWLEDGED:
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
JANUS INVESTMENT FUND
By:
-----------------------------------
Name:
Title: President
ACKNOWLEDGED:
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
The Undersigned is a party to this
Agreement for the purposes of
paragraph 9.1 only:
JANUS CAPITAL MANAGEMENT LLC
By:
-----------------------------------
Name:
Title:
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ACKNOWLEDGED:
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
B-19
EXHIBIT C
AMENDMENT TO BERGER LARGE CAP GROWTH FUND'S
CHARTER
BERGER LARGE CAP GROWTH FUND, INC.
ARTICLES OF AMENDMENT
THIS IS TO CERTIFY THAT:
FIRST: The charter of Berger Large Cap Growth Fund, Inc., a Maryland
corporation (the "Corporation"), is hereby amended by deleting paragraph E. of
Article XI in its entirety.
SECOND: The charter of the Corporation is hereby further amended by
deleting Article XV in its entirety and inserting a new Article XV in lieu
thereof to read as follows:
"ARTICLE XV
Notwithstanding any provision of law or the charter
of the corporation permitting or requiring any action to be
taken or approved by the affirmative vote of the holders of
shares entitled to cast a greater number of votes, any such
action shall be effective and valid if declared advisable by
the Board of Directors and taken or approved by the
affirmative vote of holders of shares entitled to cast a
majority of all the votes entitled to be cast on the matter."
THIRD: The amendments to the charter of the Corporation as set forth
above have been duly advised by the Board of Directors and approved by the
stockholders of the Corporation as required by law.
FOURTH: The undersigned [Chairman, Vice Chairman, President or 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 [Chairman, Vice Chairman, President or Vice
President] of the Corporation acknowledges that, to the best of his or 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.
[SIGNATURE PAGE FOLLOWS]
C-1
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be signed in its name and on its behalf by its [Chairman, Vice
Chairman, President or Vice President] and attested to by its [Secretary or
Assistant Secretary] on this ____ day of ________, 2003.
ATTEST: BERGER LARGE CAP GROWTH FUND, INC.
By: (SEAL)
- -------------------------------------- ------------------------------
- -------------------------------------- ------------------------------
[Secretary or Assistant Secretary] [Chairman, Vice Chairman,
President or Vice President]
C-2
EXHIBIT D
FORM OF INTERIM ADVISORY AGREEMENT
INTERIM
INVESTMENT ADVISORY AGREEMENT
BERGER ____________________________ FUND [, INC.]
[(A SERIES OF BERGER ____________________ TRUST)]
This INVESTMENT ADVISORY AGREEMENT (the "Agreement") is made this 16th
day of December, 2002, between JANUS CAPITAL MANAGEMENT LLC, a Delaware limited
liability corporation ("Janus Capital"), and BERGER _______________________
TRUST/BERGER ____________________ FUND, INC., a Delaware statutory trust/a
Maryland corporation (the "Trust/Fund") [, with respect to the BERGER
_____________________ FUND, a series of the Trust (the "Fund")].
RECITALS
A. The Trust/Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and has registered its shares for public offering under the Securities Act of
1933, as amended (the "1933 Act").
[B. The Trust is authorized to create separate series of shares, each
with its own separate investment portfolio, one of such series created by the
Trust being the Fund.]
C. Janus Capital is engaged in the business of rendering investment
advisory services and is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act").
D. The Trust/Fund and Janus Capital deem it mutually advantageous that
Janus Capital should assist the Trustees/Directors and officers of the
Trust/Fund in the management of the securities portfolio of the Fund.
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Appointment. The Trust/Fund hereby appoints Janus Capital as
investment adviser and manager with respect to the Fund for the period and on
the terms set forth in this Agreement. Janus Capital hereby accepts such
appointment and agrees to render the services herein set forth, for the
compensation herein provided.
2. Investment Advisory Functions. In its capacity as investment adviser
to the Fund, Janus Capital shall have the following duties and responsibilities:
(a) To manage the investment operations of the Fund and the
composition of its investment portfolio, and to determine without prior
consultation with the Trust/Fund, what securities and other assets of the Fund
will be acquired, held, disposed of or loaned, in conformity with the investment
objective, policies and restrictions and the other statements concerning the
Fund in the [Trust's trust
D-1
instrument, as amended from time to time (the "Trust Instrument")] [Fund's
articles of incorporation, as amended from time to time (the "Charter")], bylaws
and registration statements under the 1940 Act and the 1933 Act, the 1940 Act
and the Advisers Act, the rules and regulations thereunder, and all other
applicable federal and state laws and regulations, and the provisions of the
Internal Revenue Code of 1986, as amended, applicable to the Fund as a regulated
investment company [or required to maintain compliance with any diversification
provisions applicable to insurance company separate accounts or qualified plans
investing in the Trust];
(b) To cause its officers to attend meetings and furnish oral
or written reports, as the Trust/Fund may reasonably require, in order to keep
the Trustees/Directors and appropriate officers of the Trust/Fund fully informed
as to the condition of the investment portfolio of the Fund, the investment
decisions of Janus Capital, and the investment considerations which have given
rise to those decisions;
(c) To [supervise] [place orders for] the purchase and sale of
securities for investments of the Fund and for other related transactions as
directed by the appropriate officers of the Trust/Fund; to give instructions to
the custodian (including any subcustodian) of the Fund as to deliveries of
securities to and from such custodian and receipt and payments of cash for the
account of the Fund, and advise the Trust/Fund on the same day such instructions
are given; and to submit such reports relating to the valuation of the Fund's
assets and to otherwise assist in the calculation of the net asset value of
shares of the Fund as may reasonably be requested;
(d) To maintain all books and records required to be
maintained by Janus Capital pursuant to the 1940 Act and the rules and
regulations promulgated thereunder, as the same may be amended from time to
time, with respect to transactions on behalf of the Fund, and shall furnish the
Trustees/Directors with such periodic and special reports as the
Trustees/Directors reasonably may request. Janus Capital agrees that all records
which it maintains for the Fund or the Trust/Fund are the property of the
Trust/Fund, agrees to permit the reasonable inspection thereof by the Trust/Fund
or its designees and agrees to preserve for the periods prescribed under the
1940 Act any records which it maintains for the Trust/Fund and which are
required to be maintained under the 1940 Act, and further agrees to surrender
promptly to the Trust/Fund or its designees any records which it maintains for
the Trust/Fund upon request by the Trust/Fund; and
(e) At such times as shall be reasonably requested by the
Trustees/Directors, to provide the Trustees/Directors with economic, operational
and investment data and reports, including without limitation all information
and materials reasonably requested by or requested to be delivered to the
Trustees/Directors of the Trust/Fund pursuant to Section 15(c) of the 1940 Act,
and make available to the Trustees/Directors any economic, statistical and
investment services normally available to similar investment company clients of
Janus Capital.
3. Further Obligations. In all matters relating to the performance of
this Agreement, Janus Capital shall act in conformity with the [Trust's Trust
Instrument] [Fund's Charter], bylaws and currently effective registration
statements under the 1940 Act and the 1933 Act and any amendments or supplements
thereto (the "Registration Statements") and with the written policies,
procedures and guidelines of the Fund, and written instructions and directions
of the Trustees/Directors of the Trust/Fund and shall comply with the
requirements of the 1940 Act, the Advisers Act, the rules thereunder, and all
other applicable federal and state laws and regulations. The Trust/Fund agrees
to provide Janus Capital with copies of the [Trust's Trust Instrument] [Fund's
Charter], bylaws, Registration Statements, written policies, procedures and
guidelines, and written instructions and directions of the Trustees/Directors,
and any amendments or supplements to any of them at, or, if practicable, before
the time such materials become effective. Janus Capital shall maintain errors
and omissions insurance in an amount at least equal to that disclosed to the
Trustees/Directors in connection with their approval of this Agreement.
D-2
4. Obligations of Trust/Fund. The Trust/Fund shall have the following
obligations under this Agreement:
(a) To keep Janus Capital continuously and fully informed as
to the composition of the investment portfolio of the Fund and the nature of all
of the Fund's assets and liabilities from time to time;
(b) To furnish Janus Capital with a certified copy of any
financial statement or report prepared for the Fund by certified or independent
public accountants and with copies of any financial statements or reports made
to the Fund's shareholders or to any governmental body or securities exchange;
(c) To furnish Janus Capital with any further materials or
information which Janus Capital may reasonably request to enable it to perform
its function under this Agreement; and
(d) To compensate Janus Capital for its services in accordance
with the provisions of Section 5 hereof.
5. Compensation. (a) The Trust/Fund shall pay to Janus Capital for its
services under this Agreement a fee, payable in United States dollars, at an
annual rate of [insert fee rate from current contract] of the average daily net
asset value of the Fund. This fee shall be computed and accrued daily and
payable monthly as of the last day of each month during which or part of which
this Agreement is in effect. For the month during which this Agreement becomes
effective and the month during which it terminates, however, there shall be an
appropriate proration of the fee payable for such month based on the number of
calendar days of such month during which this Agreement is effective.
(b) The compensation earned by Janus Capital under this
Agreement shall be held in an interest-bearing escrow account with the
Trust's/Fund's custodian or a bank. If a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund approve an investment
advisory agreement with Janus Capital within 150 days of the day and year first
written above, the amount in the escrow account (including interest thereon)
shall be paid to Janus Capital. If a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund do not approve an investment
advisory agreement with Janus Capital within 150 days of the day and year first
written above, Janus Capital shall be paid, out of the escrow account, the
lesser of (i) any costs incurred by Janus Capital in performing this Agreement
(plus interest earned on that amount while in escrow) or (ii) the total amount
in the escrow account (plus interest earned).
6. Expenses.
(a) Expenses Paid by the Trust/Fund. The Trust/Fund assumes
and shall pay all expenses incidental to its operations and business not
specifically assumed or agreed to be paid by Janus Capital hereunder or
otherwise, including, but not limited to, any compensation, fees or
reimbursements which the Trust/Fund pays to its Trustees/Directors who are not
interested persons of Berger Associates or Janus Capital; compensation of the
Fund's custodian, transfer agent, registrar and dividend disbursing agent and
other service providers; legal, accounting, audit and printing expenses;
administrative, clerical, recordkeeping and bookkeeping expenses; brokerage
commissions and all other expenses in connection with execution of portfolio
transactions (including any appropriate commissions paid to Janus Capital or its
affiliates for effecting exchange listed, over-the-counter or other securities
transactions); interest; all federal, state and local taxes (including stamp,
excise, income and franchise taxes); costs of stock certificates and expenses of
delivering such certificates to the purchasers thereof; [expenses of local
representation in Delaware;] expenses of shareholders' meetings and of
preparing, printing and
D-3
distributing proxy statements, notices, and reports to shareholders; expenses of
preparing and filing reports and tax returns with federal and state regulatory
authorities; all expenses incurred in complying with all federal and state laws
and the laws of any foreign country applicable to the issue, offer or sale of
shares of the Fund, including, but not limited to, all costs involved in
preparing, printing and mailing prospectuses and statements of additional
information to shareholders of the Fund; and all fees, dues and other expenses
incurred by the Trust/Fund in connection with the membership of the Trust/Fund
in any trade association or other investment company organization. To the extent
that Janus Capital shall perform any of the above described administrative and
clerical functions, including transfer agency, registry, dividend disbursing,
recordkeeping, bookkeeping, accounting and blue sky monitoring and registration
functions, and the preparation of reports and returns, the Trust/Fund shall pay
to Janus Capital compensation for, or reimburse Janus Capital for its expenses
incurred in connection with, such services as Janus Capital and the Trust/Fund
shall agree from time to time, any other provision of this Agreement
notwithstanding.
(b) Expenses Paid by Janus Capital. Janus Capital shall pay
all its own costs and expenses incurred in fulfilling its obligations under this
Agreement. In addition to such costs and expenses, Janus Capital shall incur and
pay the following expenses relating to the Fund's operations:
(i) Reasonable compensation, fees and related
expenses of the Trust's/Fund's officers and Trustees/Directors, except
for such Trustees/Directors who are not interested persons of Berger
Associates or Janus Capital; and
(ii) Rental of offices of the Trust/Fund.
7. Brokerage Commissions. For purposes of this Agreement, brokerage
commissions paid by the Fund upon the purchase or sale of its portfolio
securities shall be considered a cost of securities of the Fund and shall be
paid by the Fund. Absent instructions from the Trust/Fund to the contrary, Janus
Capital is authorized and directed to place Fund portfolio transactions only
with brokers and dealers who render satisfactory service in the execution of
orders at the most favorable prices and at reasonable commission rates,
provided, however, that Janus Capital may pay a broker an amount of commission
for effecting a securities transaction in excess of the amount of commission
another broker would have charged for effecting that transaction if Janus
Capital determines in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research services provided by such
broker viewed in terms of either that particular transaction or the overall
responsibilities of Janus Capital. Janus Capital is also authorized to consider
sales of Fund shares/variable insurance contracts that permit allocation of
contract values to the Fund as a factor in selecting broker-dealers to execute
Fund portfolio transactions. In placing portfolio business with such
broker-dealers, Janus Capital shall seek the best execution of each transaction.
Subject to the terms of this Agreement and the applicable requirements and
provisions of the law, including the 1940 Act and the Securities Exchange Act of
1934, as amended, and in the event that Janus Capital or an affiliate is
registered as a broker-dealer, Janus Capital may select a broker with which it
or any of its affiliates or the Fund is affiliated. Janus Capital or such
affiliated broker may effect or execute Fund portfolio transactions, whether on
a securities exchange or in the over-the-counter market, and receive separate
compensation from the Fund therefor. Notwithstanding the foregoing, the
Trust/Fund shall retain the right to direct the placement of all portfolio
transactions, and the Trustees/Directors of the Trust/Fund may establish
policies or guidelines to be followed by Janus Capital in placing portfolio
transactions for the Trust/Fund pursuant to the foregoing provisions. Janus
Capital shall report on the placement of portfolio transactions in the prior
fiscal quarter at each quarterly meeting of such Trustees/Directors. To the
extent consistent with applicable law, purchase or sell orders for the Fund may
be aggregated with simultaneous purchase or sell orders for other clients of
Janus Capital. Whenever Janus Capital simultaneously places orders to purchase
or sell the same security on behalf of the Fund and one or more other clients of
Janus Capital, such orders will be
D-4
allocated as to price and amount among all such clients in a manner reasonably
believed by Janus Capital to be fair and equitable to each client. The
Trust/Fund recognizes that in some cases, this procedure may adversely affect
the results obtained for the Fund.
8. Effectiveness, Duration and Termination. This Agreement, unless
sooner terminated as provided herein, shall become effective as of the day and
year first written above, and shall remain in effect until the earlier of: (i)
150 days from the date hereof or (ii) a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund approve an investment
advisory agreement with Janus Capital. This Agreement may also be terminated at
any time, without the payment of any penalty, upon ten (10) days' written notice
to Janus Capital, by the affirmative vote of a majority of the
Trustees/Directors of the Trust/Fund or by the affirmative vote of the
outstanding securities (as defined in the 1940 Act) of the Fund. This Agreement
will automatically and immediately terminate in the event of its assignment, as
such term is defined in the 1940 Act.
9. Amendments. This Agreement may be amended by the parties only if
such amendment is specifically approved (i) by a majority of the
Trustees/Directors, including a majority of the Trustees/Directors who are not
interested persons of the Fund or Berger Associates or Janus Capital and, (ii)
if required by applicable law, by the affirmative vote of a majority of the
outstanding voting securities of the Fund.
10. Allocation of Expenses. The Trustees/Directors shall determine the
basis for making an appropriate allocation of the Trust's/Company's expenses
(other than those directly attributable to the Fund) between the Fund [and any
other series of the Trust and between the Fund] and other investment companies
managed by Janus Capital or its affiliates.
11. [Limitation on Personal Liability. NOTICE IS HEREBY GIVEN that the
Trust is a statutory trust organized under the Delaware Statutory Trust Act
pursuant to a Certificate of Trust filed in the office of the Secretary of State
of the State of Delaware. All parties to this Agreement acknowledge and agree
that the Trust is a series trust and all debts, liabilities, obligations and
expenses incurred, contracted for or otherwise existing with respect to a
particular series shall be enforceable against the assets held with respect to
such series only, and not against the assets of the Trust generally or against
the assets held with respect to any other series and further that no Trustee,
officer or holder of shares of beneficial interest of the Trust shall be
personally liable for any of the foregoing.]
12. Limitation of Liability of Janus Capital. Janus Capital shall not
be liable for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission taken with respect to the Fund,
except for willful misfeasance, bad faith or gross negligence in the performance
of its duties, or by reason of reckless disregard of its obligations and duties
hereunder and except to the extent otherwise provided by law. As used in this
Section __, "Janus Capital" shall include any affiliate of Janus Capital
performing services for the Trust/Fund contemplated hereunder and directors,
officers and employees of Janus Capital and such affiliates.
13. Activities of Janus Capital. The services of Janus Capital to the
Trust/Fund hereunder are not to be deemed to be exclusive, and Janus Capital and
its affiliates are free to render services to other parties, so long as its
services under this Agreement are not materially adversely affected or otherwise
impaired thereby. Nothing in this Agreement shall limit or restrict the right of
any director, officer or employee of Janus Capital to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar nature or a dissimilar
nature. It is understood that Trustees/Directors, officers and shareholders of
the Trust/Fund are or may become interested in Janus Capital as directors,
officers and shareholders of Janus Capital, that directors, officers, employees
and shareholders of Janus Capital are or may become similarly interested in the
D-5
Trust/Fund, and that Janus Capital may become interested in the Trust/Fund as a
shareholder or otherwise.
14. Certain Definitions. The terms "vote of a majority of the
outstanding voting securities," "assignment," and "interested persons" when used
herein, shall have the respective meanings specified in the 1940 Act, as now in
effect or hereafter amended, and the rules and regulations thereunder, subject
to such orders, exemptions and interpretations as may be issued by the
Securities and Exchange Commission under said Act and as may be then in effect.
Where the effect of a requirement of the federal securities laws reflected in
any provision of this Agreement is made less restrictive by a rule, regulation,
order, interpretation or other authority of the Securities and Exchange
Commission, whether of special or general application, such provision shall be
deemed to incorporate the effect of such rule, regulation, order, interpretation
or other authority.
15. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Colorado (without giving effect to the conflicts of
laws principles thereof) and the 1940 Act. To the extent that the applicable
laws of the State of Colorado conflict with the applicable provisions of the
1940 Act, the latter shall control.
16. Miscellaneous. The headings in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions thereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Investment Advisory Agreement as of the date and year
first above written.
JANUS CAPITAL MANAGEMENT LLC
By:
--------------------------------------
BERGER_________________________TRUST, [with
respect to the series known as the Berger
_____________________ Fund]/ BERGER
____________________ FUND, INC.
By:
--------------------------------------
President
D-6
EXHIBIT E
MANAGEMENT'S DISCUSSION OF THE JANUS FUNDS' PERFORMANCE
E-1
EXHIBIT F
MANAGEMENT'S DISCUSSION OF THE BERGER FUNDS' PERFORMANCE
BERGER GROWTH FUND
(September 30, 2002)
PORTFOLIO MANAGER COMMENTARY JAY W. TRACEY, CFA
STEVEN L. FOSSEL, CFA
MARKET CONDITIONS
After reaching a peak in March of 2000, U.S. stocks have been locked in
the grips of one of the worst bear markets on record. The current bear market in
the United States has now exceeded in both time and severity the 1973/74 bear
market, and has become nearly as long--and as ugly--as 1929-32. It began in 2000
when an overheated economy started to run out of gas. It continued as the
recession of 2001 unfolded and collapsed in the aftermath of the 9/11 terrorist
attacks. Investors saw some relief in December of 2001, when the market rallied
as the news of the economy improved. Despite this positive news, the bear market
resumed early in 2002 as the Enron debacle and many other corporate scandals and
bankruptcies brought about a new crisis of confidence. The market crisis
worsened through the third quarter of 2002 as tensions in the Middle East, the
prospect of war with Iraq, and concerns about a possible slump back into
recession further undermined what little investor confidence was left.
FUND PERFORMANCE
The Berger Growth Fund (the "Fund") declined in value by 28.34% during
the fiscal year, compared with a 22.22% decline posted by its benchmark, the
Russell 3000 Growth Index.(1) Clearly, these results have been very
disappointing. The effort we made during the past year to lower the Fund's risk
profile did succeed in reducing the extent of the Fund's underperformance on the
downside, compared with the previous year, but we remain unsatisfied
nevertheless.
By mid-year 2002, many technology companies, including some in the
Fund's portfolio, had announced surprising weaknesses in their businesses and
little hope for improvement in the foreseeable future, which resulted in
significant declines in their stock prices. Enterprise software vendors such as
VeriSign and Advent Software hurt performance when their stock prices collapsed
in the wake of negative earnings news and diminished outlooks. Both stocks were
sold, but regrettably, not before they caused significant damage to relative
performance.
The Fund's performance also suffered from some of its holdings in
financial services. Concord EFS, which has a track record of consistent growth,
experienced a significant decline in its stock price when the company guided
earnings estimates down for this year and next. As one of the Fund's larger
holdings, that decline hurt relative performance, and the stock was sold.
Concerns about deteriorating credit quality and slowing growth drove Americredit
Corp.'s stock price down. The Fund's position was sold immediately following the
company's announcement that it would seek additional equity capital, but again,
not before the decline had a negative impact on relative performance.
The Fund's single-most important disappointment was Tyco International
Corp. A large position going into 2002, the stock began to decline in the wake
of the Enron debacle as a result of allegations of improper accounting and its
relatively large debt load, a decline that had a negative impact on Fund
performance. Because of the company's long record of success and its positive
cash flow characteristics, we continued to hold the Fund's position. However,
after Tyco's CEO was indicted for tax evasion, raising serious management and
corporate governance issues, the position was sold.
F-1
The Fund's largest sector, healthcare, made a positive contribution to
relative performance during the fiscal year. This was largely a result of gains
in healthcare services. Hospitals, HMOs and distributors were generally good
performers. The Fund did particularly well with Tenet Healthcare Corp., a
leading operator of hospitals and related facilities, Wellpoint Health Networks,
a major managed-care company, and AmerisourceBergen Corp., the nation's largest
distributor of pharmaceuticals. However, the Fund's investments in biotechnology
and pharmaceuticals companies had a negative impact on performance. Amgen,
Abgenix and King Pharmaceuticals are examples of Fund holdings that suffered
significant price declines during the year. The Fund maintained an overweighted
position in the healthcare sector, but over the course of the year, we decreased
the Fund's positions in the drug and biotechnology industries and increased its
services holdings.
The Fund posted mixed results in the consumer sector. Thanks to strong
operating trends, the Fund's holdings in education services, including
Corinthian Colleges and Education Management; restaurants, including P.F.
Chang's China Bistro and Brinker International; and consumer electronics,
including Take-Two Interactive Software and Electronic Arts, contributed
positively to performance. Positive results in retail were tougher to come by.
The Fund's position in Bed Bath and Beyond, for example, did well, but Best Buy
did not.
OUTLOOK
It is difficult to imagine a period of greater uncertainty than we have
experienced in the past few months. However, despite the many challenges we
face, we believe our nation will ultimately prevail. We believe that the economy
is on the bumpy road to recovery, that corporate profits will respond positively
to that recovery, and that corporations are taking the necessary steps to
restore accountability and investor confidence. In the meantime, we will
continue to seek out and invest in those companies that are succeeding in this
tough environment and that we believe are now or will be leaders in the growth
markets of the future.
PERFORMANCE OVERVIEW
================================================================================
BERGER GROWTH FUND - GROWTH OF $10,000
[GRAPHIC]
<Table>
Berger Growth Fund $12,165
Russell 3000 Growth Index $18,486
</Table>
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2002
<Table>
One Year (28.34)%
Five Year (11.39)%
Ten Year 1.98%
</Table>
- ----------
(1) The Russell 3000(R) Growth Index measures the performance of those Russell
3000(R) Index companies with higher price-to-book ratios and higher
forecasted growth values. The stocks in this index are also members of
either the Russell 1000(R) Growth or the Russell 2000(R) Growth Index. The
Index is unmanaged and includes reinvestment of dividends and capital
gains, but does not reflect management fees, trading costs and other
expenses. Investors cannot actually make investments in the Index.
Opinions and forecasts regarding sectors, industries, companies and/or
themes are subject to change at any time based on market conditions and
should not be construed as a recommendation of any specific security.
Portfolio holdings and composition are subject to change.
F-2
Past performance is no guarantee of future results. Investment returns and
principal value will fluctuate, and you may have a gain or loss when you
sell shares. Performance information provided in this report does not
reflect the deduction of taxes shareholders may pay on Fund distributions
or the redemption of Fund shares. Due to market volatility, the Fund's
current performance may be lower than the figures shown. Please visit our
web site at www.berger.com for more current performance information.
F-3
BERGER LARGE CAP GROWTH FUND
(September 30, 2002)
PORTFOLIO MANAGER COMMENTARY STEVEN L. FOSSEL, CFA
MARKET CONDITIONS
After reaching a peak in March of 2000, U.S. stocks have been locked in
the grips of one of the worst bear markets on record The current bear market in
the United States has now exceeded in both time and severity the 1973/74 bear
market, and has become nearly as long--and as ugly--as 1929-32. It began in 2000
when an overheated economy started to run out of gas. It continued as the
recession of 2001 unfolded and collapsed in the aftermath of the 9/11 terrorist
attacks. Investors saw some relief in December of 2001, when the market rallied
as the news of the economy improved. Despite this positive news, the bear market
resumed early in 2002 as the Enron debacle and many other corporate scandals and
bankruptcies brought about a new crisis of confidence. The market crisis
worsened through the third quarter of 2002 as tensions in the Middle East, the
prospect of war with Iraq, and concerns about a possible slump back into
recession further undermined what little investor confidence was left.
FUND PERFORMANCE
Against this backdrop the Berger Large Cap Growth Fund (the "Fund")
declined 28.78% compared with a 22.51% decline in its benchmark, the Russell
1000 Growth Index.(1) Clearly, these results are very disappointing. We have
reduced the Fund's risk profile to some extent by reducing large sector bets but
were still hurt severely by individual stock selection. To this end, Tyco
International was the largest cause of this underperformance. We were late in
selling the stock, believing that its business was solid and the price was
attractive, despite accounting and liquidity questions. We were wrong, and after
Tyco's CEO was indicted for tax evasion, raising serious management and
corporate governance issues, the position was sold.
The technology sector was the worst-performing major sector in the
market again this year and severely hurt the Fund's performance. Capital
spending in general and technology spending in particular did not rebound with
the improving economy. This resulted in many stocks posting disappointing
earnings results. Software stocks performed very poorly as a result of a slump
in technology spending. VeriSign and Adobe were two of the Fund's
worst-performing stocks in this arena. Both stocks were sold after reporting
poor results and large declines. Semiconductor stocks including Analog Devices
also hurt the Fund's performance and were sold after reporting disappointing
earnings. Some technology companies, such as Fund holding Dell Computer Corp.,
are beginning to experience improvement in their results. They are outperforming
their competitors, and we believe are well-positioned for the future.
Healthcare, the Fund's largest sector, was a bright spot this year.
Healthcare services companies performed particularly well for the Fund. Both
hospitals and managed-care companies had strong pricing momentum that resulted
in better-than-expected earnings growth. The Fund's position in Wellpoint Health
Networks, a leading managed-care company, and Tenet Healthcare Corp., a leading
hospital company, both contributed positively to performance this period. The
Fund also profited from its investment in Eli Lilly Corp., which was sold after
it reached our price target. The Fund continues to maintain an overweight
position in health-care services, in which we believe the underlying growth
fundamentals should remain very strong.
On the consumer front, results were mixed. Economically sensitive areas
such as retail weakened late in the year as investors questioned the
sustainability of strong consumer spending. Best Buy, a leading electronics
retailer, and Home Depot both hurt the Fund's performance as same-store sales
slowed. More defensive names with less economic sensitivity performed better
this year. Procter & Gamble Co., a new holding, performed well as both revenue
and earnings growth increased.
F-4
Financial stocks generally declined in line with the market. Growth was
difficult to come by as loan growth slowed and fee income was pressured by the
market's decline. Deteriorating credit quality was a problem for many consumer
finance companies, particularly credit card issuers. These trends impacted
Capital One Financial Corp., a once fast-growing card issuer, resulting in a
steep price decline. We sold the stock following this decline. Fifth Third
Bancorp. was able to buck these trends and continue to perform well.
OUTLOOK
It is difficult to imagine a period of greater uncertainty than we have
experienced in the last year. In spite of the many challenges we face, we
believe our nation, its economy and its markets will ultimately prevail. We
believe the economy is on a bumpy road to recovery and that corporate profits
will respond positively to that recovery. We also believe corporations are
taking the necessary steps to restore accountability and investor confidence. In
the meantime, we will continue to seek out and invest in those companies that
are succeeding in this tough environment and that we believe are currently or
will be leaders in the growth markets of the future.
PERFORMANCE OVERVIEW
================================================================================
BERGER LARGE CAP GROWTH FUND - GROWTH OF $10,000
[GRAPHIC]
<Table>
Berger Large Cap Growth Fund $17,508
Russell 1000 Growth Index $19,101
</Table>
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2002
<Table>
One Year (28.78)%
Five Year (4.56)%
Ten Year 5.76%
</Table>
- ----------
(1) The Russell 1000(R) Growth Index measures the performance of those Russell
1000 companies with higher price-to-book ratios and higher forecasted
growth values. The Index is unmanaged and includes reinvestment of
dividends and capital gains, but does not reflect management fees, trading
costs and other expenses. Investors cannot actually make investments in the
Index.
Opinions and forecasts regarding sectors, industries, companies and/or
themes are subject to change at any time based on market conditions and
should not be construed as a recommendation of any specific security.
Portfolio holdings and composition are subject to change.
Past performance is no guarantee of future results. Investment returns and
principal value will fluctuate, and you may have a gain or loss when you
sell shares. Performance information provided in this report does not
reflect the deduction of taxes shareholders may pay on Fund distributions
or the redemption of Fund shares. Due to market volatility, the Fund's
current performance may be lower than the figures shown. Please visit our
web site at www.berger.com for more current performance information.
F-5
BERGER MID CAP GROWTH FUND
(September 30, 2002)
PORTFOLIO MANAGER COMMENTARY JAY W. TRACEY, CFA
STEVEN L. FOSSEL, CFA
MARKET CONDITIONS
After reaching a peak in March of 2000, U.S. stocks have been locked in
the grips of one of the worst bear markets on record. The current bear market in
the United States has now exceeded in both time and severity the 1973/74 bear
market, and has become nearly as long--and as ugly--as 1929-32. It began in 2000
when an over-heated economy started to run out of gas. It continued as the
recession of 2001 unfolded and collapsed in the aftermath of the 9/11 terrorist
attacks. Investors saw some relief in December of 2001, when the market rallied
as the news of the economy improved. Despite this positive news, the bear market
resumed early in 2002 as the Enron debacle and many other corporate scandals and
bankruptcies brought about a new crisis of confidence. The market crisis
worsened through the third quarter of 2002 as tensions in the Middle East, the
prospect of war with Iraq, and concerns about a possible slump back into
recession further undermined what little investor confidence was left.
FUND PERFORMANCE
The Berger Mid Cap Growth Fund (the "Fund") declined by 28.62% this
period, significantly worse than the 15.50% decline posted by its benchmark, the
Russell Midcap Growth Index.(1) Clearly, these results are very disappointing.
Changes in portfolio managers and risk profile were made during the year;
however, we remain unsatisfied by results for the year as a whole. In general,
the Fund's underperformance had more to do with declines in specific Fund
holdings than with the Fund's sector weightings.
The consumer sector was a significant source of the Fund's underperformance. The
shares of consumer electronics retailer Best Buy declined when it became
apparent that the company's revenues were slowing and that earnings expectations
for this year were too high. The Fund's position was sold, but not before it had
an adverse impact on relative performance. Another disappointment was Univision
Communications, a leading Spanish-language media company. Concerns about
advertising revenue growth, underperformance in their radio stations, and
uncertainties surrounding their proposed acquisition of Hispanic Broadcasting
Corp. resulted in poor stock performance. Cable T.V. stocks in general performed
poorly primarily because of concerns about debt on their balance sheets. These
concerns caused a significant decline in the value of the Fund's cable holdings,
including Charter Communications and Cox Communications.
The Fund's performance also suffered from its financial services
holdings, including NextCard, a provider of Internet-based consumer credit,
which collapsed late last year when the company reported that its losses caused
by fraud were much higher than previously disclosed. The integrity and
credibility of management, as well as the viability of the company, in our
opinion, became suspect, and we sold the position. On the positive side,
securities broker Legg Mason performed well for the Fund, as did asset manager
John Nuveen Co.
The Fund's wireless services stocks, including Alamosa Holdings and
Intrado, were significant underperformers. The stocks first declined early in
2002 when investors became concerned about debt, because these companies had
been financing the build-out of their networks with a significant amount of
debt. We reduced the Fund's positions but did not sell out of them entirely
because we believed the price weakness was overdone. Later in the period, when
the companies' subscriber-growth problems worsened, with negative cash flow
implications, we sold the remaining positions. The Fund's largest sector,
healthcare, made a modestly negative contribution to relative performance during
the fiscal year.
F-6
This was largely a result of weakness in the Fund's biotechnology and specialty
pharmaceuticals holdings. A tougher regulatory environment, disappointing
product news and uncertainties about future growth all caused valuations to
contract in these areas. Invitrogen, Cell Therapeutics and King Pharmaceuticals
are examples of Fund holdings that suffered significant price declines during
the year. On the other hand, hospitals, HMOs and distributors were generally
good performers. The Fund benefited from its holdings in Triad Hospitals, a
major facilities operator, Wellpoint Health Networks, a large managed-care
provider, and AmerisourceBergen Corp., one of the nation's largest distributors
of pharmaceuticals.
The Fund was moderately underweighted in technology over the fiscal
year. Enterprise software vendors such as VeriSign, Amdocs and Advent Software
hurt performance when their stock prices collapsed in the wake of negative
earnings news and diminished outlooks. Those stocks were sold, but, regrettably,
not before they caused significant damage to relative performance. Semiconductor
and components manufacturers such as Fund holdings Amkor Technology and Atmel
also hurt performance.
OUTLOOK
It is difficult to imagine a period of greater uncertainty than we have
experienced in the past few months. However, despite the many challenges we
face, we believe our nation will ultimately prevail. We believe that the economy
is on the bumpy road to recovery, that corporate profits will respond positively
to that recovery, and that corporations are taking the necessary steps to
restore accountability and investor confidence. In the meantime, we will
continue to seek out and invest in those companies that are succeeding in this
tough environment and that we believe are now or will be leaders in the growth
markets of the future.
PERFORMANCE OVERVIEW
================================================================================
BERGER MID CAP GROWTH FUND - GROWTH OF $10,000
[GRAPHIC]
<Table>
Berger Mid Cap Growth Fund $9,810
Russell Midcap Growth Index $8,357
</Table>
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2002
<Table>
One Year (28.62)%
Life of Fund (12/31/97) (0.40)%
</Table>
- ----------
(1) Russell Midcap(R) Growth Index measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000(R) Growth
index. The Index is unmanaged and includes reinvestment of dividends and
capital gains, but does not reflect management fees, trading costs and
other expenses. Investors cannot actually make investments in the Index.
Opinions and forecasts regarding sectors, industries, companies and/or
themes are subject to change at any time based on market conditions and
should not be construed as a recommendation of any specific security.
Portfolio holdings and composition are subject to change. Past performance
is no guarantee of future results. Investment returns and principal value
will fluctuate, and you may have a gain or loss when you sell shares.
Performance information provided in this report does not reflect the
deduction of taxes shareholders may pay on Fund distributions or the
redemption of Fund shares. Due to market volatility, the Fund's current
performance may be lower than the figures shown. Please visit our web site
at www.berger.com for more current performance information.
F-7
BERGER SMALL COMPANY GROWTH FUND
(September 30, 2002)
PORTFOLIO MANAGER COMMENTARY JAY W. TRACEY, CFA
MARKET CONDITIONS
After reaching a peak in March of 2000, U.S. stocks have been locked in
the grips of one of the worst bear markets on record. The current bear market in
the United States has now exceeded in both time and severity the 1973/74 bear
market, and has become nearly as long--and as ugly--as 1929-32. It began in 2000
when an over-heated economy started to run out of gas. It continued as the
recession of 2001 unfolded and collapsed in the aftermath of the 9/11 terrorist
attacks. Investors saw some relief in December of 2001, when the market rallied
as the news of the economy improved. Despite this positive news, the bear market
resumed early in 2002 as the Enron debacle and many other corporate scandals and
bankruptcies brought about a new crisis of confidence. The market crisis
worsened through the third quarter of 2002 as tensions in the Middle East, the
prospect of war with Iraq, and concerns about a possible slump back into
recession further undermined what little investor confidence was left.
FUND PERFORMANCE
The Berger Small Company Growth Fund (the "Fund") declined by 34.15%
(Investor Shares); and 33.47% (Institutional Shares) during the fiscal year,
significantly worse than the 18.16% decline posted by its benchmark, the Russell
2000 Growth Index.(1) Clearly, these results are very disappointing. The effort
we made during the past year to lower the Fund's risk profile did not improve
the Fund's downside relative performance until late in the fiscal year, and we
remain unsatisfied. In general, the Fund's underperformance had more to do with
declines in specific Fund holdings than with the Fund's sector weightings.
The financial services sector was a source of underperformance for the
year. This was largely the result of poor performance by specific Fund holdings.
NextCard, for example, a provider of Internet-based consumer credit, collapsed
late last year when the company reported that its losses caused by fraud were
much larger than previously disclosed. The integrity and credibility of
management, as well as the viability of the company, in our opinion, became
suspect, and we sold the position. The Fund did have a few successes, including
Investors Financial Services, which is a leading provider of asset
administration services to the financial services industry. Unfortunately, the
losers hurt more than the winners helped.
The Fund also suffered from its holdings in the technology sector, one
of the worst-performing sectors in the market this past fiscal year. Enterprise
software vendors such as SeeBeyond and JDA Software hurt performance when their
stock prices collapsed in the wake of negative earnings news and diminished
outlooks. Both stocks were sold, but, regrettably, not before they caused
significant damage to relative performance. Semiconductor equipment and
components manufacturers such as Fund holdings ChipPAC and RF Micro Devices also
hurt performance.
The Fund's wireless services stocks, including Airgate PCS and
UbiquiTel, were significant underperformers. The stocks first declined early in
2002 when investors became concerned about debt. These companies had been
financing the build-out of their networks with a significant amount of debt. We
reduced the Fund's positions, but did not sell out of them entirely because we
believed the price weakness was overdone. Later, when the companies developed
subscriber-growth problems, which had negative cash flow implications, we sold
the remaining positions.
One of the Fund's largest sectors, healthcare, made a modestly negative
contribution to relative performance during the fiscal year. This was largely a
result of weakness in the Fund's biotechnology and specialty pharmaceutical
holdings. Icos Corp., Celgene and First Horizon Pharmaceutical are
F-8
examples of Fund holdings that suffered significant price declines during the
year. On the other hand, thanks to strong operating trends, services companies
such as hospitals, HMOs and distributors were generally good performers. The
Fund benefited from its holdings in Mid Atlantic Medical Services, for example,
a well-run managed-care company, and Priority Healthcare, a national distributor
of specialty pharmaceuticals and related medical supplies. Throughout the year,
we significantly decreased the Fund's positions in the biotechnology area,
increased holdings in health care services and broadened diversification in the
sector.
The Fund posted mixed results in the consumer sector. Thanks to strong
operating trends, the Fund's holdings in education services (e.g., Corinthian
Colleges and Strayer Education), restaurants (e.g., P.F. Chang's China Bistro
and Panera Bread) and consumer electronics (e.g., Take-Two Interactive Software
and Harmon International) contributed positively to performance. Good results in
retail were tougher to come by. Broadcasters such as Fund holdings Radio One and
Cumulus Media suffered from concerns about advertising trends.
OUTLOOK
It is difficult to imagine a period of greater uncertainty than we have
experienced in the past few months. However, despite the many challenges we
face, we believe our nation will ultimately prevail. We believe that the economy
is on the bumpy road to recovery, that corporate profits will respond positively
to that recovery, and that corporations are taking the necessary steps to
restore accountability and investor confidence. In the meantime, we will
continue to seek out and invest in those companies that are succeeding in this
tough environment, that we believe are now or will be leaders in the growth
markets of the future.
F-9
PERFORMANCE OVERVIEW
================================================================================
BERGER SMALL COMPANY GROWTH FUND -
INVESTOR SHARES - GROWTH OF $10,000
[GRAPHIC]
<Table>
Berger Small Company Growth Fund - Investor Shares $13,504
Russell 2000 Growth Index $10,755
</Table>
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2002
<Table>
One Year (34.15)%
Five Year (9.58)%
Life of Fund (12/30/93) 3.49%
</Table>
- --------------------------------------------------------------------------------
BERGER SMALL COMPANY GROWTH FUND -
INSTITUTIONAL SHARES - GROWTH OF $250,000
[GRAPHIC]
<Table>
Berger Small Company Fund - Institutional Shares $345,682
Russell 2000 Growth Index $268,869
</Table>
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2002
<Table>
One Year (33.47)%
Five Year (9.15)%
Life of Fund (12/30/93) 3.77%
</Table>
- ----------
(1) Russell 2000(R) Growth Index measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted
growth values. The Index is unmanaged and includes reinvestment of
dividends and capital gains, but does not reflect management fees,
trading costs and other expenses. Investors cannot actually make
investments in the Index. Opinions and forecasts regarding sectors,
industries, companies and/or themes are subject to change at any time
based on market conditions and should not be construed as a
recommendation of any specific security. Portfolio holdings and
composition are subject to change.
Past performance is no guarantee of future results. Investment returns
and principal value will fluctuate, and you may have a gain or loss
when you sell shares. Performance information provided in this report
does not reflect the deduction of taxes shareholders may pay on Fund
distributions or the redemption of Fund shares. Due to market
volatility, the Fund's current performance may be lower than the
figures shown. Please visit our web site at www.berger.com for more
current performance information.
F-10
BERGER BALANCED FUND
(September 30, 2002)
PORTFOLIO MANAGER COMMENTARY WILLIAM F.K. SCHAFF, CFA
STEVE BLOCK, CFA
MARKET CONDITIONS
The economy does not appear to be snapping back as quickly as investors
had originally expected. This malaise has driven down the equity markets.
Investors appear to have given up on a 2002 recovery and are now looking at
prospects for resurgence in 2003 with skepticism. However, we believe the slide
in the market has unveiled some interesting investment opportunities. Many
companies that were once untouchable because of lofty stock valuations have
declined below what we believe these companies are worth today. We also believe
that many of these securities are trading at levels that reflect their
businesses' worst-case scenarios. A number of stocks, especially in the consumer
staples industry, have lofty valuations because they are considered safe havens.
We strive to choose companies that generate good cash flow returns on investment
and have less sensitivity to volatile economic factors. However, we attempt to
avoid exposure to the downside price risk that many safe-haven stocks feature
today. As the economy improves, we expect many of these stocks to under-perform
while the undervalued companies with good business prospects should rise to more
appropriate values.
FUND PERFORMANCE
The Berger Balanced Fund (the "Fund") declined in value by 17.76% this
fiscal year, compared with declines of 20.49% in its benchmark, the S&P 500
Index,(1) and 6.92% in the Blended Index.(2) The Fund's equity component
returned disappointing performance this year primarily because of its
underweighting in the consumer staples and exposure to certain financial
companies.
In particular, we were disappointed with the performance of The St.
Paul Companies. St. Paul was hit hard this year with issues surrounding asbestos
liability and we sold the position. Although we believe strongly in CEO Jay
Fishman and his ability to leverage St. Paul's strengths and drive profitability
higher, the unknown liabilities give us pause.
The consumer sector posted mixed results this period. We were
disappointed with the performance of AOL Time Warner. AOL experienced slower
growth in new online subscribers, and there are fears that the trend toward
high-speed Internet access will drive customers away from AOL's services. In
addition, the weak advertising market continued to put pressure on the stock,
and we sold the Fund's position.
Within the energy sector, we were disappointed with both Exxon Mobil
and ChevronTexaco. As the economy shows sluggish growth, demand for energy
remains modest. We believe troubles in the Middle East could put further
pressure on the economy, reducing the demand for energy, thus lowering energy
prices. However, if current Iraq leadership is deposed, we believe there could
be less volatility in the region, which would help to stabilize the energy
markets. We continue to hold these major integrated energy companies in the
belief that their oil reserves offer significant value to investors.
The Fund's technology holdings also posted mixed results. The Fund's
performance was hurt by Convergys Corp. Convergys' growth slowed dramatically as
its telephone company customers ratcheted back spending on billing systems and
call center outsourcing. We believe that these lines of business will return to
health at some point, but the nearer-term outlook is not good, and we sold the
position.
The Fund's brightest sector was healthcare. We were pleased with the
performance of both Johnson & Johnson and Aetna. J&J was added to the portfolio
after its stock took a hard fall in July. We
F-11
believe good growth in pharmaceuticals and medical products is driving this
company's cash flow higher. Although we believe the rise in the stock this
quarter makes the upside less compelling in the future, we continue to hold it
as its price remains under our target price. Aetna experienced good performance
this year, we believe, as a result of lower costs, better pricing and more
discipline in bidding for business.
The fixed-income portion of the portfolio remains invested in
high-quality bonds with shorter-term durations. This positioning has provided
some income and relative stability in a volatile market. This year, however,
long-term interest rates retreated to 40-year lows. Thus, the longer-term bonds
in the benchmark performed quite well, thus boosting its performance. In our
anticipation of rising long-term rates over the next year, we continue to
believe that shorter-term and intermediate- term bonds should generate solid
performance.
OUTLOOK
The economy is not growing as quickly as was expected just a few months
ago. Spending by consumers, which comprises two-thirds of the country's GDP, has
been responsible for keeping us out of a prolonged recession. However, consumers
may cut their spending as they are frightened by further declines in the stock
market and higher unemployment. Meanwhile corporations have continued to curtail
capital spending because of overcapacity and a desire to conserve their cash
flow. Economists now expect only flat to modest growth for corporate capital
spending in 2003. We expect the U.S. economy to grow modestly in 2003 after a
meager increase in 2001 and a lackluster increase forecasted for 2002. The stock
market is still trying to come to terms with the largest financial bubble in
U.S. history, and those excesses are not easily erased. We are finding good
opportunities following the significant market declines this year. Many
opportunities arise because we don't believe the market is perfectly efficient.
The economy will likely generate modest growth in the coming years, but the
valuations seen in the equity markets might not yet reflect these moderate
growth trends of the future.
PERFORMANCE OVERVIEW
================================================================================
BERGER BALANCED FUND - GROWTH OF $10,000
[GRAPHIC]
<Table>
Berger Balanced Fund $17,345
S&P 500 Index $ 9,214
Blended Index $11,959
</Table>
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2002
<Table>
One Year (17.76)%
Five Year/Life of Fund (9/30/97) 11.64%
</Table>
- ----------
(1) The Standard and Poor's 500 Index is a market capitalization weighted
index composed of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange and Over-the-Counter market.
The Index is unmanaged and includes reinvestment of dividends and
capital gains, but does not reflect management fees, trading costs and
other expenses. Investors cannot actually make investments in the
Index.
(2) The Blended Index consists of 60% Russell 1000(R) Value Index and 40%
Lehman Brothers Government/Credit Index. The Index is unmanaged and
includes reinvestment of dividends, income and capital gains, but does
not reflect management fees, trading costs and other expenses.
Investors cannot actually make investments in the Index.
F-12
Opinions and forecasts regarding sectors, industries, companies and/or
themes are subject to change at any time based on market conditions and
should not be construed as a recommendation of any specific security.
Portfolio holdings and composition are subject to change.
Past performance is no guarantee of future results. Investment returns
and principal value will fluctuate, and you may have a gain or loss
when you sell shares. Performance information provided in this report
does not reflect the deduction of taxes shareholders may pay on Fund
distributions or the redemption of Fund shares. Life of Fund
performance includes returns for the last quarter of 1997, which
reflect a higher-than-normal level of trading activity undertaken to
pursue equity opportunities available as the Adviser was beginning to
implement the Fund's long-term approach to equity management. Please
visit our web site at www.berger.com for more current performance
information.
F-13
BERGER INFORMATION TECHNOLOGY FUND
(September 30, 2002)
PORTFOLIO MANAGER COMMENTARY WILLIAM F.K. SCHAFF, CFA
MARKET CONDITIONS
After reaching a peak in March of 2000, U.S. stocks have been locked in
the grips of one of the worst bear markets on record. The current bear market in
the United States has now exceeded in both time and severity the 1973/74 bear
market, and has become nearly as long--and as ugly--as 1929-32. It began in 2000
when an over-heated economy started to run out of gas. It continued as the
recession of 2001 unfolded and collapsed in the aftermath of the 9/11 terrorist
attacks. Investors saw some relief in December of 2001, when the market rallied
as the news of the economy improved. Despite this positive news, the bear market
resumed early in 2002 as the Enron debacle and many other corporate scandals and
bankruptcies brought about a new crisis of confidence. The market crisis
worsened through the third quarter of 2002 as tensions in the Middle East, the
prospect of war with Iraq, and concerns about a possible slump back into
recession further undermined what little investor confidence was left.
FUND PERFORMANCE
The Berger Information Technology Fund (the "Fund") declined in value
by 34.67% (Investor Shares); and 34.32% (Institutional Shares) this fiscal year,
compared with a 28.74% decline posted by its benchmark, the Nasdaq-100 Index.(1)
Clearly, these results have been very disappointing. The decline was primarily
driven by the significant decline in IT spending and its correlating negative
impact on those technology companies that derive most of their sales and profits
from IT budgets--the heart and soul of the Fund's investments.
Many technology investors fully expected a technology recovery to start
by mid-year 2002 as long as the economy continued to recover. In anticipation of
that recovery, we remained fully committed to those companies that directly
benefit from the IT capital spending cycle. The economic recovery started to
materialize, but the recovery in IT-related technology companies did not.
Instead, despite the improvement in the economy, IT spending has actually
declined. This has had a dramatic negative impact on those technology companies
that are dependent on IT budgets to grow sales and profits. In addition, we are
seeing much of the allocated budget for the year being held back with the
possibility of further reduction before year-end.
The major misses this period included StorageNetworks and VeriSign. The
fast-growing need for storage but the limited availability and high cost of
talent to run in-house storage services seemed to make a compelling proposition
for StorageNetworks services. It also appealed to our sense of allowing
businesses to focus on their core competencies.
Unfortunately, no one could account for the collapse of so many smaller
enterprises. These were the businesses most likely to adopt these services. As
of September 30, 2002, the company still had significant cash on the balance
sheet, and they hope to reach cash flow break-even by year-end 2002.
Verisign, a leading security infrastructure company, is known widely
for its digital certificates for e-commerce applications and as the distributor
of domain names used on the Web. Unfortunately, with the significant downturn in
technology, the domain name business has come under heavy pressure as well as
other competitive threats. Meanwhile e-commerce has fallen off, along with
pricing. The company has been slow to respond to the declines in business but we
believe the worst may be over. The company hopes to shift its revenue model away
from certificate fees to a per-transaction fee. Registrar revenue for domain
names will likely decline but more slowly. In our opinion, most of the bad news
seems to be priced into the stock today as it currently trades at very low
multiples of earnings and cash flow.
F-14
On the other side of the coin, we were pleased with Symantec and
Intuit. Symantec is a leading anti-virus and firewall security software company.
The company is widely represented throughout the FORTUNE 1000. It has been one
of the few companies continuing to put up impressive sales and profits in a very
tough market. It doesn't hurt that anti-virus and firewall software has become
highly recommended as part of homeland security. Intuit, a leading consumer and
small-business financial applications company, has done well by focusing on the
more mundane businesses such as filing tax returns and bookkeeping. Its leading
products include Quicken and TurboTax. Revenue and operating profits continued
to grow in high double digits last year. Their balance sheets remain very solid
with high cash levels. And they remain market leaders in all their spaces. Not
bad in a weak economic climate.
OUTLOOK
It is difficult to imagine a period of greater uncertainty than we have
experienced in the past few months. However, despite the many challenges we
face, we believe our nation will ultimately prevail. We believe that the economy
is on the bumpy road to recovery, that corporate profits will respond positively
to that recovery, and that corporations are taking the necessary steps to
restore accountability and investor confidence. In the meantime, we will
continue to seek out and invest in those companies that are succeeding in this
tough environment, that we believe are now or will be leaders in the growth
markets of the future.
PERFORMANCE OVERVIEW
================================================================================
BERGER INFORMATION TECHNOLOGY FUND -
INVESTOR SHARES - GROWTH OF $10,000
[GRAPHIC]
<Table>
Berger Information Technology Fund - Investor Shares $11,598
Nasdaq - 100 Index $ 9,942
</Table>
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2002
<Table>
One Year (34.67)%
Five Year (3.10)%
Life of Fund (12/30/93) 2.74%
</Table>
- --------------------------------------------------------------------------------
BERGER INFORMATION TECHNOLOGY FUND -
INSTITUTIONAL SHARES - GROWTH OF $250,000
[GRAPHIC]
<Table>
Berger Information Technology Fund - Institutional Shares $294,403
Nasdaq - 100 Index $248,543
</Table>
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2002
<Table>
One Year (34.32)%
Five Year (2.80)%
Life of Fund (12/30/93) 3.03%
</Table>
F-15
- ----------
(1) The Nasdaq-100 Index includes 100 of the largest domestic and
international non-financial companies listed on The Nasdaq Stock Market
based on market capitalization. The Index reflects companies across
major industry groups including computer hardware and software,
telecommunications, retail/wholesale trade and biotechnology. It does
not contain financial companies including investment companies. The
Nasdaq-100 Index is calculated under a modified capitalization-weighted
methodology. The Index is unmanaged and includes reinvestment of
dividends and capital gains, but does not reflect management fees,
trading costs and other expenses. Investors cannot actually make
investments in the Index.
Opinions and forecasts regarding sectors, industries, companies and/or
themes are subject to change at any time based on market conditions and
should not be construed as a recommendation of any specific security.
Portfolio holdings and composition are subject to change.
Past performance is no guarantee of future results. Investment returns
and principal value will fluctuate, and you may have a gain or loss
when you sell shares. Performance information provided in this report
does not reflect the deduction of taxes shareholders may pay on Fund
distributions or the redemption of Fund shares. Performance data for
the Investor Shares include periods prior to the adoption of class
designations on July 2, 1999, and therefore does not reflect the 0.25%
per year 12b-1 fee applicable to the Investor Shares. This would have
reduced the Investor Shares' return for that prior period. The Fund's
performance has sustained significant gains and losses due to market
volatility in the technology sector, and current performance may be
lower than the figures shown. As a sector fund, Berger Information
Technology Fund may be subject to greater risk and market fluctuation
than funds that have securities representing a broader range of
investment alternatives. Please visit our web site at www.berger.com
for more current performance information.
F-16
BERGER INTERNATIONAL FUND
(September 30, 2002)
PORTFOLIO MANAGER COMMENTARY BANK OF IRELAND ASSET MANAGEMENT (U.S.) LTD.
MARKET CONDITIONS
For the better part of the previous 12 months, global equity markets
had been in recovery mode fueled by optimism that the economy would recover
quickly from the shallow recession of 2001. However, the combination of
corporate scandals, weaker-than-expected economic and corporate data and fears
about the prospect of military conflict with Iraq caused markets to close the
year under review at or near five-year lows. The TMT (technology, media and
telecommunications) sectors led the Fund lower for most of the period; however,
of late, traditional defensive sectors such as financials and healthcare have
added to the decline. Energy and consumer stocks remain the best-performing
sectors in the portfolio.
FUND PERFORMANCE
The Berger International Fund (the "Fund") declined in value by 19.17%
during the fiscal year, compared with a 15.26% decline posted by its benchmark,
the MSCI EAFE Index.(1)
The Fund's overweight position in financials and underexposure to the
Japanese market hurt performance this period. The Japanese market has been one
of the best-performing markets year-to-date as investors have anticipated a
cyclical recovery. However, we continue to feel that, absent meaningful reform,
investment opportunities in Japan will be limited. During the third quarter,
financial sectors led the downturn as falls in equity markets caused concerns as
to the solvency of many insurance companies. Banks were hurt as many reported a
rise in provisions for bad loans. We believe that banks and insurance companies
offer a high degree of earnings visibility and reliability in the current market
as well as opportunity for growth as the global economy recovers.
Within the financial sector, we were particularly disappointed with ING
Groep and Swiss Re. Netherlands-based ING, Europe's seventh-largest financial
services group, could not escape the fallout from the sentiment surrounding the
insurance sector as two-thirds of its profits are generated from its insurance
activities. ING still possesses a healthy balance sheet, and we have taken
advantage of price weakness to increase our position. Swiss Re was strongly
impacted by the negative sentiment surrounding the insurance sector. However,
the world's number-two reinsurer has strong reserves--predominantly invested in
fixed-income securities-- and its recent operating results indicated that the
company is beginning to benefit from the rise in premiums post 9/11.
In technology, we were pleased with the performance of Canon. As one of
the world's largest makers of copy machines it is highly sensitive to the yen
exchange rate as 70% of its revenue is derived outside of Japan. The company
continues with its cost-reduction efforts, as it plans to move 80% of its laser
printer production to lower-cost areas such as China and continues to introduce
technologically improved products.
Results in the healthcare sector were disappointing. GlaxoSmithKline
and Aventis in particular hurt Fund performance this period. GlaxoSmithKline,
the UK-based pharmaceutical company fell as it lost a key court case clearing
the way for generic competition for its antibiotic Augmentin. Aventis also
slumped as worries grew about the strength of its new drugs pipeline.
The consumer sector posted mixed results. We were once again pleased
with Diageo, one of the world's top spirits makers. U.K.-quoted Diageo's recent
results revealed good growth despite disappointments related to a new
ready-to-drink product based upon its popular Captain Morgan brand
F-17
rum. On the flip side, Vivendi Universal and Koninklijke Ahold hurt relative
performance. The deterioration of the telecommunications sector along with
adverse information emerging in relation to short-term debt refinancing prompted
us to sell Vivendi in June, unfortunately not before it hurt short-term
performance. Shares of Koninklijke Ahold, a global supermarket chain store, fell
as fears grew about its performance in its key U.S. market.
The Fund's energy holdings performed well this period, particularly,
ENI, an Italian integrated energy company with activities in oil, natural gas,
power generation and petrochemicals as well as oilfield services and
engineering. While it remains a regional player, the company offers a rare
combination of cost cutting and growth as it increases its exposure to the
higher-margin upstream production.
OUTLOOK
The apparent inability of the world's major economies to move the pace
of growth up a notch has been an obstacle for equity markets as earnings have
begun to reflect the economic reality. Resulting downgrades and large-scale job
cuts have put pressure on consumers even as the threat of a war involving Iraq
has risen. Oil prices already include a "war premium" and are likely to spike
higher in the event of conflict, but we believe this should be temporary unless
there is a serious disruption to supply.
Despite the diffident economic data of recent months, the U.S. economy
is, in our opinion, in reasonable shape. Productivity is up, reducing unit labor
costs, and earnings are rising on a year-on-year basis. This should lead to
increased job opportunities as uncertainty diminishes and consumer confidence
strengthens. Interest rates remain very accommodating, and the consensus
expectation is that the Federal Reserve will lower rates before year-end. There
is less consensus about how the European Central Bank will react to sluggish
growth, given its focus on inflation.
While the global economic outlook is undoubtedly weaker than at the
beginning of the year, we are cautiously optimistic that conditions may exist to
allow markets to regain an upward trend.
PERFORMANCE OVERVIEW
================================================================================
BERGER INTERNATIONAL FUND - GROWTH OF $10,000
[GRAPHIC]
<Table>
Berger International Fund $14,108
MSCI EAFE Index $13,770
</Table>
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2002
<Table>
One Year (19.17)%
Five Year (5.56)%
Ten Year 3.50%
</Table>
- ----------
(1) The Morgan Stanley Capital International (MSCI) EAFE Index represents
major overseas markets. The Index is unmanaged and includes
reinvestment of gross dividends and capital gains, but does not reflect
management fees, trading costs and other expenses. Investors cannot
actually make investments in the Index.
Opinions and forecasts regarding sectors, industries, companies and/or
themes are subject to change at any time based on market conditions and
should not be construed as a recommendation of any specific security.
Portfolio holdings and composition are subject to change.
F-18
Foreign investing involves special risks, such as currency fluctuations
and political and economic uncertainty, which are discussed further in
the prospectus. Investments in the Fund are not insured by the Federal
Deposit Insurance Corporation, are not deposits and are not obligations
of, or endorsed or guaranteed in any way by, any bank.
Past performance is no guarantee of future results. Investment returns
and principal value will fluctuate, and you may have a gain or loss
when you sell shares. Performance information provided in this report
does not reflect the deduction of taxes shareholders may pay on Fund
distributions or the redemption of Fund shares. Performance figures are
historical and, in part, reflect the performance of a pool of assets
advised by BIAM (Bank of Ireland Asset Management) for periods before
the Fund commenced operations on October 11, 1996, adjusted to reflect
any increased expenses associated with operating the Fund, net of fee
waivers. The asset pool was not registered with the Securities and
Exchange Commission and therefore was not subject to the investment
restrictions imposed by law on registered mutual funds. If the pool had
been registered, its performance might have been adversely affected.
Please visit our web site at www.berger.com for more current
performance information.
F-19
APPENDIX A
BOARD MEMBERS AND OFFICERS OF BERGER INVESTMENT PORTFOLIO TRUST
<Table>
<Caption>
NUMBER
OF
POSITION(S) FUNDS
HELD WITH IN
THE TRUST, FUND
TERM OF COMPLEX OTHER
OFFICE AND OVERSEEN DIRECTORSHIPS
NAME, ADDRESS LENGTH OF PRINCIPAL OCCUPATIONS DURING THE PAST 5 BY HELD BY
AND AGE TIME SERVED YEARS TRUSTEE TRUSTEE
- -------------------- -------------- ------------------------------------------ --------- --------------
INDEPENDENT TRUSTEES
Michael Owen Chairman of the Dean of Zayed University (since September 17 n/a
210 University Blvd. Board; 10 years 2000). Formerly self-employed as a
Suite 800 financial and management consultant, and in
Denver, CO 80206 real estate development (from June 1999 to
September 2000). Dean (from 1993 to June
DOB: 1937 1999), and a member of the Finance faculty
(from 1989 to 1993), of the College of
Business, Montana State University.
Formerly, Chairman and Chief Executive
Officer of Royal Gold, Inc. (mining) (1976
to 1989).
Dennis E. Baldwin Trustee; 10 President, Baldwin Financial Counseling 17 n/a
210 University Blvd. years (since July 1991). Formerly, Vice
Suite 800 President and Denver Office Manager of
Denver, CO 80206 Merrill Lynch Capital Markets (1978 to
1990).
DOB: 1928
Katherine A. Cattanach Vice Chair of General Partner/Managing Principal (since 17 n/a
CFA 210 University the Board; 8 September 1987), Sovereign Financial
Blvd. years Services, Inc. (investment consulting
Suite 800 firm). Executive Vice President (1981 to
Denver, CO 80206 1988), Captiva Corporation, Denver,
Colorado (private investment management
DOB: 1945 firm). Ph.D. in Finance (Arizona State
University).
Paul R. Knapp Trustee; 8 years Executive Officer of DST Systems, Inc. 17 Director and
210 University Blvd. ("DST"), a publicly traded information and Vice President
Suite 800 transaction processing company, which acts (February 1998
Denver, CO 80206 as the Funds' transfer agent (since October to November
2000). DST is 33% owned by Stilwell 2000) of West
DOB: 1945 Management Inc., which owns approximately Side
89.5% of Berger Financial Group LLC. Mr. Investments,
Knapp owns common shares and options Inc.
convertible into common shares of DST (investments),
Systems which, in the aggregate and a wholly owned
assuming exercise of the options, would subsidiary of
result in his owning less than 1/2 of 1% DST Systems,
of DST System's common shares. Inc.
</Table>
Appendix A-1
<Table>
<Caption>
NUMBER
OF
POSITION(S) FUNDS
HELD WITH IN
THE TRUST, FUND
TERM OF COMPLEX OTHER
OFFICE AND OVERSEEN DIRECTORSHIPS
NAME, ADDRESS LENGTH OF PRINCIPAL OCCUPATIONS DURING THE PAST 5 BY HELD BY
AND AGE TIME SERVED YEARS TRUSTEE TRUSTEE
- -------------------- -------------- ------------------------------------------ --------- --------------
Mr. Knapp is also President of Vermont
Western Assurance, Inc., a wholly owned
subsidiary of DST Systems (since December
2000). President, Chief Executive Officer
and a director (September 1997 to October
2000) of DST Catalyst, Inc., an
international financial markets consulting,
software and computer services company,
(now DST International, a subsidiary of
DST). Previously (1991 to October 2000),
Chairman, President, Chief Executive
Officer and a director of Catalyst
Institute (international public policy
research organization focused primarily on
financial markets and institutions); also
(1991 to September 1997), Chairman,
President, Chief Executive Officer and a
director of Catalyst Consulting
(international financial institutions
business consulting firm).
Harry T. Lewis, Jr. Trustee; 10 Lewis Investments (since June 1988) 17 Director, J.D.
210 University Blvd. years (self-employed private investor). Edwards & Co.
Suite 800 Formerly, Senior Vice President, Rocky (1995 to March
Denver, CO 80206 Mountain Region, of Dain Bosworth 2002);
Incorporated and member of that firm's Director,
DOB: 1933 Management Committee (1981 to 1988). National Fuel
Corporation
(oil & gas
production);
Advisory
Director,
Otologics, LLC,
(implantable
hearing aid)
(since 1999);
Member of
Community
Advisory Board,
Wells Fargo
Bank-Denver
William Sinclaire Trustee; 10 President (since January 1998), Santa Clara 17 n/a
210 University Blvd. years LLC (privately owned agricultural
Suite 800 company). President (January 1963 to
Denver, CO 80206 January 1998), Sinclaire Cattle Co.
(privately owned agricultural company).
DOB: 1928
</Table>
Appendix A-2
<Table>
<Caption>
NUMBER
OF
POSITION(S) FUNDS
HELD WITH IN
THE TRUST, FUND
TERM OF COMPLEX OTHER
OFFICE AND OVERSEEN DIRECTORSHIPS
NAME, ADDRESS LENGTH OF PRINCIPAL OCCUPATIONS DURING THE PAST 5 BY HELD BY
AND AGE TIME SERVED YEARS TRUSTEE TRUSTEE
- -------------------- -------------- ------------------------------------------ --------- --------------
Albert C. Yates Trustee; 1 1/2 President (since 1990), Chancellor and 17 Member, Board
210 University Blvd. years Professor of Chemistry-Department of of Directors,
Suite 800 Chemistry, of Colorado State University. Adolph Coors
Denver, CO 80206 Formerly Executive Vice President and Company
Provost (1983 to 1990), Academic Vice (brewing
DOB: 1941 President and Provost (1981 to 1983) and company) (since
Professor of Chemistry (1981 to 1990) of 1998); Member,
Washington State University. Vice Board of
President and University Dean for Graduate Directors,
Studies and Research and Professor of Dominion
Chemistry of the University of Cincinnati Industrial
(1977 to 1981). Capital Bank
(1999 to
2000); Member,
Board of
Directors,
Centennial Bank
of the West
(since 2001)
</Table>
OFFICERS OF THE TRUST
<Table>
<Caption>
POSITION(S) HELD WITH THE TRUST, TERM PRINCIPAL OCCUPATIONS DURING THE PAST 5
NAME, ADDRESS AND AGE OF OFFICE AND LENGTH OF TIME SERVED YEARS
- --------------------- ------------------------------------- ------------------------------------------
Jack R. Thompson* President (since May 1999) President (since May 1999) and a director
210 University Blvd. (May 1999 to November 2002) (Executive Vice
Suite 800 President from February 1999 to May 1999)
Denver, CO 80206 of Berger Growth Fund and Berger Large Cap
Growth Fund. President (since May 1999)
DOB: 1949 and a trustee (May 1999 to November 2002)
(Executive Vice President from February 1999
to May 1999) of Berger Investment Portfolio
Trust, Berger Institutional Products Trust,
Berger Worldwide Funds Trust, Berger
Worldwide Portfolios Trust and Berger Omni
Investment Trust. President and Chief
Executive Officer (since June 1999)
(Executive Vice President from February 1999
to June 1999) of Berger Financial Group LLC
(formerly Berger LLC). Director, President
and Chief Executive Office of Stilwell
Management, Inc. (since September 1999).
President and Chief Executive Officer of
Berger/Bay Isle LLC (since May 1999).
Self-employed as a consultant from July 1995
through February 1999. Director of Wasatch
Advisors (investment management) from
February 1997 to February 1999.
</Table>
Appendix A-3
<Table>
<Caption>
POSITION(S) HELD WITH THE TRUST, TERM PRINCIPAL OCCUPATIONS DURING THE PAST 5
NAME, ADDRESS AND AGE OF OFFICE AND LENGTH OF TIME SERVED YEARS
- --------------------- ------------------------------------- ------------------------------------------
Jay W. Tracey, CFA Executive Vice President of the Trust Executive Vice President of the Berger
210 University Blvd. (since August 2000) and Portfolio Funds (since August 2000). Executive Vice
Denver, CO 80206 Manager (since June 2000) President and Chief Investment Officer of
Berger Financial Group LLC (since June
DOB: 1954 2000). Portfolio manager of the Berger
Growth Fund (since August 2000; sole
portfolio manager from August 2000 to July
2002; and team portfolio manager since July
2002). Team portfolio manager (since
December 2001) o the Berger Mid Cap Growth
Fund. Portfolio manager of the Berger
Small Company Fund (since July 2002).
Formerly, Vice President and portfolio
manager at OppenheimerFunds, Inc.
(September 1994 to May 2000).
Steven L. Fossel, CFA Vice President of the Trust (since Vice President of the Berger Funds (since
210 University Blvd. 2000) and Portfolio Manager (since August 2000). Portfolio manager (since
Denver, CO 80206 June 2000) December 2001) of the Berger Large Cap
Growth Fund (team portfolio manager from
DOB: 1968 January 2001) through December 2001;
interim portfolio manager from June 2000 to
January 2001. Vice President and portfolio
manager of Berger Financial Group LLC
(since June 2000); senior equity analyst
with Berger Financial Group LLC (from March
1998 to June 2000). Formerly, vice
president (from January 1996 to February
1998), equity analyst (from August 1992 to
February 1998) and assistant portfolio
manager (from January 1997 to February
1998) with Salomon Brothers Asset
Management.
Janice M. Teague Vice President of the Trust (since Vice President (since November 1998) and
210 University Blvd. November 1998) and Assistant Secretary Assistant Secretary (since February 2000
Denver, CO 80206 (since February 2002) and previously from September 1996 to
November 1998) and Secretary (November 1998
DOB: 1954 to February 2000) of the Berger Funds.
Vice President (since October 1997),
Secretary (since November 1998) and
Assistant Secretary (October 1996 through
November 1998) with Berger Financial Group
LLC. Vice President and Secretary with
Berger Distributors LLC (since August
1998). Vice President and Secretary of Bay
Isle Financial LLC (since January 2002).
Formerly, self-employed as a business
consultant (from June 1995 through
September 1996).
</Table>
Appendix A-4
<Table>
<Caption>
POSITION(S) HELD WITH THE TRUST, TERM PRINCIPAL OCCUPATIONS DURING THE PAST 5
NAME, ADDRESS AND AGE OF OFFICE AND LENGTH OF TIME SERVED YEARS
- --------------------- ------------------------------------- ------------------------------------------
Andrew J. Iseman Vice President of the Trust (since Vice President of the Berger Funds (since
210 University Blvd. March 2001) March 2001). Vice President (since
Denver, CO 80206 September 1999) and Chief Operating Officer
(since November 2000) of Berger Financial
DOB: 1964 Group LLC. Manager (since September 1999)
and Director (June 1999 to September 1999)
of Berger Distributors LLC. Vice
President-Operations (February 1999 to
November 2000) of Berger Financial Group
LLC. Associate (November 1998 to February
1999) with DeRemer & Associates (a
consulting firm). Vice President-Operations
(February 1997 to November 1998) and
Director of Research and Development (May
1996 to February 1997) of Berger Financial
Group LLC.
Anthony R. Bosch Vice President of the Trust (since Vice President of the Berger Funds (since
210 University Blvd. February 2000) February 2000). Vice President (since June
Denver, CO 80206 1999) and Chief Legal Officer (since August
2000) with Berger Financial Group LLC.
DOB: 1965 Vice President and Chief Compliance Officer
with Berger Distributors LLC (since
September 2001). Vice President of Bay
Isle Financial LLC (since January 2002).
Formerly, Assistant Vice President of
Federated Investors, Inc. (December 1996
through May 1999), and Attorney with the
U.S. Securities and Exchange Commission
(June 1990 through December 1996).
Brian S. Ferrie Vice President of the Trust (since Vice President of the Berger Funds (since
210 University Blvd. November 1998) November 1998). Vice President (since
Denver, CO 80206 February 1997), Treasurer and Chief
Financial Officer (since March 2001) and
DOB: 1958 Chief Compliance Officer (from August 1994
to March 2001) with Berger Financial Group
LLC. Vice President (since May 1996),
Treasurer and Chief Financial Officer
(since March 2001) and Chief Compliance
Officer (from May 1996 to September 2001)
with Berger Distributors LLC.
John A. Paganelli Vice President (since November 1998) Vice President (since November 1998),
210 University Blvd. and Treasurer (since March 2001) of Treasurer (since March 2001) and Assistant
Denver, CO 80206 the Trust Treasurer (November 1998 to March 2001) of
the Berger Funds. Vice President (since
DOB: 1967 November 1998) and Manager of Accounting
(January 1997 through November 1998) with
Berger Financial Group LLC. Formerly,
Manager of Accounting (December 1994
through October 1996) and Senior Accountant
(November 1991 through December 1994) with
Palmeri Fund Administrators, Inc.
</Table>
Appendix A-5
<Table>
<Caption>
POSITION(S) HELD WITH THE TRUST, TERM PRINCIPAL OCCUPATIONS DURING THE PAST 5
NAME, ADDRESS AND AGE OF OFFICE AND LENGTH OF TIME SERVED YEARS
- --------------------- ------------------------------------- ------------------------------------------
Sue Vreeland Secretary of the Trust (since February Secretary of the Berger Funds (since
210 University Blvd. 2000) February 2000). Assistant Vice President
Denver, CO 80206 (since April 2002) and Assistant Secretary
(since June 1999) of Berger Financial Group
DOB: 1948 LLC. Assistant Secretary of Berger
Distributors LLC (since June 1999) and Bay
Isle Financial LLC (since December 2001).
Formerly, Assistant Secretary of the Janus
Funds (from March 1994 to May 1999),
Assistant Secretary of Janus Distributors,
Inc. (from June 1995 to May 1997) and
Manager of Fund Administration for Janus
Capital Corporation (from February 1992 to
May 1999).
David C. Price, CPA Assistant Vice President of the Trust Assistant Vice President (since March 2001)
210 University Blvd. (since March 2001) of the Berger Funds. Assistant Vice
Denver, CO 80206 President-Compliance (since March 2001) and
Manager-Compliance (October 1998 through
DOB: 1969 March 2001) with Berger Financial Group
LLC. Formerly, Senior Auditor (July 1996
through August 1998) and Auditor (August
1993 through June 1996) with
PricewaterhouseCoopers LLP, a public
accounting firm.
Lance V. Campbell, CFA, CPA Assistant Treasurer of the Trust Assistant Treasurer (since March 2001) of
210 University Blvd. (since March 2001) the Berger Funds. Assistant Vice President
Denver, CO 80206 (since January 2002) and Manager of
Investment Accounting (August 1999 through
DOB: 1972 January 2002) with Berger Financial Group
LLC. Formerly, Senior Auditor (December
1998 through August 1999) and Auditor
(August 1997 through December 1998) with
PricewaterhouseCoopers LLP, a public
accounting firm, and Senior Fund Accountant
(January 1996 through July 1997) with
INVESCO Funds Group.
</Table>
Appendix A-6
February 25, 2002
As Supplemented August 9, 2002
and December 11, 2002
Janus Enterprise Fund
Janus Venture Fund
Janus Olympus Fund
Janus Overseas Fund
Janus Global Technology Fund
Janus Growth and Income Fund
Janus Balanced Fund
JANUS EQUITY FUNDS
Prospectus
The Securities and Exchange Commission has not approved or disapproved
of these securities or passed on the accuracy or adequacy of this
Prospectus. Any representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
RISK/RETURN SUMMARY
Equity Funds.................................. 2
Fees and expenses............................. 14
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT
STRATEGIES AND RISKS
Investment objectives and principal investment
strategies.................................... 15
General portfolio policies.................... 21
Risks......................................... 24
SHAREHOLDER'S MANUAL
Doing business with Janus..................... 30
Minimum investments........................... 32
Types of account ownership.................... 32
To open an account or buy shares.............. 36
To exchange shares............................ 37
To sell shares................................ 37
Shareholder services and account policies..... 43
MANAGEMENT OF THE FUNDS
Investment adviser............................ 48
Management expenses........................... 48
Portfolio managers............................ 49
OTHER INFORMATION................................ 52
DISTRIBUTIONS AND TAXES
Distributions................................. 53
Distribution options.......................... 54
Taxes......................................... 55
FINANCIAL HIGHLIGHTS............................. 57
GLOSSARY OF INVESTMENT TERMS
Equity and debt securities.................... 64
Futures, options and other derivatives........ 67
Other investments, strategies and/or
techniques.................................... 68
</Table>
Janus Equity Funds prospectus 1
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------
EQUITY FUNDS
The Funds are designed for long-term investors who primarily seek
growth of capital and who can tolerate the greater risks
associated with common stock investments. Although Janus Balanced
Fund and Janus Growth and Income Fund may also emphasize varying
degrees of income, they are not designed for investors who desire
a consistent level of income.
1. WHAT ARE THE INVESTMENT OBJECTIVES OF THE FUNDS?
- --------------------------------------------------------------------------------
JANUS DOMESTIC FUNDS
- JANUS ENTERPRISE FUND AND JANUS OLYMPUS FUND seek long-term
growth of capital.
- JANUS VENTURE FUND seeks capital appreciation.
- JANUS GROWTH AND INCOME FUND seeks long-term capital growth
and current income.
- JANUS BALANCED FUND seeks long-term capital growth,
consistent with preservation of capital and balanced by
current income.
JANUS GLOBAL/INTERNATIONAL EQUITY FUNDS
- JANUS OVERSEAS FUND AND JANUS GLOBAL TECHNOLOGY FUND seek
long-term growth of capital.
The Funds' Trustees may change these objectives or the Funds'
principal investment policies without a shareholder vote. The
Funds will notify you at least 60 days before making any material
changes to their objectives or principal investment policies. If
there is a material change to a Fund's objective or principal
investment policies, you should consider whether that Fund
remains an appropriate investment for you. There is no guarantee
that a Fund will meet its objective.
2 Janus Equity Funds prospectus
2. WHAT ARE THE MAIN INVESTMENT STRATEGIES OF THE FUNDS?
The portfolio managers apply a "bottom up" approach in choosing
investments. In other words, the Funds' portfolio managers look
at companies one at a time to determine if a company is an
attractive investment opportunity and consistent with a Fund's
investment policies. If a portfolio manager is unable to find
such investments, a significant portion of a Fund's assets may be
in cash or similar investments.
Within the parameters of its specific investment policies
discussed below, each Fund may invest without limit in foreign
equity and debt securities.
Within the parameters of its specific investment policies
discussed below, each Fund will limit its investment in
high-yield/high-risk bonds to less than 35% of its net assets.
JANUS ENTERPRISE FUND invests primarily in common stocks selected
for their growth potential, and normally invests at least 50% of
its equity assets in medium-sized companies.
JANUS VENTURE FUND invests in equity securities of U.S. and
foreign companies selected for their potential for capital
appreciation. The Fund normally invests at least 50% of its
equity assets in small-sized companies.
JANUS OLYMPUS FUND invests primarily in common stocks selected
for their growth potential. The Fund may invest in companies of
any size, from larger, well-established companies to smaller,
emerging growth companies.
JANUS OVERSEAS FUND invests, under normal circumstances, at least
80% of its net assets in securities of issuers from countries
outside of the United States. The Fund normally invests in
securities of issuers from at least five different countries,
excluding the United States. Although the Fund intends to invest
substantially all of its assets in issuers located outside the
United States, it may at times invest in U.S. issuers and it may
at times invest all of its assets in fewer than five countries or
even a single country.
Janus Equity Funds prospectus 3
JANUS GLOBAL TECHNOLOGY FUND invests, under normal circumstances,
at least 80% of its net assets in securities of companies that
the portfolio manager believes will benefit significantly from
advances or improvements in technology. It implements this policy
by investing primarily in equity securities of U.S. and foreign
companies selected for their growth potential.
For purposes of Janus Overseas Fund's and Janus Global Technology
Fund's 80% policies, net assets will take into account borrowings
for investment purposes.
JANUS GROWTH AND INCOME FUND normally emphasizes investments in
common stocks. It will normally invest up to 75% of its assets in
equity securities selected primarily for their growth potential,
and at least 25% of its assets in securities the portfolio
manager believes have income potential.
JANUS BALANCED FUND normally invests 40-60% of its assets in
securities selected primarily for their growth potential and
40-60% of its assets in securities selected primarily for their
income potential. The Fund will normally invest at least 25% of
its assets in fixed-income senior securities.
3. WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?
The biggest risk is that the Funds' returns may vary, and you
could lose money. The Funds are each designed for long-term
investors who can accept the risks of investing in a portfolio
with significant common stock holdings. Common stocks tend to be
more volatile than other investment choices.
The value of a Fund's portfolio may decrease if the value of
an individual company in the portfolio decreases. The value of
a Fund's portfolio could also decrease if the stock market
goes down. If the value of a Fund's portfolio decreases, a
Fund's net asset value (NAV) will also decrease, which means
if you sell your shares in a Fund you may get back less money.
JANUS VENTURE FUND normally invests at least 50% of its equity
assets in securities issued by small-sized companies, which tend
to be more volatile than securities issued by larger or more
4 Janus Equity Funds prospectus
established companies. As a result, the Fund's returns may be
more volatile than those of a fund holding securities of larger,
more established companies.
JANUS OVERSEAS FUND AND JANUS GLOBAL TECHNOLOGY FUND may have
significant exposure to foreign markets. As a result, their
returns and NAV may be affected to a large degree by fluctuations
in currency exchange rates or political or economic conditions in
a particular country.
JANUS ENTERPRISE FUND, JANUS OLYMPUS FUND AND JANUS GLOBAL
TECHNOLOGY FUND intend to operate as nondiversified funds. This
means they may hold larger positions in a smaller number of
securities than a diversified fund. As a result, a single
security's increase or decrease in value may have a greater
impact on a Fund's NAV and total return.
Although JANUS GLOBAL TECHNOLOGY FUND does not concentrate its
investments in specific industries, it may invest in companies
related in such a way that they react similarly to certain market
pressures. For example, competition among technology companies
may result in increasingly aggressive pricing of their products
and services, which may affect the profitability of companies in
the Fund's portfolio. In addition, because of the rapid pace of
technological development, products or services developed by
companies in the Fund's portfolio may become rapidly obsolete or
have relatively short product cycles. As a result, the Fund's
returns may be considerably more volatile than the returns of a
fund that does not invest in similarly related companies.
The income component of Janus Balanced Fund's and Janus Growth
and Income Fund's portfolios includes fixed-income securities. A
fundamental risk of these securities is that their value will
fall if interest rates rise. Since the value of a fixed-income
portfolio will generally decrease when interest rates rise, the
Fund's NAV may likewise decrease. Another fundamental risk
associated with fixed-income securities is credit risk, which is
the risk that an issuer will be unable to make principal and
interest payments when due.
Janus Equity Funds prospectus 5
An investment in these Funds is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
6 Janus Equity Funds prospectus
The following information provides some indication of the risks
of investing in the Funds by showing how each Fund's performance
has varied over time. The bar charts depict the change in
performance from year to year during the period indicated. The
tables compare each Fund's average annual returns for the periods
indicated to a broad-based securities market index.
JANUS ENTERPRISE FUND
<Table>
Annual returns for calendar years ended 12/31
15.64% 8.92% 27.25% 11.65% 10.82% 33.75% 121.90% (30.52%) (39.93%)
1993 1994 1995 1996 1997 1998 1999 2000 2001
Best Quarter: 4th-1999 57.93% Worst Quarter: 1st-2001 (32.66%)
</Table>
<Table>
<Caption>
Average annual total return for periods ended 12/31/01
------------------------------------------------------
Since Inception
1 year 5 years (9/1/92)
Janus Enterprise Fund
Return Before Taxes (39.93%) 6.54% 13.22%
Return After Taxes on Distributions (39.93%) 5.47% 11.88%
Return After Taxes on Distributions
and Sale of Fund Shares* (24.32%) 5.34% 10.95%
S&P MidCap 400 Index+ (0.62%) 16.11% 16.32%
(reflects no deduction for expenses
or taxes)
--------------------------------
</Table>
* When the return after taxes on distributions and sale of Fund
shares is higher, it is because of realized losses. If realized
losses occur upon the sale of Fund shares, the capital loss is
recorded as a tax benefit, which increases the return.
+ The S&P MidCap 400 Index is an unmanaged group of 400 domestic
stocks chosen for their market size, liquidity and industry
group representation.
Janus Equity Funds prospectus 7
JANUS VENTURE FUND
<Table>
Annual returns for calendar years ended 12/31
7.44% 9.08% 5.46% 26.46% 8.02% 12.62% 23.22% 140.71% (45.77%) (11.93%)
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Best Quarter: 4th-1999 82.76% Worst Quarter: 4th-2000 (30.17%)
</Table>
<Table>
<Caption>
Average annual total return for periods ended 12/31/01
------------------------------------------------------
Since Inception
1 year 5 years 10 years (4/30/85)
Janus Venture Fund
Return Before Taxes (11.93%) 9.79% 10.42% 14.61%
Return After Taxes on
Distributions (11.93%) 6.70% 7.47% 11.57%
Return After Taxes on
Distributions and
Sale of Fund Shares* (7.27%) 7.86% 7.93% 11.56%
Russell 2000(R) Index++ 2.49% 7.52% 11.51% 11.01%
(reflects no deduction
for expenses or
taxes)
---------------------------------------------
</Table>
* When the return after taxes on distributions and sale of Fund
shares is higher, it is because of realized losses. If
realized losses occur upon the sale of Fund shares, the
capital loss is recorded as a tax benefit, which increases the
return.
++ The Russell 2000(R) Index is an index that measures the
performance of the 2,000 smallest companies in the Russell
3,000 Index with an average market capitalization of
approximately $417.1 million as of December 31, 2001.
8 Janus Equity Funds prospectus
JANUS OLYMPUS FUND
<Table>
Annual returns for calendar years ended 12/31
21.73% 26.73% 56.97% 100.12% (21.63%) (32.05%)
1996 1997 1998 1999 2000 2001
Best Quarter: 4th-1999 51.67% Worst Quarter: 1st-2001 (26.29%)
</Table>
<Table>
<Caption>
Average annual total return for periods ended 12/31/01
------------------------------------------------------
Since Inception
1 year 5 years (12/29/95)
Janus Olympus Fund
Return Before Taxes (32.05%) 16.21% 17.10%
Return After Taxes on
Distributions (32.16%) 15.54% 16.46%
Return After Taxes on
Distributions and Sale of Fund
Shares* (19.52%) 13.46% 14.37%
S&P 500 Index++ (11.88%) 10.70% 12.65%
(reflects no deduction for
expenses or taxes)
----------------------------------
</Table>
* When the return after taxes on distributions and sale of Fund
shares is higher, it is because of realized losses. If realized
losses occur upon the sale of Fund shares, the capital loss is
recorded as a tax benefit, which increases the return.
+ The S&P 500 is the Standard & Poor's Composite Index of 500
Stocks, a widely recognized, unmanaged index of common stock
prices.
Janus Equity Funds prospectus 9
JANUS OVERSEAS FUND
<Table>
Annual returns for calendar years ended 12/31
22.05% 28.83% 18.25% 16.03% 86.06% (18.57%) (23.11%)
1995 1996 1997 1998 1999 2000 2001
Best Quarter: 4th-1999 60.63% Worst Quarter: 3rd-2001 (20.82%)
</Table>
<Table>
<Caption>
Average annual total return for periods ended 12/31/01
------------------------------------------------------
Since Inception
1 year 5 years (5/2/94)
Janus Overseas Fund
Return Before Taxes (23.11%) 9.83% 12.85%
Return After Taxes on Distributions (23.19%) 8.85% 11.99%
Return After Taxes on Distributions
and Sale of Fund Shares* (14.01%) 8.02% 10.75%
Morgan Stanley Capital International
EAFE(R) Index+ (21.44%) 0.89% 2.76%
(reflects no deduction for expenses
or taxes)
------------------------------
</Table>
* When the return after taxes on distributions and sale of Fund
shares is higher, it is because of realized losses. If realized
losses occur upon the sale of Fund shares, the capital loss is
recorded as a tax benefit, which increases the return.
+ The Morgan Stanley Capital International EAFE(R) Index is a
market capitalization weighted index composed of companies
representative of the market structure of 21 Developed Market
countries in Europe, Australasia and the Far East.
10 Janus Equity Funds prospectus
JANUS GLOBAL TECHNOLOGY FUND
<Table>
Annual returns for calendar years ended 12/31
211.55% (33.67%) (39.96%)
1999 2000 2001
Best Quarter: 4th-1999 73.95% Worst Quarter: 3rd-2001 (36.20%)
</Table>
<Table>
<Caption>
Average annual total return for periods ended 12/31/01
------------------------------------------------------
Since Inception
1 year (12/31/98)
Janus Global Technology Fund
Return Before Taxes (39.96%) 7.45%
Return After Taxes on Distributions (39.96%) 7.14%
Return After Taxes on Distributions and
Sale of Fund Shares* (24.34%) 5.98%
S&P 500 Index++ (11.88%) (1.03%)
(reflects no deduction for expenses or
taxes)
------------------------
</Table>
* When the return after taxes on distributions and sale of Fund
shares is higher, it is because of realized losses. If
realized losses occur upon the sale of Fund shares, the
capital loss is recorded as a tax benefit, which increases the
return.
++ The S&P 500 is the Standard & Poor's Composite Index of 500
Stocks, a widely recognized, unmanaged index of common stock
prices.
Janus Equity Funds prospectus 11
JANUS GROWTH AND INCOME FUND
<Table>
Annual returns for calendar years ended 12/31
5.35% 6.70% (4.87%) 36.35% 26.03% 34.66% 34.87% 51.18% (11.41%) (14.36%)
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Best Quarter: 4th-1999 29.20% Worst Quarter: 3rd-2001 (15.86%)
</Table>
<Table>
<Caption>
Average annual total return for periods ended 12/31/01
------------------------------------------------------
Since Inception
1 year 5 years 10 years (5/15/91)
Janus Growth and Income
Fund
Return Before Taxes (14.36%) 15.81% 14.36% 16.88%
Return After Taxes on
Distributions (14.70%) 14.25% 12.54% 15.12%
Return After Taxes on
Distributions and
Sale of Fund Shares* (8.75%) 12.88% 11.56% 13.98%
S&P 500 Index+ (11.88%) 10.70% 12.93% 13.65%
(reflects no deduction
for expenses or
taxes)
---------------------------------------------
</Table>
* When the return after taxes on distributions and sale of Fund
shares is higher, it is because of realized losses. If realized
losses occur upon the sale of Fund shares, the capital loss is
recorded as a tax benefit, which increases the return.
+ The S&P 500 is the Standard & Poor's Composite Index of 500
Stocks, a widely recognized, unmanaged index of common stock
prices.
12 Janus Equity Funds prospectus
JANUS BALANCED FUND
<Table>
Annual returns for calendar years ended 12/31
10.56% 0.02% 27.31% 15.30% 21.81% 31.20% 23.51% (2.16%) (5.04%)
1993 1994 1995 1996 1997 1998 1999 2000 2001
Best Quarter: 4th-1998 18.75% Worst Quarter: 3rd-2001 (5.94%)
</Table>
<Table>
<Caption>
Average annual total return for periods ended 12/31/01
------------------------------------------------------
Since Inception
1 year 5 years (9/1/92)
Janus Balanced Fund
Return Before Taxes (5.04%) 12.89% 13.83%
Return After Taxes on
Distributions (6.04%) 10.84% 11.57%
Return After Taxes on
Distributions and Sale of Fund
Shares* (3.08%) 9.75% 10.60%
S&P 500 Index++ (11.88%) 10.70% 13.76%
(reflects no deduction for
expenses or taxes)
Lehman Brothers Gov't/Credit Index+ 8.50% 7.37% 7.14%
(reflects no deduction for
expenses or taxes)
----------------------------------
</Table>
* When the return after taxes on distributions and sale of Fund
shares is higher, it is because of realized losses. If
realized losses occur upon the sale of Fund shares, the
capital loss is recorded as a tax benefit, which increases the
return.
++ The S&P 500 is the Standard & Poor's Composite Index of 500
Stocks, a widely recognized, unmanaged index of common stock
prices.
+ Lehman Brothers Gov't/Credit Index is composed of all bonds
that are of investment grade with at least one year until
maturity.
After-tax returns are calculated using the historical highest
individual federal marginal income tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns
depend on your individual tax situation and may differ from those
shown in the preceding tables. The after-tax return information
shown above does not apply to Fund shares held through a
tax-deferred account, such as a 401(k) plan or IRA.
The Funds' past performance (before and after taxes) does not
necessarily indicate how they will perform in the future.
Janus Equity Funds prospectus 13
FEES AND EXPENSES
SHAREHOLDER FEES, such as sales loads, redemption fees or
exchange fees, are charged directly to an investor's account. The
Janus funds are no-load investments, so you will generally not
pay any shareholder fees when you buy or sell shares of the
Funds.
ANNUAL FUND OPERATING EXPENSES are paid out of a Fund's assets
and include fees for portfolio management, maintenance of
shareholder accounts, shareholder servicing, accounting and other
services. You do not pay these fees directly but, as the example
on the next page shows, these costs are borne indirectly by all
shareholders.
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds. It is based upon gross expenses (without the effect of
expense offset arrangements). All of the fees and expenses shown were determined
based on net assets as of the fiscal period ended October 31, 2001.
<Table>
<Caption>
Management Other Total Annual Fund
Fee Expenses Operating Expenses
Janus Enterprise Fund 0.65% 0.27% 0.92%
Janus Venture Fund 0.65% 0.22% 0.87%
Janus Olympus Fund 0.65% 0.26% 0.91%
Janus Overseas Fund 0.65% 0.22% 0.87%
Janus Global Technology Fund 0.65% 0.27% 0.92%
Janus Growth and Income Fund 0.65% 0.22% 0.87%
Janus Balanced Fund 0.65% 0.20% 0.85%
</Table>
EXAMPLE:
This example is intended to help you compare the cost of investing in the
Funds with the cost of investing in other mutual funds. The example assumes
that you invest $10,000 in each of the Funds for the time periods indicated
and then redeem all of your shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the
Funds' operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<Table>
<Caption>
1 Year 3 Years 5 Years 10 Years
-----------------------------------------
Janus Enterprise Fund $ 94 $293 $509 $1,131
Janus Venture Fund $ 89 $278 $482 $1,073
Janus Olympus Fund $ 93 $290 $504 $1,120
Janus Overseas Fund $ 89 $278 $482 $1,073
Janus Global Technology Fund $ 94 $293 $509 $1,131
Janus Growth and Income Fund $ 89 $278 $482 $1,073
Janus Balanced Fund $ 87 $271 $471 $1,049
</Table>
14 Janus Equity Funds prospectus
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
This section takes a closer look at the investment objectives of each of the
Funds, their principal investment strategies and certain risks of investing in
the Funds. Strategies and policies that are noted as "fundamental" cannot be
changed without a shareholder vote.
Please carefully review the "Risks" section of this Prospectus for a discussion
of risks associated with certain investment techniques. We've also included a
Glossary with descriptions of investment terms used throughout this Prospectus.
INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES
JANUS DOMESTIC EQUITY FUNDS
JANUS ENTERPRISE FUND
Janus Enterprise Fund seeks long-term growth of capital. It
pursues its objective by investing primarily in common stocks
selected for their growth potential, and normally invests at
least 50% of its equity assets in medium-sized companies. Medium-
sized companies are those whose market capitalization falls
within the range of companies in the S&P MidCap 400 Index. Market
capitalization is a commonly used measure of the size and value
of a company. The market capitalizations within the Index will
vary, but as of December 31, 2001, they ranged from approximately
$225 million to $10.5 billion.
JANUS VENTURE FUND
Janus Venture Fund seeks capital appreciation. Normally, the Fund
pursues its objective by investing at least 50% of its equity
assets in small-sized companies. Small-sized companies are those
who have market capitalizations of less than $1 billion or annual
gross revenues of less than $500 million. Companies whose
capitalization or revenues fall outside these ranges after the
Fund's initial purchase continue to be considered small-sized.
The Fund may also invest in larger companies with strong growth
potential or relatively well-known and large companies with
potential for capital appreciation.
Janus Equity Funds prospectus 15
JANUS OLYMPUS FUND
Janus Olympus Fund seeks long-term growth of capital. It pursues
its objective by investing primarily in common stocks selected
for their growth potential. The Fund may invest in companies of
any size, from larger, well-established companies to smaller,
emerging growth companies.
JANUS GLOBAL/INTERNATIONAL EQUITY FUNDS
JANUS OVERSEAS FUND
Janus Overseas Fund seeks long-term growth of capital. It
invests, under normal circumstances, at least 80% of its net
assets in securities of issuers from countries outside of the
United States. The Fund normally invests in securities of issuers
from at least 5 different countries, excluding the United States.
Although the Fund intends to invest substantially all of its
assets in issuers located outside the Unites States, it may at
times invest in U.S. issuers and it may at times invest all of
its assets in fewer than five countries or even a single country.
JANUS GLOBAL TECHNOLOGY FUND
Janus Global Technology Fund seeks long-term growth of capital.
It invests, under normal circumstances, at least 80% of its net
assets in securities of companies that the portfolio manager
believes will benefit significantly from advances or improvements
in technology. These companies generally fall into two
categories:
a. Companies that the portfolio manager believes have or will
develop products, processes or services that will provide
significant technological advancements or improvements; and
b. Companies that the portfolio manager believes rely extensively
on technology in connection with their operations or services.
It implements this policy by investing primarily in equity
securities of U.S. and foreign companies selected for their
growth potential.
16 Janus Equity Funds prospectus
JANUS GROWTH AND INCOME FUND
Janus Growth and Income Fund seeks long-term capital growth and
current income. It pursues its objective by normally emphasizing
investments in common stocks. It will normally invest up to 75%
of its assets in equity securities selected primarily for their
growth potential, and at least 25% of its assets in securities
the portfolio manager believes have income potential. Equity
securities may make up part of this income component if they
currently pay dividends or the portfolio manager believes they
have potential for increasing or commencing dividend payments.
Because of this investment strategy, the Fund is not designed for
investors who need consistent income.
JANUS BALANCED FUND
Janus Balanced Fund seeks long-term capital growth, consistent
with preservation of capital and balanced by current income. It
pursues its objective by normally investing 40-60% of its assets
in securities selected primarily for their growth potential and
40-60% of its assets in securities selected primarily for their
income potential. This Fund normally invests at least 25% of its
assets in fixed-income senior securities.
The following questions and answers are designed to help you better understand
the Funds' principal investment strategies.
1. HOW ARE COMMON STOCKS SELECTED?
Consistent with its investment objective and policies, each of
the Funds may invest substantially all of its assets in common
stocks if its portfolio manager believes that common stocks will
appreciate in value. The portfolio managers generally take a
"bottom up" approach to selecting companies. This means that they
seek to identify individual companies with earnings growth
potential that may not be recognized by the market at large. The
portfolio managers make this assessment by looking at companies
one at a time, regardless of size, country of organization, place
of principal business activity, or other similar selection
criteria.
Janus Equity Funds prospectus 17
Janus Growth and Income Fund and Janus Balanced Fund may each
emphasize varying degrees of income. Realization of income is not
a significant consideration when choosing investments for the
other Funds. Income realized on the Funds' investments may be
incidental to their objectives. In the case of Janus Growth and
Income Fund and Janus Balanced Fund, a portfolio manager may
consider dividend-paying characteristics to a greater degree in
selecting common stock.
2. ARE THE SAME CRITERIA USED TO SELECT FOREIGN SECURITIES?
Generally, yes. The portfolio managers seek companies that meet
their selection criteria, regardless of where a company is
located. Foreign securities are generally selected on a
stock-by-stock basis without regard to any defined allocation
among countries or geographic regions. However, certain factors
such as expected levels of inflation, government policies
influencing business conditions, the outlook for currency
relationships, and prospects for economic growth among countries,
regions or geographic areas may warrant greater consideration in
selecting foreign securities. There are no limitations on the
countries in which the Funds may invest and the Funds may at
times have significant foreign exposure.
3. WHAT IS A "SPECIAL SITUATION"?
Each Fund may invest in special situations. A special situation
arises when a portfolio manager believes that the securities of
an issuer will be recognized and appreciate in value due to a
specific development with respect to that issuer. Special
situations may include significant changes in a company's
allocation of its existing capital, a restructuring of assets, or
a redirection of free cash flows. For example, issuers undergoing
significant capital changes may include companies involved in
spin-offs, sales of divisions, mergers or acquisitions, companies
emerging from bankruptcy, or companies initiating large changes
in their debt to equity ratio. Companies that are redirecting
cash flows may be reducing debt, repurchasing shares or paying
dividends. Special situations may also result from (i)
significant changes in industry structure
18 Janus Equity Funds prospectus
through regulatory developments or shifts in competition; (ii) a
new or improved product, service, operation or technological
advance; (iii) changes in senior management; or (iv) significant
changes in cost structure. As noted previously, Janus Special
Situations Fund emphasizes this type of strategy.
4. WHAT DOES "MARKET CAPITALIZATION" MEAN?
Market capitalization is the most commonly used measure of the
size and value of a company. It is computed by multiplying the
current market price of a share of the company's stock by the
total number of its shares outstanding. As noted previously,
market capitalization is an important investment criteria for
Janus Enterprise Fund and market capitalization and annual gross
revenues are important investment criteria for Janus Venture
Fund. The other Equity Funds offered by this Prospectus do not
emphasize companies of any particular size.
5. WHAT IS JANUS GLOBAL TECHNOLOGY FUND'S INDUSTRY POLICY?
Janus Global Technology Fund will not concentrate its investments
in any particular industry or group of related industries. As a
result, its portfolio manager may have more flexibility to find
companies that he believes will benefit from advances or
improvements in technology in a number of industries.
Nevertheless, the Fund may hold a significant portion of its
assets in industries such as: aerospace/defense; biotechnology;
computers; office/business equipment; semiconductors; software;
telecommunications; and telecommunications equipment.
6. HOW DO JANUS GROWTH AND INCOME FUND AND JANUS BALANCED FUND DIFFER FROM EACH
OTHER?
Janus Growth and Income Fund places a greater emphasis on growth
stocks and may derive a greater portion of its income from
dividend-paying common stocks. Because of these factors, its NAV
can be expected to fluctuate more than Janus Balanced Fund. Janus
Balanced Fund places a greater emphasis on the income component
of its portfolio and invests to a greater degree in securities
selected primarily for their income potential. As a result
Janus Equity Funds prospectus 19
it is expected to be less volatile than Janus Growth and Income
Fund.
7. HOW ARE ASSETS ALLOCATED BETWEEN THE GROWTH AND INCOME COMPONENTS OF JANUS
BALANCED FUND'S AND JANUS GROWTH AND INCOME FUND'S PORTFOLIOS?
Janus Balanced Fund and Janus Growth and Income Fund shift assets
between the growth and income components of their portfolios
based on the portfolio managers' analysis of relevant market,
financial and economic conditions. If a portfolio manager
believes that growth securities will provide better returns than
the yields then available or expected on income-producing
securities, that Fund will place a greater emphasis on the growth
component.
8. WHAT TYPES OF SECURITIES MAKE UP THE GROWTH COMPONENT OF JANUS GROWTH AND
INCOME FUND'S AND JANUS BALANCED FUND'S PORTFOLIOS?
The growth component of these Funds' portfolios is expected to
consist primarily of common stocks, but may also include
preferred stocks or convertible securities selected primarily for
their growth potential.
9. WHAT TYPES OF SECURITIES MAKE UP THE INCOME COMPONENT OF JANUS BALANCED
FUND'S AND JANUS GROWTH AND INCOME FUND'S PORTFOLIOS?
The income component of Janus Balanced Fund's and Janus Growth
and Income Fund's portfolios will consist of securities that a
portfolio manager believes have income potential. Such securities
may include equity securities, convertible securities and all
types of debt securities. Equity securities may be included in
the income component of a Fund if they currently pay dividends or
a portfolio manager believes they have the potential for either
increasing their dividends or commencing dividends, if none are
currently paid.
10. HOW DO INTEREST RATES AFFECT THE VALUE OF MY JANUS BALANCED FUND OR JANUS
GROWTH AND INCOME FUND INVESTMENT?
The income component of Janus Balanced Fund's and Janus Growth
and Income Fund's portfolios includes fixed-income securities.
Generally, a fixed-income security will increase in value
20 Janus Equity Funds prospectus
when interest rates fall and decrease in value when interest
rates rise. Longer-term securities are generally more sensitive
to interest rate changes than shorter-term securities, but they
generally offer higher yields to compensate investors for the
associated risks. High-yield bond prices are generally less
directly responsive to interest rate changes than investment
grade issues and may not always follow this pattern.
GENERAL PORTFOLIO POLICIES
Unless otherwise stated, each of the following policies applies
to all of the Funds. The percentage limitations included in these
policies and elsewhere in this Prospectus apply at the time of
purchase of a security. So, for example, if a Fund exceeds a
limit as a result of market fluctuations or the sale of other
securities, it will not be required to dispose of any securities.
CASH POSITION
When a Fund's portfolio manager believes that market conditions
are unfavorable for profitable investing, or when he or she is
otherwise unable to locate attractive investment opportunities,
the Funds' cash or similar investments may increase. In other
words, the Funds do not always stay fully invested in stocks and
bonds. Cash or similar investments generally are a
residual - they represent the assets that remain after a
portfolio manager has committed available assets to desirable
investment opportunities. However, a portfolio manager may also
temporarily increase a Fund's cash position to, for example,
protect its assets, maintain liquidity or meet unusually large
redemptions. A Fund's cash position may also increase temporarily
due to unusually large cash inflows. Partly because the portfolio
managers act independently of each other, the cash positions of
the Funds may vary significantly. When a Fund's investments in
cash or similar investments increase, it may not participate in
market advances or declines to the same extent that it would if
the Fund remained more fully invested in stocks or bonds.
Janus Equity Funds prospectus 21
OTHER TYPES OF INVESTMENTS
The Funds invest primarily in domestic and foreign equity
securities, which may include preferred stocks, common stocks,
and securities convertible into common or preferred stocks. Janus
Growth and Income Fund and Janus Balanced Fund also invest in
domestic and foreign equity securities with varying degrees of
emphasis on income. To a lesser degree, the Funds may invest in
other types of domestic and foreign securities and use other
investment strategies, which are described in the Glossary. These
may include:
- debt securities
- indexed/structured securities
- high-yield/high-risk bonds (less than 35% of each Fund's
assets)
- options, futures, forwards, swaps and other types of
derivatives for hedging purposes or for non-hedging purposes
such as seeking to enhance return
- short sales (no more than 8% of a Fund's assets may be invested
in "naked" short sales)
- securities purchased on a when-issued, delayed delivery or
forward commitment basis
ILLIQUID INVESTMENTS
Each Fund may invest up to 15% of its net assets in illiquid
investments. An illiquid investment is a security or other
position that cannot be disposed of quickly in the normal course
of business. For example, some securities are not registered
under U.S. securities laws and cannot be sold to the U.S. public
because of SEC regulations (these are known as "restricted
securities"). Under procedures adopted by the Funds' Trustees,
certain restricted securities may be deemed liquid, and will not
be counted toward this 15% limit.
FOREIGN SECURITIES
Within the parameters of its specific investment policies, each
Fund may invest without limit in foreign equity and debt
securities. The Funds may invest directly in foreign securities
22 Janus Equity Funds prospectus
denominated in a foreign currency and not publicly traded in the
United States. Other ways of investing in foreign securities
include depositary receipts or shares and passive foreign
investment companies.
SPECIAL SITUATIONS
Each Fund may invest in special situations. A special situation
arises when, in the opinion of a Fund's portfolio manager, the
securities of a particular issuer will be recognized and
appreciate in value due to a specific development with respect to
that issuer. Special situations may include significant changes
in a company's allocation of its existing capital, a
restructuring of assets, or a redirection of free cash flow.
Developments creating a special situation might include, among
others, a new product or process, a technological breakthrough, a
management change or other extraordinary corporate event, or
differences in market supply of and demand for the security. A
Fund's performance could suffer if the anticipated development in
a "special situation" investment does not occur or does not
attract the expected attention.
PORTFOLIO TURNOVER
The Funds generally intend to purchase securities for long-term
investment, although, to a limited extent, a Fund may purchase
securities in anticipation of relatively short-term price gains.
Short-term transactions may also result from liquidity needs,
securities having reached a price or yield objective, changes in
interest rates or the credit standing of an issuer, or by reason
of economic or other developments not foreseen at the time of the
investment decision. A Fund may also sell one security and
simultaneously purchase the same or a comparable security to take
advantage of short-term differentials in bond yields or
securities prices. Portfolio turnover is affected by market
conditions, changes in the size of a Fund, the nature of the
Fund's investments and the investment style of the portfolio
manager. Changes are made in a Fund's portfolio whenever its
portfolio manager believes such changes are desirable. Portfolio
turnover rates are generally not a factor in making buy and sell
decisions.
Janus Equity Funds prospectus 23
Increased portfolio turnover may result in higher costs for
brokerage commissions, dealer mark-ups and other transaction
costs and may also result in taxable capital gains. Higher costs
associated with increased portfolio turnover may offset gains in
a Fund's performance. The Financial Highlights section of this
Prospectus shows the Funds' historical turnover rates.
RISKS
Because the Funds may invest substantially all of their assets in
common stocks, the main risk is the risk that the value of the
stocks they hold might decrease in response to the activities of
an individual company or in response to general market and/or
economic conditions. If this occurs, a Fund's share price may
also decrease. A Fund's performance may also be affected by risks
specific to certain types of investments, such as foreign
securities, derivative investments, non-investment grade bonds,
initial public offerings (IPOs) or companies with relatively
small market capitalizations. IPOs and other investment
techniques may have a magnified performance impact on a Fund with
a small asset base. A Fund may not experience similar performance
as its assets grow. Janus Global Technology Fund's performance
may also be affected by industry risk to a greater extent than
the other Funds.
The following questions and answers are designed to help you better understand
some of the risks of investing in the Funds.
1. HOW DOES NONDIVERSIFICATION AFFECT THE RISK PROFILE OF JANUS ENTERPRISE FUND,
JANUS OLYMPUS FUND AND JANUS GLOBAL TECHNOLOGY FUND?
Diversification is a way to reduce risk by investing in a broad
range of stocks or other securities. A "nondiversified" fund has
the ability to take larger positions in a smaller number of
issuers than a "diversified" fund. This gives a Fund more
flexibility to focus its investments in the most attractive
companies identified by the Fund's portfolio manager. Because the
appreciation or depreciation of a single stock may have a greater
impact on the NAV of a nondiversified fund, its share price can
be expected to fluctuate more than a comparable diversified fund.
This fluctuation, if significant, may affect the performance of a
Fund.
24 Janus Equity Funds prospectus
2. WHAT IS "INDUSTRY RISK"?
Industry risk is the possibility that a group of related stocks
will decline in price due to industry-specific developments.
Companies in the same or similar industries may share common
characteristics and are more likely to react similarly to
industry-specific market or economic developments. Each Fund may
at times have significant exposure to industry risk as a result
of investing in multiple companies in a particular industry.
Similarly, in technology-related industries, competitive
pressures may have a significant effect on the performance of
companies in which a Fund may invest. In addition, technology and
technology-related companies often progress at an accelerated
rate, and these companies may be subject to short product cycles
and aggressive pricing, which may increase their volatility.
3. HOW COULD THE FUNDS' INVESTMENTS IN FOREIGN SECURITIES AFFECT THEIR
PERFORMANCE?
Within the parameters of its specific investment policies, each
Fund may invest without limit in foreign securities either
indirectly (e.g., depositary receipts) or directly in foreign
markets. Investments in foreign securities, including those of
foreign governments, may involve greater risks than investing in
domestic securities because a Fund's performance may depend on
issues other than the performance of a particular company. These
issues include:
- CURRENCY RISK. As long as a Fund holds a foreign security, its
value will be affected by the value of the local currency
relative to the U.S. dollar. When a Fund sells a foreign
denominated security, its value may be worth less in U.S.
dollars even if the security increases in value in its home
country. U.S. dollar denominated securities of foreign issuers
may also be affected by currency risk.
- POLITICAL AND ECONOMIC RISK. Foreign investments may be subject
to heightened political and economic risks, particularly in
emerging markets which may have relatively unstable
governments, immature economic structures, national policies
Janus Equity Funds prospectus 25
restricting investments by foreigners, different legal systems,
and economies based on only a few industries. In some
countries, there is the risk that the government may take over
the assets or operations of a company or that the government
may impose taxes or limits on the removal of a Fund's assets
from that country.
- REGULATORY RISK. There may be less government supervision of
foreign markets. As a result, foreign issuers may not be
subject to the uniform accounting, auditing and financial
reporting standards and practices applicable to domestic
issuers and there may be less publicly available information
about foreign issuers.
- MARKET RISK. Foreign securities markets, particularly those of
emerging market countries, may be less liquid and more volatile
than domestic markets. Certain markets may require payment for
securities before delivery and delays may be encountered in
settling securities transactions. In some foreign markets,
there may not be protection against failure by other parties to
complete transactions.
- TRANSACTION COSTS. Costs of buying, selling and holding foreign
securities, including brokerage, tax and custody costs, may be
higher than those involved in domestic transactions.
4. ARE THERE SPECIAL RISKS ASSOCIATED WITH INVESTMENTS IN HIGH-YIELD/HIGH-RISK
BONDS?
High-yield/high-risk bonds (or "junk" bonds) are bonds rated
below investment grade by the primary rating agencies such as
Standard & Poor's and Moody's. The value of lower quality bonds
generally is more dependent on credit risk, or the ability of the
issuer to meet interest and principal payments, than investment
grade bonds. Issuers of high-yield bonds may not be as strong
financially as those issuing bonds with higher credit ratings and
are more vulnerable to real or perceived economic changes,
political changes or adverse developments specific to the issuer.
Please refer to the SAI for a description of bond rating
categories.
26 Janus Equity Funds prospectus
5. HOW DO THE FUNDS TRY TO REDUCE RISK?
The Funds may use futures, options, swaps and other derivative
instruments to "hedge" or protect their portfolios from adverse
movements in securities prices and interest rates. The Funds may
also use a variety of currency hedging techniques, including
forward currency contracts, to manage exchange rate risk. The
portfolio managers believe the use of these instruments will
benefit the Funds. However, a Fund's performance could be worse
than if the Fund had not used such instruments if a portfolio
manager's judgment proves incorrect.
6. THE FUNDS MAY INVEST IN SMALLER OR NEWER COMPANIES. DOES THIS CREATE ANY
SPECIAL RISKS?
Many attractive investment opportunities may be smaller, start-up
companies offering emerging products or services. Smaller or
newer companies may suffer more significant losses as well as
realize more substantial growth than larger or more established
issuers because they may lack depth of management, be unable to
generate funds necessary for growth or potential development, or
be developing or marketing new products or services for which
markets are not yet established and may never become established.
In addition, such companies may be insignificant factors in their
industries and may become subject to intense competition from
larger or more established companies. Securities of smaller or
newer companies may have more limited trading markets than the
markets for securities of larger or more established issuers, or
may not be publicly traded at all, and may be subject to wide
price fluctuations. Investments in such companies tend to be more
volatile and somewhat more speculative. Because Janus Venture
Fund normally invests at least 50% of its equity assets in
securities of smaller or newer companies, these risks may be
increased.
Janus Equity Funds prospectus 27
- --------------------------------------------------------------------------------
JANUS EQUITY FUNDS
Shareholder's Manual
This section will help you
become familiar with the
different types of accounts
you can establish with Janus.
It also explains in detail the
wide array of services and
features you can establish on
your account, as well as
account policies and fees that
may apply to your account.
Account policies (including
fees), services and features
may be modified or
discontinued without
shareholder approval or prior
notice.
[JANUS LOGO]
Although Janus Venture Fund and Janus Overseas Fund are closed, current
investors who meet the criteria outlined in this Shareholder's Manual may
continue to invest in the Funds and/or open new Fund accounts (see "Types of
Account Ownership," "Tax-Deferred Accounts," and "Shareholder Services and
Account Policies"). In addition, Berger fund shareholders who become
shareholders of such Funds as a result of the reorganization may continue to
invest in the closed Janus Funds and/or open new Fund accounts in the same Fund.
Once an account is closed, additional investments will not be accepted unless
you meet one of the specified criteria. You may be required to demonstrate
eligibility to purchase shares of a Fund before your investment is accepted. The
Funds may resume sales of their shares to new investors at some future date, but
they have no present intention to do so.
DOING BUSINESS WITH JANUS
ONLINE - www.janus.com - 24 HOURS A DAY, 7 DAYS A WEEK
ON janus.com* YOU CAN:
- - Open individual, joint, UGMA/UTMA, Traditional and Roth IRA accounts,
Simplified Employee Pension Plan IRA accounts and Coverdell Education Savings
Accounts
- - Review your account or complete portfolio
- - Buy, sell and exchange Funds
- - View your personalized performance
- - Obtain Fund information and performance
- - Update personal information
- - Receive electronic daily, quarterly and year-end statements, semiannual and
annual reports and prospectuses
30 Shareholder's manual
JANUS XPRESSLINE(TM)
1-888-979-7737
JANUS REPRESENTATIVES
1-800-525-3713
TDD
For the speech and hearing impaired.
1-800-525-0056
MAILING ADDRESS
Janus
P.O. Box 173375
Denver, CO 80217-3375
FOR OVERNIGHT MAIL
Janus
3773 Cherry Creek Drive North, Suite 101
Denver, CO 80209-3821
* Certain account or transaction types may be restricted from being processed
through janus.com. If you would like more information about these
restrictions, please contact a Janus Representative.
Shareholder's manual 31
MINIMUM INVESTMENTS*+
<Table>
To open a new regular Fund account $2,500
To open a new UGMA/UTMA, Traditional
or Roth IRA, Simplified Employee
Pension Plan IRA account or
Coverdell Education Savings Account $ 500
To add to any type of Fund account $ 100
</Table>
* These minimums apply to each individual Fund in which you
invest. The Fund reserves the right to change the amount of
these minimums from time to time or to waive them in whole or
in part for certain types of Fund accounts.
+ Due to the proportionately higher costs of maintaining small
accounts, Janus reserves the right to deduct a $10 minimum
balance fee (or the value of the account if less than $10) from
Fund accounts with values below the minimums described above or
to close such Fund accounts.
TYPES OF ACCOUNT OWNERSHIP
INDIVIDUAL OR JOINT OWNERSHIP
Individual accounts are owned by one person. Joint accounts have
two or more owners. Although Janus Venture Fund and Janus
Overseas Fund are closed, if you are a current Fund shareholder,
you may continue to purchase Fund shares through your existing
Fund accounts and to reinvest dividends and capital gains in such
accounts. In addition, if your name appears in the registration
of an existing Fund account and will also appear in the
registration of a new Fund account, you may open a new Fund
account directly with Janus or through certain intermediaries. If
you are an employee, or living at the same address as an
employee, of Janus Capital Management LLC or any of its
subsidiaries, you may open a new Fund account directly with
Janus. In addition, Berger fund shareholders who become
shareholders of such Funds as a result of the reorganization may
continue to purchase Fund shares through your existing Fund
accounts and to reinvest dividends and capital gains in such
accounts.
32 Shareholder's manual
CUSTODIAL ACCOUNTS (UGMA OR UTMA)
An UGMA/UTMA is a custodial account managed for the benefit of a
minor. To open an UGMA or UTMA, you must include the minor's
Social Security number on the application.
TRUST
An established trust can open an account. The names of each
trustee, the name of the trust and the date of the trust
agreement must be included on the application.
BUSINESS ACCOUNTS
Corporations and partnerships may also open an account. The
application must be signed by an authorized officer of the
corporation or a general partner of the partnership. Although
Janus Venture Fund and Janus Overseas Fund are closed, if your
name appears in the registration of an existing Fund account, you
may re-register such account as a business account directly with
Janus.
TAX-DEFERRED ACCOUNTS
If you are eligible, you may set up one or more tax-deferred
accounts. A tax-deferred account allows you to shelter your
investment income and capital gains from current income taxes. A
contribution to certain of these plans may also be tax
deductible. The types of tax-deferred accounts that may be opened
with Janus are described below. Investors should consult their
tax adviser or legal counsel before selecting a tax-deferred
account.
Although Janus Venture Fund and Janus Overseas Fund are closed,
if you are an existing or new participant in a qualified plan
(for example, a 401(k) plan, profit sharing plan, or money
purchase pension plan), 403(b) plan, or 457 plan that currently
offers a Fund as an investment option, you may direct
contributions to the Fund through such plan. However, qualified
retirement plans that do not currently offer a Fund will not be
able to add such Fund as an investment option.
Shareholder's manual 33
INVESTING FOR YOUR RETIREMENT
Please refer to janus.com for more complete information regarding
the different types of IRAs. Distributions from these plans may
be subject to income tax and to an additional tax if withdrawn
prior to age 59 1/2 or used for a nonqualifying purpose.
TRADITIONAL AND ROTH IRAS
Both IRAs allow most individuals with earned income to contribute
up to the lesser of $3,000 or 100% of compensation annually. In
addition, IRA holders age 50 or older may contribute $500 a year
more than these limits.
SIMPLIFIED EMPLOYEE PENSION PLAN (SEP)
This plan allows small business owners (including sole
proprietors) to make tax-deductible contributions for themselves
and any eligible employee(s). A SEP requires an IRA (a SEP-IRA)
to be set up for each SEP participant.
PROFIT SHARING OR MONEY PURCHASE PENSION PLAN
These plans are open to corporations, partnerships and small
business owners (including sole proprietors) to benefit their
employees and themselves.
SECTION 403(b)(7) PLAN
Employees of educational organizations or other qualifying, tax-
exempt organizations may be eligible to participate in a Section
403(b)(7) Plan.
INVESTING FOR A CHILD
COVERDELL EDUCATION SAVINGS ACCOUNT (FORMERLY EDUCATION IRA)
This plan allows individuals, subject to certain income
limitations, to contribute up to $2,000 annually on behalf of any
child under the age of 18. Contributions are also allowed on
behalf of children with special needs beyond age 18.
Distributions are generally subject to income tax if not used for
qualified education expenses.
34 Shareholder's manual
Although Janus Venture Fund and Janus Overseas Fund are closed,
current investors who meet the criteria outlined in this
Shareholder's Manual may continue to invest in the Funds and/or
open new Fund accounts. You may be asked to demonstrate
eligibility to purchase shares of a Fund before your investment
is accepted. Eligible investors should refer to the chart on the
following pages for information on opening an account and
conducting business with Janus. With certain limited exceptions,
the Funds are available only to U.S. citizens or residents. When
you buy, exchange, or sell shares, your request will be processed
at the next NAV calculated after your order is received and
accepted.
PLEASE REFER TO THE CHART ON THE FOLLOWING PAGES FOR INFORMATION
ON OPENING AN ACCOUNT AND CONDUCTING BUSINESS WITH JANUS. WITH
CERTAIN LIMITED EXCEPTIONS, THE FUNDS ARE AVAILABLE ONLY TO U.S.
CITIZENS OR RESIDENTS. WHEN YOU BUY, EXCHANGE, OR SELL SHARES,
YOUR REQUEST WILL BE PROCESSED AT THE NEXT NAV CALCULATED AFTER
YOUR ORDER IS RECEIVED AND ACCEPTED.
Shareholder's manual 35
TO OPEN AN ACCOUNT OR BUY SHARES
ONLINE AT WWW.JANUS.COM
------------------------------------------------------------------------------
- You may open a new Fund account or you may buy shares in an existing Fund
account. You may elect to have Janus automatically debit your designated
bank account. Janus.com will provide real-time confirmation of your
transaction.
BY TELEPHONE
------------------------------------------------------------------------------
- For an existing account, you may use Janus XpressLine(TM) to buy shares in
an existing account 24 hours a day, or you may call a Janus Representative
during normal business hours. Janus will automatically debit your designated
bank account.
BY WIRE
------------------------------------------------------------------------------
- You may also buy shares by wiring money from your bank account to your Fund
account. Wiring instructions can be found online at janus.com or by calling
a Janus Representative.
BY MAIL/IN WRITING
------------------------------------------------------------------------------
- To open your Fund account, complete and sign the appropriate application and
make your check payable to Janus.
- To buy additional shares, complete the remittance slip accompanying your
confirmation statement. If you are making a purchase into a retirement
account, please indicate whether the purchase is a rollover or a current or
prior year contribution. Send your check and remittance slip or written
instructions to the address listed on the slip.
BY AUTOMATIC INVESTMENT
------------------------------------------------------------------------------
- To buy additional shares through the Automatic Monthly Investment Program,
you select the day each month that your money ($100 minimum) will be
electronically transferred from your bank account to your Fund account. If
no date or dollar amount is specified on your application, investments of
$100 will be made on the 20th of each month. Your first automatic monthly
investment may take up to two weeks to establish.
- You may buy additional shares using Payroll Deduction if your employer can
initiate this type of transaction. You may have all or a portion of your
paycheck ($100 minimum) invested directly into your Fund account.
36 Shareholder's manual
<Table>
TO EXCHANGE SHARES TO SELL SHARES
Remember that the Janus Venture Fund
and Janus Overseas Fund are closed.
Unless you meet the criteria specified
in this Shareholder's Manual, once you
close your account, you may not make
additional investments in the Funds.
--------------------------------------- ---------------------------------------
ONLINE AT www.janus.com ONLINE AT www.janus.com
--------------------------------------- ---------------------------------------
- Exchanges may be made online at - Redemptions may be made online at
janus.com. janus.com.
BY TELEPHONE BY TELEPHONE
--------------------------------------- ---------------------------------------
- All accounts are automatically - All accounts are automatically
eligible to exchange shares by tele- eligible to sell shares by telephone.
phone. To exchange all or a portion To sell all or a portion of your
of your shares into any other availa- shares, call Janus XpressLine(TM) or
ble Janus fund, call Janus a Janus Representative.
XpressLine(TM) or a Janus
Representative.
BY WIRE
---------------------------------------
- You can redeem shares by wire. Wiring
instructions can be found online at
janus.com or by calling a Janus
Representative.
BY MAIL/IN WRITING BY MAIL/IN WRITING
--------------------------------------- ---------------------------------------
- To request an exchange in writing, - To request a redemption in writing,
please follow the instructions in the please follow the instructions in the
"Written Instructions" section of "Written Instructions" section of
this manual. this manual.
BY SYSTEMATIC EXCHANGE BY SYSTEMATIC REDEMPTION
--------------------------------------- ---------------------------------------
- You determine the amount of money you - This option allows you to sell shares
would like automatically exchanged worth a specific dollar amount from
from one Fund account to another on your account on a regular basis.
any day of the month. You may
establish this program for as little
as $100 per exchange.
--------------------------------------- ---------------------------------------
Note: For more information, refer to Note: Also refer to the "Payment of
the "Exchange Policies" section Redemption Proceeds" section of
of this manual. this manual for more
information.
</Table>
Shareholder's manual 37
PAYING FOR SHARES
Please note the following when purchasing shares:
- Cash, credit cards, third party checks, travelers cheques,
credit card checks or money orders will not be accepted.
- All purchases must be made in U.S. dollars and checks must be
drawn on U.S. banks.
- We may make additional attempts to debit your predesignated
bank account for ACH purchases that initially fail. You are
liable for any costs associated with these additional attempts.
We will price your purchase at the net asset value next
determined after we receive good funds.
- Each Fund may refuse any purchase order, including exchange
purchases, for any reason. For example, purchase orders may be
refused if a Fund would be unable to invest the money
effectively in accordance with its investment policies or would
otherwise be adversely affected due to the size of the
transaction, frequency of trading or other factors.
- If all or a portion of a purchase is received for investment
without a specific fund designation, for investment in one of
our closed funds, or for investment in a fund that is not yet
available for public sale, the undesignated amount or entire
investment, as applicable, will be invested in the Janus Money
Market Fund-Investor Shares ("Money Market Fund"). For
investments without a specific fund designation and for
investments in closed funds, unless you later direct Janus to
(1) buy shares of another Janus fund or (2) sell shares of the
Money Market Fund and return the proceeds (including any
dividends earned) to you, Janus will treat your inaction as
approval of the purchase of the Money Market Fund. If you hold
shares of a closed fund and submit an order directly to Janus
for a new account in that closed fund, your order must clearly
indicate that you are currently a shareholder of the closed
fund, or your money will be invested in the Money Market Fund.
If you submit an order to buy shares of a fund that is not yet
available
38 Shareholder's manual
for investment (during a subscription period), your investment
will be held in the Money Market Fund until the new fund's
commencement of operations. At that time, your investment
(including any dividends) will be automatically exchanged from
the Money Market Fund to the new fund. All orders for purchase,
exchange, or sale will receive the NAV next calculated after
your order is received and accepted by a Fund.
- For Fund purchases by check, if your check does not clear for
any reason, your purchase will be cancelled.
- If your purchase is cancelled for any reason, you will be
responsible for any losses or fees imposed by your bank and may
be responsible for losses that may be incurred as a result of
any decline in the value of the cancelled purchase.
EXCHANGE POLICIES
Please note the following when exchanging shares:
- An exchange represents the sale of shares from one Janus fund
and the purchase of shares of another Janus fund, which may
produce a taxable gain or loss in a non-retirement account.
- New Janus fund accounts established by exchange must be opened
with $2,500 or the total account value if the value of the
Janus fund account you are exchanging from is less than $2,500.
- UGMA/UTMA accounts, Traditional or Roth IRAs, Simplified
Employee Pension Plan IRA accounts and Coverdell Education
Savings Accounts established by exchange must be opened with
$500 or the total account value if the value of the Janus fund
account you are exchanging from is less than $500.
- Exchanges between existing Janus fund accounts must meet the
$100 subsequent investment requirement.
- For Systematic Exchanges, if the balance in the Janus fund
account you are exchanging from falls below the Systematic
Exchange amount, all remaining shares will be exchanged and the
program will be discontinued.
Shareholder's manual 39
- You may make four exchanges out of each Janus fund (exclusive
of Systematic Exchanges) per calendar year. These limits are
designed to deter short-term trading. See our Excessive Trading
Policy below for more information.
- The Funds reserve the right to reject any exchange request and
to modify or terminate the exchange privilege at any time.
- Exchanges between Janus fund accounts will be accepted only if
the registrations are identical. If you are exchanging into a
closed Janus fund, you may be required to demonstrate
eligibility to purchase shares of that Janus fund.
- If the shares you are exchanging are held in certificate form,
you must return the certificate to Janus prior to making any
exchanges. Shares are no longer available in certificate form.
EXCESSIVE TRADING POLICY
Frequent trades in your account or accounts controlled by you can
disrupt portfolio investment strategies and increase Fund
expenses for all Fund shareholders. The Funds are not intended
for market timing or excessive trading. To deter these
activities, the Funds or their agents may temporarily or
permanently suspend or terminate exchange privileges of any
investor who makes more than four exchanges out of a Fund in a
calendar year and bar future purchases into the Fund by such
investor. In addition, the Funds or their agents also may reject
any purchase orders (including exchange purchases) by any
investor or group of investors indefinitely for any reason,
including, in particular, purchase orders that they believe are
attributable to market timers or are otherwise excessive or
potentially disruptive to the Fund.
Orders placed by investors in violation of the exchange limits or
the excessive trading policies or by investors that the Fund
believes are market timers may be revoked or cancelled by a Fund
on the next business day after receipt of the order. For
transactions placed directly with the Funds, the Funds may
consider the trading history of accounts under common ownership
or control for the purpose of enforcing these policies.
Transactions
40 Shareholder's manual
placed through the same financial intermediary on an omnibus
basis may be deemed part of a group for the purpose of this
policy and may be rejected in whole or in part by a Fund.
PAYMENT OF REDEMPTION PROCEEDS
- BY ELECTRONIC TRANSFER - All accounts are automatically
eligible for the electronic redemption option if bank
information is provided. Your redemption proceeds can be
electronically transferred to your predesignated bank account
on the next bank business day after receipt of your redemption
request (wire transfer) or the second bank business day after
receipt of your redemption request (ACH transfer - not
available on retirement accounts).
Wire transfers will be charged an $8 fee per wire and your bank
may charge an additional fee to receive the wire.
- BY CHECK - Redemption proceeds will be sent to the
shareholder(s) of record at the address of record within seven
days after receipt of a valid redemption request. During the 10
days following an address change, requests for redemption
checks to be sent to a new address require a signature
guarantee.
SHARES MAY BE SOLD AT ANY TIME ON JANUS.COM, BY TELEPHONE OR IN
WRITING. IF THE SHARES BEING SOLD WERE PURCHASED BY CHECK OR ACH
TRANSFER, THE FUNDS CAN DELAY THE PAYMENT OF YOUR SALE PROCEEDS
FOR UP TO 15 DAYS FROM THE DAY OF PURCHASE TO ALLOW THE PURCHASE
TO CLEAR. Unless you provide alternate instructions, your
proceeds will be invested in the Investor Shares Class of Janus
Money Market Fund during the 15 day hold period.
WRITTEN INSTRUCTIONS
To sell or exchange all or part of your shares in writing, your
request should be sent to one of the addresses listed under
"Doing Business with Janus" and must include the following
information:
- the name of the Janus fund(s) being sold or exchanged
- the account number(s)
Shareholder's manual 41
- the amount of money or number of shares being sold or exchanged
- the name(s) on the account
- the signature(s) of all registered account owners (see account
application for signature requirements)
- your daytime telephone number
SIGNATURE GUARANTEE
A SIGNATURE GUARANTEE IS REQUIRED if any of the following is
applicable:
- You request a redemption by check that exceeds $100,000.
- You would like a check made payable to anyone other than the
shareholder(s) of record.
- You would like a check mailed to an address which has been
changed within 10 days of the redemption request.
- You would like a check mailed to an address other than the
address of record.
THE FUNDS RESERVE THE RIGHT TO REQUIRE A SIGNATURE GUARANTEE
UNDER OTHER CIRCUMSTANCES OR TO REJECT OR DELAY A REDEMPTION ON
CERTAIN LEGAL GROUNDS.
HOW TO OBTAIN A SIGNATURE GUARANTEE
A signature guarantee assures that a signature is genuine. The
signature guarantee protects shareholders from unauthorized
account transfers. The following financial institutions may
guarantee signatures: banks, savings and loan associations, trust
companies, credit unions, broker-dealers, and member firms of a
national securities exchange. Call your financial institution to
see if they have the ability to guarantee a signature. A
signature guarantee cannot be provided by a notary public.
If you live outside the United States, a foreign bank properly
authorized to do business in your country of residence or a U.S.
consulate may be able to authenticate your signature.
42 Shareholder's manual
PRICING OF FUND SHARES
All purchases, sales and exchanges will be processed at the NAV
next calculated after your request is received and accepted by a
Fund (or a Fund's agent). A Fund's NAV is calculated at the close
of the regular trading session of the NYSE (normally 4:00 p.m.
New York time) each day that the NYSE is open. The NAV of Fund
shares is not determined on days the NYSE is closed. In order to
receive a day's price, your order must be received by the close
of the regular trading session of the NYSE. Securities are valued
at market value or, if a market quotation is not readily
available, at their fair value determined in good faith under
procedures established by and under the supervision of the
Trustees. Short-term instruments maturing within 60 days are
valued at amortized cost, which approximates market value.
SHAREHOLDER SERVICES AND ACCOUNT POLICIES
TRANSACTIONS THROUGH PROCESSING ORGANIZATIONS
You may buy or sell Fund shares through a broker-dealer, bank or
other financial institution, or an organization that provides
recordkeeping and consulting services to 401(k) plans or other
employee benefit plans (a "Processing Organization"). Processing
Organizations may charge you a fee for this service and may
require different minimum initial and subsequent investments than
the Funds. Processing Organizations may also impose other charges
or restrictions different from those applicable to shareholders
who invest in the Funds directly. A Processing Organization,
rather than its customers, may be the shareholder of record of
your shares. The Funds are not responsible for the failure of any
Processing Organization to carry out its obligations to its
customers. Certain Processing Organizations may receive
compensation from Janus Capital or its affiliates, and certain
Processing Organizations may receive compensation from the Funds
for shareholder recordkeeping and similar services.
Although Janus Venture Fund and Janus Overseas Fund are closed,
if you are a discretionary investment adviser, you may continue
to invest in the Funds through an existing omnibus
Shareholder's manual 43
account at a financial institution and/or intermediary on behalf
of clients who are current Fund shareholders. Except as set forth
in this Shareholder's Manual, no financial intermediaries will be
eligible to open new accounts with any of the Funds or add new
investors to existing omnibus accounts.
TAXPAYER IDENTIFICATION NUMBER
On the application or other appropriate forms, you will be asked
to certify that your Social Security or taxpayer identification
number is correct and that you are not subject to backup
withholding for failing to report income to the IRS. If you are
subject to backup withholding, or you did not certify your
taxpayer identification number, the IRS requires the Funds to
withhold a certain percentage (currently 30%) of any dividends
paid and redemption or exchange proceeds. In addition to this
backup withholding, you may be subject to a $50 fee to reimburse
the Funds for any penalty that the IRS may impose.
INVOLUNTARY REDEMPTIONS
The Funds reserve the right to close an account if the
shareholder is deemed to engage in activities which are illegal
or otherwise believed to be detrimental to the Funds, such as
market timing.
ONLINE AND TELEPHONE TRANSACTIONS
You may initiate many transactions through janus.com or by
calling Janus XpressLine(TM). You may also contact a Janus
Representative. All new accounts automatically receive online and
telephone transaction privileges including redemption privileges.
If you do not want to receive these privileges, please visit
janus.com or call a Janus Representative. The Funds and their
agents will not be responsible for any losses, costs or expenses
resulting from unauthorized transactions when reasonable
procedures designed to verify the identity of the online user or
caller are followed.
Occasionally, we experience high call volumes due to unusual
market activity or other events that may make it difficult for
you
44 Shareholder's manual
to reach a Janus Representative by telephone. If you are unable
to reach a Janus Representative by telephone, please consider
visiting janus.com, calling Janus XpressLine(TM) or sending
written instructions.
DISTRIBUTIONS
Generally, all income dividends and capital gains will
automatically be reinvested in your Fund account. If you wish to
change your distribution option, please visit janus.com, call a
Janus Representative or send a written request signed by the
shareholder(s) of record.
If you receive Fund distributions from an open Fund account by
check, and a distribution check sent to you at your address of
record has been returned to Janus and you have failed to respond
to follow up mailings from Janus, the distribution check will
automatically be reinvested in your Fund account. Your
distribution checks will also be reinvested in your Fund account
if you do not cash them within six months of the date they were
written. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
TEMPORARY SUSPENSION OF SERVICES
The Funds or their agents may, in case of emergency, temporarily
suspend telephone transactions and other shareholder services.
ADDRESS CHANGES
To change the address on your account, visit janus.com, call a
Janus Representative or send a written request signed by the
shareholder(s) of record. Include the name of the Janus fund(s)
you hold, the account number(s), the name(s) on the account and
both the old and new addresses. Certain options may be suspended
for 10 days following an address change unless a signature
guarantee is provided.
Shareholder's manual 45
REGISTRATION CHANGES
To change the name on an account, the shares are generally
transferred to a new account. In some cases, legal documentation
may be required. Please visit janus.com or call a Janus
Representative for further instructions.
BANK ACCOUNT CHANGES
To change your bank account of record or add new bank account
information to your account, visit janus.com, call a Janus
Representative or send a written request signed by the
shareholder(s) of record. Please note that you may change or add
bank information online at janus.com or over the telephone for
purchases only. We cannot accept changes or additions to bank
account redemption options online at janus.com or over the
telephone. If the added bank account is a joint tenant/tenants in
common account, at least one name on the bank account must match
one name on the Fund account.
STATEMENTS AND REPORTS
We will send you quarterly confirmations of all transactions. You
may elect on janus.com to discontinue delivery of your paper
statements, and instead receive them online. In addition, on
janus.com, the Funds will send you an immediate transaction
confirmation statement after every non-systematic transaction. If
you have not elected to receive online statements, your
confirmation will be mailed within two days of the transaction.
The Funds distribute dividend information annually.
The Funds produce financial reports, which include a list of each
of the Funds' portfolio holdings, semiannually and update their
prospectus annually. You may elect to receive these reports and
prospectus updates electronically on janus.com.
Unless you instruct Janus otherwise by contacting a Janus
Representative, the Funds will acknowledge this as your consent
and will mail only one report or prospectus to your household,
even if more than one person in your household has a Fund
46 Shareholder's manual
account. This process is known as "householding." Please visit
janus.com or call a Janus Representative if you would like to
receive additional reports or prospectuses. Individual copies
will be sent within thirty (30) days after the Funds receive your
instructions. The Funds reserve the right to charge a fee for
additional account statement requests.
Shareholder's manual 47
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Janus Capital Management LLC, 100 Fillmore Street, Denver,
Colorado 80206-4928, is the investment adviser to each of the
Funds and is responsible for the day-to-day management of their
investment portfolios and other business affairs of the Funds.
Janus Capital began serving as investment adviser to Janus Fund
in 1970 and currently serves as investment adviser to all of the
Janus funds, acts as sub-adviser for a number of private-label
mutual funds and provides separate account advisory services for
institutional accounts.
Janus Capital furnishes continuous advice and recommendations
concerning the Funds' investments. Janus Capital also furnishes
certain administrative, compliance and accounting services for
the Funds, and may be reimbursed by the Funds for its costs in
providing those services. In addition, Janus Capital employees
serve as officers of the Trust and Janus Capital provides office
space for the Funds and pays the salaries, fees and expenses of
all Fund officers and those Trustees who are affiliated with
Janus Capital.
MANAGEMENT EXPENSES
Each Fund pays Janus Capital a management fee which is calculated
daily and paid monthly. Each Fund's advisory agreement spells out
the management fee and other expenses that the Fund must pay. For
the most recent fiscal year, each Fund paid Janus Capital a
management fee of 0.65% of its average daily net assets for the
period it was in operation.
Each Fund incurs expenses not assumed by Janus Capital, including
transfer agent and custodian fees and expenses, legal and
auditing fees, printing and mailing costs of sending reports and
other information to existing shareholders, and independent
Trustees' fees and expenses.
For each Fund, shareholders approved new advisory agreements at a
special meeting held on January 31, 2002. Each Fund's new
advisory agreement is the same in all material respects as the
48 Janus Equity Funds prospectus
Fund's current advisory agreement and will be effective on or
about March 28, 2002.
PORTFOLIO MANAGERS
WILLIAM H. BALES
- --------------------------------------------------------------------------------
is Executive Vice President and Portfolio Manager of Janus
Venture Fund. Mr. Bales has been Portfolio Manager or a
Co-Manager of Janus Venture Fund since February 1997. He
is also Portfolio Manager of other Janus accounts. Mr.
Bales joined Janus Capital in 1991 and was a research
analyst from 1993 to 1997. Mr. Bales holds a Bachelor of
Science degree in Marketing and a Master's of Science
degree in Marketing and Finance from the University of
Colorado. Mr. Bales has earned the right to use the
Chartered Financial Analyst designation.
JONATHAN D. COLEMAN
- --------------------------------------------------------------------------------
is Executive Vice President and Portfolio Manager of Janus
Enterprise Fund. He is also Portfolio Manager of other
Janus accounts. Mr. Coleman served as Co-Portfolio Manager
for Janus Venture Fund from 1997 through 2000. He joined
Janus Capital in 1994 as a research analyst, and was also
a research analyst for Janus Capital from 2000 through
2002. Mr. Coleman holds a bachelor's degree in political
economy and Spanish from Williams College, where he was a
member of Phi Beta Kappa. As a Fulbright Fellow, he
conducted research on economic integration in Central
America. Mr. Coleman has earned the right to use the
Chartered Financial Analyst designation.
Janus Equity Funds prospectus 49
DAVID J. CORKINS
- --------------------------------------------------------------------------------
is Executive Vice President and Portfolio Manager of Janus
Growth and Income Fund which he has managed since August
1997. Mr. Corkins is also Portfolio Manager of other Janus
accounts. He joined Janus Capital in 1995 as a research
analyst. Mr. Corkins holds a Bachelor of Arts degree in
English and Russian from Dartmouth and he received his
Master's degree in Business Administration from Columbia
University in 1993.
HELEN YOUNG HAYES
- --------------------------------------------------------------------------------
is Executive Vice President and Co-Manager of Janus
Overseas Fund. She joined Janus Capital in 1987 and has
served as Portfolio Manager or Co-Manager of Janus
Overseas Fund since its inception. Ms. Hayes is also
Portfolio Manager of other Janus accounts. Ms. Hayes holds
a Bachelor of Arts degree in Economics from Yale
University. Ms. Hayes has earned the right to use the
Chartered Financial Analyst designation.
C. MIKE LU
- --------------------------------------------------------------------------------
is Executive Vice President and Portfolio Manager of Janus
Global Technology Fund, which he has managed since
inception. Mr. Lu is also Portfolio Manager of other Janus
accounts. He joined Janus Capital as a research analyst in
1991. Mr. Lu holds a Bachelor of Arts degree in History
and a Bachelor of Arts degree in Economics from Yale
University. Mr. Lu has earned the right to use the
Chartered Financial Analyst designation.
50 Janus Equity Funds prospectus
BRENT A. LYNN
- --------------------------------------------------------------------------------
is Executive Vice President and Co-Manager of Janus
Overseas Fund, for which he has served as Co-Manager since
January 2001. Mr. Lynn is also Portfolio Manager of other
Janus accounts. He joined Janus Capital as a research
analyst in 1991. Mr. Lynn holds a Bachelor of Arts degree
in Economics and a Masters degree in Economics and
Industrial Engineering from Stanford University. Mr. Lynn
has earned the right to use the Chartered Financial
Analyst designation.
KAREN L. REIDY
- --------------------------------------------------------------------------------
is Executive Vice President and Portfolio Manager of Janus
Balanced Fund and Janus Core Equity Fund. She is also
Portfolio Manager of other Janus accounts. Ms. Reidy
joined Janus Capital in 1995 as a research analyst. Ms.
Reidy holds an undergraduate degree in Accounting from the
University of Colorado. Ms. Reidy has earned the right to
use the Chartered Financial Analyst designation.
CLAIRE YOUNG
- --------------------------------------------------------------------------------
is Executive Vice President and Portfolio Manager of Janus
Olympus Fund, which she has managed since August 1997. She
is also Portfolio Manager of other Janus accounts. Ms.
Young joined Janus Capital in January 1992. Ms. Young
holds a Bachelor of Science degree in Electrical
Engineering from Yale University. Ms. Young has earned the
right to use the Chartered Financial Analyst designation.
Janus Equity Funds prospectus 51
OTHER INFORMATION
- --------------------------------------------------------------------------------
SIZE OF FUNDS
Janus Venture Fund and Janus Overseas Fund have discontinued
sales of their shares because their management and the Trustees
believe that a substantial increase in size may adversely affect
a Fund's ability to achieve its investment objective by reducing
its flexibility in making investments and in effecting portfolio
changes. Although sales to new investors have been discontinued,
existing shareholders are permitted to continue to purchase
shares and to reinvest any dividends or capital gains
distributions, absent highly unusual circumstances. In addition,
Berger fund shareholders who become shareholders of such Funds as
a result of the reorganization are permitted to continue to
purchase shares and to reinvest any dividends or capital gains
distributions, absent highly unusual circumstances.
DISTRIBUTION OF THE FUNDS
The Funds are distributed by Janus Distributors, Inc., which is a
member of the National Association of Securities Dealers, Inc.
("NASD"). To obtain information about NASD member firms and their
associated persons, you may contact NASD Regulation, Inc. at
www.nasdr.com, or the Public Disclosure Hotline at 800-289-9999.
An investor brochure containing information describing the Public
Disclosure Program is available from NASD Regulation, Inc.
52 Janus Equity Funds prospectus
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DISTRIBUTIONS
To avoid taxation of the Funds, the Internal Revenue Code
requires each Fund to distribute net income and any net capital
gains realized on its investments annually. A Fund's income from
dividends and interest and any net realized short-term gains are
paid to shareholders as ordinary income dividends. Net realized
long-term gains are paid to shareholders as capital gains
distributions.
DISTRIBUTION SCHEDULE
<Table>
<Caption>
Dividends Capital Gains
Janus Growth and Income Fund Normally declared Normally declared
and Janus Balanced Fund and distributed in and distributed in
March, June, December
September and
December
----------------------------------------------------------------------
All other Equity Funds Normally declared Normally declared
and distributed in and distributed in
December December
</Table>
HOW DISTRIBUTIONS AFFECT A FUND'S NAV
Distributions are paid to shareholders as of the record date of a
distribution of a Fund, regardless of how long the shares have
been held. Dividends and capital gains awaiting distribution are
included in each Fund's daily NAV. The share price of a Fund
drops by the amount of the distribution, net of any subsequent
market fluctuations. As an example, assume that on December 31,
Janus Enterprise Fund declared a dividend in the amount of $0.25
per share. If Janus Enterprise Fund share price was $10.00 on
December 30, the Fund's share price on December 31 would be
$9.75, barring market fluctuations. Shareholders should be aware
that distributions from a taxable mutual fund are not value-
enhancing and may create income tax obligations.
"BUYING A DIVIDEND"
If you purchase shares of a Fund just before the distribution,
you will pay the full price for the shares and receive a portion
of the
Janus Equity Funds prospectus 53
purchase price back as a taxable distribution. This is referred
to as "buying a dividend." In the above example, if you bought
shares on December 30, you would have paid $10.00 per share. On
December 31, the Fund would pay you $0.25 per share as a dividend
and your shares would now be worth $9.75 per share. Unless your
account is set up as a tax-deferred account, dividends paid to
you would be included in your gross income for tax purposes, even
though you may not have participated in the increase in NAV of
the Fund, whether or not you reinvested the dividends.
DISTRIBUTION OPTIONS
When you open an account, it will automatically provide for
reinvestment of all distributions. You may change your
distribution option at any time by logging onto janus.com, by
calling a Janus Representative or by writing the Funds at one of
the addresses listed in the Shareholder's Manual section of this
Prospectus. The Funds offer the following options:
1. REINVESTMENT OPTION. You may reinvest your income dividends
and capital gains distributions in additional shares.
2. CASH OPTION. You may receive your income dividends and capital
gains distributions in cash.
3. REINVEST AND CASH OPTION. You may receive either your income
dividends or capital gains distributions in cash and reinvest
the other in additional shares.
4. REDIRECT OPTION. You may direct your dividends or capital
gains to purchase shares of another Janus fund.
The Funds reserve the right to reinvest into your account
undeliverable and uncashed dividend and distribution checks that
remain outstanding for six months in shares of the applicable
Fund at the NAV next computed after the check is cancelled.
Subsequent distributions may also be reinvested.
54 Janus Equity Funds prospectus
TAXES
As with any investment, you should consider the tax consequences
of investing in the Funds. Any time you sell or exchange shares
of a fund in a taxable account, it is considered a taxable event.
Depending on the purchase price and the sale price, you may have
a gain or loss on the transaction. Any tax liabilities generated
by your transactions are your responsibility.
The following discussion does not apply to tax-deferred accounts,
nor is it a complete analysis of the federal tax implications of
investing in the Funds. You should consult your own tax adviser
if you have any questions. Additionally, state or local taxes may
apply to your investment, depending upon the laws of your state
of residence.
TAXES ON DISTRIBUTIONS
Dividends and distributions of the Funds are subject to federal
income tax, regardless of whether the distribution is made in
cash or reinvested in additional shares of a Fund. Distributions
may be taxable at different rates depending on the length of time
a Fund holds a security. In certain states, a portion of the
dividends and distributions (depending on the sources of a Fund's
income) may be exempt from state and local taxes. Information
regarding the tax status of income dividends and capital gains
distributions will be mailed to shareholders on or before January
31st of each year. Account tax information will also be sent to
the IRS.
TAXATION OF THE FUNDS
Dividends, interest, and some capital gains received by the Funds
on foreign securities may be subject to tax withholding or other
foreign taxes. The Funds may from year to year make the election
permitted under section 853 of the Internal Revenue Code to pass
through such taxes to shareholders as a foreign tax credit. If
such an election is not made, any foreign taxes paid or accrued
will represent an expense to the Funds.
Janus Equity Funds prospectus 55
The Funds do not expect to pay federal income or excise taxes
because they intend to meet certain requirements of the Internal
Revenue Code. It is important that the Funds meet these
requirements so that any earnings on your investment will not be
taxed twice.
56 Janus Equity Funds prospectus
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the Funds'
financial performance for the past 5 years through October 31st of each fiscal
year shown (or for Funds with a performance history shorter than 5 years,
through October 31st of each fiscal period shown). Items 1 through "Net asset
value, end of period" reflect financial results for a single Fund share. The
total returns in the tables represent the rate that an investor would have
earned (or lost) on an investment in each of the Funds (assuming reinvestment of
all dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with Funds' financial
statements, is included in the Annual Report, which is available upon request
and incorporated by reference into the SAI.
<Table>
<Caption>
JANUS ENTERPRISE FUND
- --------------------------------------------------------------------------------------------------------
Years ended October 31st
2001 2000 1999 1998 1997
1. NET ASSET VALUE, BEGINNING OF PERIOD $68.41 $58.64 $32.33 $30.86 $31.19
INCOME FROM INVESTMENT OPERATIONS:
2. Net investment income (loss) -- -- -- -- --
3. Net gains or (losses) on securities
(both realized and unrealized) (38.74) 13.10 30.61 3.43 0.95
4. Total from investment operations (38.74) 13.10 30.61 3.43 0.95
LESS DISTRIBUTIONS:
5. Dividends (from net investment income) -- -- -- -- --
6. Distributions (from capital gains) -- -- (4.30) (1.96) (1.28)
7. Distributions (in excess of capital
gains) -- (3.33) -- -- --
8. Total distributions -- (3.33) (4.30) (1.96) (1.28)
9. NET ASSET VALUE, END OF PERIOD $29.67 $68.41 $58.64 $32.33 $30.86
10. Total return (56.63%) 22.29% 104.09% 11.79% 3.31%
11. Net assets, end of period (in millions) $3,072 $8,085 $2,330 $559 $552
12. Average net assets for the period (in
millions) $4,858 $7,266 $1,127 $551 $614
13. Ratio of gross expenses to average net
assets 0.92% 0.90% 0.98% 1.08% 1.07%
14. Ratio of net expenses to average net
assets 0.90% 0.88% 0.95% 1.06% 1.04%
15. Ratio of net investment income/(loss) to
average net assets (0.55%) (0.65%) (0.67%) (0.67%) (0.61%)
16. Portfolio turnover rate 85% 80% 98% 134% 111%
- --------------------------------------------------------------------------------------------------------
</Table>
Janus Equity Funds prospectus 57
<Table>
<Caption>
JANUS VENTURE FUND
- ------------------------------------------------------------------------------------------------------
Years ended October 31st
2001 2000 1999 1998 1997
1. NET ASSET VALUE, BEGINNING OF
PERIOD $82.39 $89.71 $49.81 $58.84 $57.16
INCOME FROM INVESTMENT OPERATIONS:
2. Net investment income -- -- -- (0.09) 0.16
3. Net gains or (losses) on securities
(both realized and unrealized) (29.02) 6.94 44.31 0.43 6.80
4. Total from investment operations (29.02) 6.94 44.31 0.34 6.96
LESS DISTRIBUTIONS:
5. Dividends (from net investment
income) -- -- -- -- --
6. Dividends (in excess of net
investment income) -- -- -- (0.07) --
7. Distributions (from capital gains) (5.20) (14.26) (4.41) (9.30) (5.28)
8. Distributions (in excess of capital
gains) (11.18) -- -- -- --
9. Total distributions (16.38) (14.26) (4.41) (9.37) (5.28)
10. NET ASSET VALUE, END OF PERIOD $36.99 $82.39 $89.71 $49.81 $58.84
11. Total return (40.67%) 3.79% 94.42% 1.07% 13.38%
12. Net assets, end of period (in
millions) $1,009 $1,923 $1,860 $1,036 $1,252
13. Average net assets for the period
(in millions) $1,313 $2,504 $1,351 $1,174 $1,379
14. Ratio of gross expenses to average
net assets 0.87% 0.87% 0.93% 0.94% 0.94%
15. Ratio of net expenses to average
net assets 0.86% 0.86% 0.92% 0.93% 0.92%
16. Ratio of net investment
income/(loss) to average net assets (0.36%) (0.35%) (0.55%) (0.29%) 0.11%
17. Portfolio turnover rate 70% 87% 104% 90% 146%
- ------------------------------------------------------------------------------------------------------
</Table>
58 Janus Equity Funds prospectus
<Table>
<Caption>
JANUS OLYMPUS FUND
- ----------------------------------------------------------------------------------------------------
Years ended October 31st
2001 2000 1999 1998 1997
1. NET ASSET VALUE, BEGINNING OF PERIOD $50.50 $40.87 $21.70 $18.41 $14.86
INCOME FROM INVESTMENT OPERATIONS:
2. Net investment income 0.13 0.21 0.02 -- 0.04
3. Net gains or (losses) on securities
(both realized and unrealized) (25.42) 11.21 19.15 4.05 3.64
4. Total from investment operations (25.29) 11.42 19.17 4.05 3.68
LESS DISTRIBUTIONS:
5. Dividends (from net investment
income) (0.23) (0.01) -- -- (0.13)
6. Dividends (in excess of net
investment income) -- -- -- (0.04) --
7. Distributions (from capital gains) -- (1.78) -- (0.72) --
8. Distributions (in excess of capital
gains) (0.39) -- -- -- --
9. Total distributions (0.62) (1.79) -- (0.76) (0.13)
10. NET ASSET VALUE, END OF PERIOD $24.59 $50.50 $40.87 $21.70 $18.41
11. Total return (50.61%) 28.05% 88.34% 23.10% 24.98%
12. Net assets, end of period (in
millions) $3,074 $7,696 $3,887 $947 $616
13. Average net assets for the period
(in millions) $4,767 $7,594 $2,269 $774 $517
14. Ratio of gross expenses to average
net assets 0.91% 0.91% 0.95% 1.01% 1.06%
15. Ratio of net expenses to average net
assets 0.89% 0.90% 0.93% 0.98% 1.03%
16. Ratio of net investment
income/(loss) to average net assets 0.34% 0.51% 0.06% (0.21%) 0.26%
17. Portfolio turnover rate 118% 96% 91% 123% 244%
- ----------------------------------------------------------------------------------------------------
</Table>
Janus Equity Funds prospectus 59
<Table>
<Caption>
JANUS OVERSEAS FUND
- --------------------------------------------------------------------------------------------------------
Years ended October 31st
2001 2000 1999 1998 1997
1. NET ASSET VALUE, BEGINNING OF PERIOD $33.44 $25.35 $17.95 $17.94 $14.81
INCOME FROM INVESTMENT OPERATIONS:
2. Net investment income 0.28 0.01 -- 0.08 0.04
3. Net gains or (losses) on securities
(both realized and unrealized) (11.42) 8.22 7.49 0.54 3.39
4. Total from investment operations (11.14) 8.23 7.49 0.62 3.43
LESS DISTRIBUTIONS:
5. Dividends (from net investment
income) (0.20) -- (0.08) (0.10) (0.04)
6. Dividends (in excess of net
investment income) -- -- (0.01) -- --
7. Distributions (from capital gains) -- (0.14) -- (0.51) (0.26)
8. Distributions (in excess of capital
gains) (3.66) -- -- -- --
9. Total distributions (3.86) (0.14) (0.09) (0.61) (0.30)
10. NET ASSET VALUE, END OF PERIOD $18.44 $33.44 $25.35 $17.95 $17.94
11. Total return (37.09%) 32.59% 41.77% 3.55% 23.56%
12. Net assets, end of period (in
millions) $4,989 $9,380 $5,640 $3,889 $3,205
13. Average net assets for the period (in
millions) $6,946 $9,863 $4,578 $3,949 $2,093
14. Ratio of gross expenses to average
net assets 0.87% 0.89% 0.92% 0.96% 1.03%
15. Ratio of net expenses to average net
assets 0.85% 0.88% 0.91% 0.94% 1.01%
16. Ratio of net investment income/(loss)
to average net assets 0.77% 0.22% (0.03%) 0.58% 0.81%
17. Portfolio turnover rate 65% 62% 92% 105% 72%
- --------------------------------------------------------------------------------------------------------
</Table>
60 Janus Equity Funds prospectus
<Table>
<Caption>
JANUS GLOBAL TECHNOLOGY FUND
- --------------------------------------------------------------------------------------------
Years or periods ended
October 31st
2001 2000 1999(1)
1. NET ASSET VALUE, BEGINNING OF PERIOD $27.44 $20.95 $10.00
INCOME FROM INVESTMENT OPERATIONS:
2. Net investment income 0.36 (0.02) --
3. Net gains or (losses) on securities (both realized
and unrealized) (16.64) 6.71 10.95
4. Total from investment operations (16.28) 6.69 10.95
LESS DISTRIBUTIONS:
5. Dividends (from net investment income) (0.04) (0.02) --
6. Dividends (in excess of net investment income) (0.12) -- --
7. Distributions (from capital gains) -- -- --
8. Distributions (in excess of capital gains) -- (0.18) --
9. Tax return of capital (0.17) -- --
10. Total distributions (0.33) (0.20) --
11. NET ASSET VALUE, END OF PERIOD $10.83 $27.44 $20.95
12. Total return* (59.95%) 31.99% 109.40%
13. Net assets, end of period (in millions) $2,276 $7,564 $3,335
14. Average net assets for the period (in millions) $4,010 $8,884 $1,266
15. Ratio of gross expenses to average net assets** 0.92% 0.91% 1.04%
16. Ratio of net expenses to average net assets** 0.90% 0.90% 1.02%
17. Ratio of net investment income/(loss) to average net
assets** 0.55% 0.17% (0.11%)
18. Portfolio turnover rate** 60% 47% 31%
- --------------------------------------------------------------------------------------------
</Table>
(1) Fiscal period from December 31, 1998 (inception) to October 31, 1999.
* Total return is not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
Janus Equity Funds prospectus 61
<Table>
<Caption>
JANUS GROWTH AND INCOME FUND
- ----------------------------------------------------------------------------------------------------
Years ended October 31st
2001 2000 1999 1998 1997
1. NET ASSET VALUE, BEGINNING OF
PERIOD $40.88 $36.84 $26.45 $25.07 $20.05
INCOME FROM INVESTMENT
OPERATIONS:
2. Net investment income 0.32 0.18 0.26 0.08 0.01
3. Net gains or (losses) on
securities (both realized and
unrealized) (11.24) 5.84 12.27 3.72 6.98
4. Total from investment operations (10.92) 6.02 12.53 3.80 6.99
LESS DISTRIBUTIONS:
5. Dividends (from net investment
income) (0.35) (0.14) (0.27) (0.04) (0.11)
6. Distributions (from capital
gains) (0.53) (1.84) (1.87) (2.38) (1.86)
7. Distributions (in excess of
capital gains) (1.09) -- -- -- --
8. Total distributions (1.97) (1.98) (2.14) (2.42) (1.97)
9. NET ASSET VALUE, END OF PERIOD $27.99 $40.88 $36.84 $26.45 $25.07
10. Total return (27.66%) 16.44% 49.59% 16.73% 37.78%
11. Net assets, end of period (in
millions) $6,575 $9,306 $5,837 $2,819 $1,889
12. Average net assets for the period
(in millions) $7,758 $8,594 $4,375 $2,479 $1,416
13. Ratio of gross expenses to
average net assets 0.87% 0.89% 0.92% 0.96% 0.98%
14. Ratio of net expenses to average
net assets 0.86% 0.88% 0.90% 0.94% 0.96%
15. Ratio of net investment
income/(loss) to average net
assets 0.96% 0.49% 0.37% 0.33% 0.30%
16. Portfolio turnover rate 59% 41% 43% 95% 127%
- ----------------------------------------------------------------------------------------------------
</Table>
62 Janus Equity Funds prospectus
<Table>
<Caption>
JANUS BALANCED FUND
- ----------------------------------------------------------------------------------------------------
Years ended October 31st
2001 2000 1999 1998 1997
1. NET ASSET VALUE, BEGINNING OF
PERIOD $22.83 $21.79 $17.22 $16.73 $15.20
INCOME FROM INVESTMENT OPERATIONS:
2. Net investment income 0.56 0.61 0.42 0.33 0.36
3. Net gains or (losses) on
securities (both realized and
unrealized) (2.48) 1.33 4.69 2.00 2.88
4. Total from investment operations (1.92) 1.94 5.11 2.33 3.24
LESS DISTRIBUTIONS:
5. Dividends (from net investment
income) (0.61) (0.58) (0.43) (0.35) (0.36)
6. Distributions (from capital gains) (0.04) (0.32) (0.11) (1.49) (1.35)
7. Distributions (in excess of
capital gains) (0.99) -- -- -- --
8. Total distributions (1.64) (0.90) (0.54) (1.84) (1.71)
9. NET ASSET VALUE, END OF PERIOD $19.27 $22.83 $21.79 $17.22 $16.73
10. Total return (8.83%) 8.93% 29.89% 15.48% 23.38%
11. Net assets, end of period (in
millions) $4,410 $4,773 $2,930 $830 $360
12. Average net assets for the period
(in millions) $4,663 $4,072 $1,954 $537 $283
13. Ratio of gross expenses to average
net assets 0.85% 0.87% 0.92% 1.03% 1.12%
14. Ratio of net expenses to average
net assets 0.83% 0.85% 0.91% 1.01% 1.10%
15. Ratio of net investment
income/(loss) to average net
assets 2.79% 2.92% 2.37% 2.34% 2.63%
16. Portfolio turnover rate 117% 87% 64% 73% 139%
- ----------------------------------------------------------------------------------------------------
</Table>
Janus Equity Funds prospectus 63
GLOSSARY OF INVESTMENT TERMS
- --------------------------------------------------------------------------------
This glossary provides a more detailed description of some of the
types of securities, investment strategies and other instruments
in which the Funds may invest. The Funds may invest in these
instruments to the extent permitted by their investment
objectives and policies. The Funds are not limited by this
discussion and may invest in any other types of instruments not
precluded by the policies discussed elsewhere in this Prospectus.
I. EQUITY AND DEBT SECURITIES
BONDS are debt securities issued by a company, municipality,
government or government agency. The issuer of a bond is required
to pay the holder the amount of the loan (or par value of the
bond) at a specified maturity and to make scheduled interest
payments.
COMMERCIAL PAPER is a short-term debt obligation with a maturity
ranging from 1 to 270 days issued by banks, corporations and
other borrowers to investors seeking to invest idle cash. The
Funds may purchase commercial paper issued in private placements
under Section 4(2) of the Securities Act of 1933.
COMMON STOCKS are equity securities representing shares of
ownership in a company and usually carry voting rights and earn
dividends. Unlike preferred stock, dividends on common stock are
not fixed but are declared at the discretion of the issuer's
board of directors.
CONVERTIBLE SECURITIES are preferred stocks or bonds that pay a
fixed dividend or interest payment and are convertible into
common stock at a specified price or conversion ratio.
DEBT SECURITIES are securities representing money borrowed that
must be repaid at a later date. Such securities have specific
maturities and usually a specific rate of interest or an original
purchase discount.
DEPOSITARY RECEIPTS are receipts for shares of a foreign-based
corporation that entitle the holder to dividends and capital
gains on the underlying security. Receipts include those issued
by domestic banks (American Depositary Receipts), foreign banks
64 Janus Equity Funds prospectus
(Global or European Depositary Receipts) and broker-dealers
(depositary shares).
EQUITY SECURITIES generally include domestic and foreign common
stocks; preferred stocks; securities convertible into common
stocks or preferred stocks; warrants to purchase common or
preferred stocks; and other securities with equity
characteristics.
FIXED-INCOME SECURITIES are securities that pay a specified rate
of return. The term generally includes short- and long-term
government, corporate and municipal obligations that pay a
specified rate of interest, dividends or coupons for a specified
period of time. Coupon and dividend rates may be fixed for the
life of the issue or, in the case of adjustable and floating rate
securities, for a shorter period.
HIGH-YIELD/HIGH-RISK BONDS are bonds that are rated below
investment grade by the primary rating agencies (e.g., BB or
lower by Standard & Poor's and Ba or lower by Moody's). Other
terms commonly used to describe such bonds include "lower rated
bonds," "noninvestment grade bonds" and "junk bonds."
MORTGAGE- AND ASSET-BACKED SECURITIES are shares in a pool of
mortgages or other debt. These securities are generally pass-
through securities, which means that principal and interest
payments on the underlying securities (less servicing fees) are
passed through to shareholders on a pro rata basis. These
securities involve prepayment risk, which is the risk that the
underlying mortgages or other debt may be refinanced or paid off
prior to their maturities during periods of declining interest
rates. In that case, a portfolio manager may have to reinvest the
proceeds from the securities at a lower rate. Potential market
gains on a security subject to prepayment risk may be more
limited than potential market gains on a comparable security that
is not subject to prepayment risk.
PASSIVE FOREIGN INVESTMENT COMPANIES (PFICS) are any foreign
corporations which generate certain amounts of passive income or
hold certain amounts of assets for the production of passive
income. Passive income includes dividends, interest, royalties,
Janus Equity Funds prospectus 65
rents and annuities. To avoid taxes and interest that the Funds
must pay if these investments are profitable, the Funds may make
various elections permitted by the tax laws. These elections
could require that the Funds recognize taxable income, which in
turn must be distributed, before the securities are sold and
before cash is received to pay the distributions.
PREFERRED STOCKS are equity securities that generally pay
dividends at a specified rate and have preference over common
stock in the payment of dividends and liquidation. Preferred
stock generally does not carry voting rights.
RULE 144A SECURITIES are securities that are not registered for
sale to the general public under the Securities Act of 1933, but
that may be resold to certain institutional investors.
U.S. GOVERNMENT SECURITIES include direct obligations of the U.S.
government that are supported by its full faith and credit.
Treasury bills have initial maturities of less than one year,
Treasury notes have initial maturities of one to ten years and
Treasury bonds may be issued with any maturity but generally have
maturities of at least ten years. U.S. government securities also
include indirect obligations of the U.S. government that are
issued by federal agencies and government sponsored entities.
Unlike Treasury securities, agency securities generally are not
backed by the full faith and credit of the U.S. government. Some
agency securities are supported by the right of the issuer to
borrow from the Treasury, others are supported by the
discretionary authority of the U.S. government to purchase the
agency's obligations and others are supported only by the credit
of the sponsoring agency.
VARIABLE AND FLOATING RATE SECURITIES have variable or floating
rates of interest and, under certain limited circumstances, may
have varying principal amounts. Variable and floating rate
securities pay interest at rates that are adjusted periodically
according to a specified formula, usually with reference to some
interest rate index or market interest rate (the "underlying
index"). The floating rate tends to decrease the security's price
sensitivity to changes in interest rates.
66 Janus Equity Funds prospectus
WARRANTS are securities, typically issued with preferred stock or
bonds, that give the holder the right to buy a proportionate
amount of common stock at a specified price. The specified price
is usually higher than the market price at the time of issuance
of the warrant. The right may last for a period of years or
indefinitely.
II. FUTURES, OPTIONS AND OTHER DERIVATIVES
FORWARD CONTRACTS are contracts to purchase or sell a specified
amount of a financial instrument for an agreed upon price at a
specified time. Forward contracts are not currently exchange
traded and are typically negotiated on an individual basis. The
Funds may enter into forward currency contracts to hedge against
declines in the value of securities denominated in, or whose
value is tied to, a currency other than the U.S. dollar or to
reduce the impact of currency appreciation on purchases of such
securities. They may also enter into forward contracts to
purchase or sell securities or other financial indices.
FUTURES CONTRACTS are contracts that obligate the buyer to
receive and the seller to deliver an instrument or money at a
specified price on a specified date. The Funds may buy and sell
futures contracts on foreign currencies, securities and financial
indices including indices of U.S. government, foreign government,
equity or fixed-income securities. The Funds may also buy options
on futures contracts. An option on a futures contract gives the
buyer the right, but not the obligation, to buy or sell a futures
contract at a specified price on or before a specified date.
Futures contracts and options on futures are standardized and
traded on designated exchanges.
INDEXED/STRUCTURED SECURITIES are typically short- to
intermediate-term debt securities whose value at maturity or
interest rate is linked to currencies, interest rates, equity
securities, indices, commodity prices or other financial
indicators. Such securities may be positively or negatively
indexed (i.e. their value may increase or decrease if the
reference index or instrument appreciates). Indexed/structured
securities may have return characteristics
Janus Equity Funds prospectus 67
similar to direct investments in the underlying instruments and
may be more volatile than the underlying instruments. A Fund
bears the market risk of an investment in the underlying
instruments, as well as the credit risk of the issuer.
INTEREST RATE SWAPS involve the exchange by two parties of their
respective commitments to pay or receive interest (e.g., an
exchange of floating rate payments for fixed rate payments).
OPTIONS are the right, but not the obligation, to buy or sell a
specified amount of securities or other assets on or before a
fixed date at a predetermined price. The Funds may purchase and
write put and call options on securities, securities indices and
foreign currencies.
III. OTHER INVESTMENTS, STRATEGIES AND/OR TECHNIQUES
REPURCHASE AGREEMENTS involve the purchase of a security by a
Fund and a simultaneous agreement by the seller (generally a bank
or dealer) to repurchase the security from the Fund at a
specified date or upon demand. This technique offers a method of
earning income on idle cash. These securities involve the risk
that the seller will fail to repurchase the security, as agreed.
In that case, a Fund will bear the risk of market value
fluctuations until the security can be sold and may encounter
delays and incur costs in liquidating the security.
REVERSE REPURCHASE AGREEMENTS involve the sale of a security by a
Fund to another party (generally a bank or dealer) in return for
cash and an agreement by the Fund to buy the security back at a
specified price and time. This technique will be used primarily
to provide cash to satisfy unusually high redemption requests, or
for other temporary or emergency purposes.
SHORT SALES in which the Fund may engage may be of two types,
short sales "against the box" or "naked" short sales. Short sales
against the box involve selling either a security that the Fund
owns, or a security equivalent in kind or amount to the security
sold short that the Fund has the right to obtain, for delivery at
a specified date in the future. Naked short sales involve selling
a
68 Janus Equity Funds prospectus
security that the Fund borrows and does not own. The Fund may
enter into a short sale to hedge against anticipated declines in
the market price of a security or to reduce portfolio volatility.
If the value of a security sold short increases prior to the
scheduled delivery date, the Fund loses the opportunity to
participate in the gain. For naked short sales, the Fund will
incur a loss if the value of a security increases during this
period because it will be paying more for the security than it
has received from the purchaser in the short sale. If the price
declines during this period, the Fund will realize a short-term
capital gain. Although the Fund's potential for gain as a result
of a short sale is limited to the price at which it sold the
security short less the cost of borrowing the security, its
potential for loss is theoretically unlimited because there is no
limit to the cost of replacing the borrowed security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT TRANSACTIONS
generally involve the purchase of a security with payment and
delivery at some time in the future - i.e., beyond normal
settlement. The Funds do not earn interest on such securities
until settlement and bear the risk of market value fluctuations
in between the purchase and settlement dates. New issues of
stocks and bonds, private placements and U.S. government
securities may be sold in this manner.
Janus Equity Funds prospectus 69
You can request other information, including a
Statement of Additional Information, Annual
Report or Semiannual Report, free of charge by
contacting Janus at 1-800-525-3713. A
downloadable file of the Annual Report or
Semiannual Report may also be requested at
janus.com. In the Funds' Annual and Semiannual
Reports, you will find a discussion of the market
conditions and investment strategies that
significantly affected the Funds' performance
during their last fiscal period. Other
information is also available from financial
intermediaries that sell shares of the Funds.
The Statement of Additional Information provides
detailed information about the Funds and is
incorporated into this Prospectus by reference.
You may review and copy information about the
Funds (including the Funds' Statement of
Additional Information) at the Public Reference
Room of the SEC or get text only copies, after
paying a duplicating fee, by sending an
electronic request by e-mail to
publicinfo@sec.gov or by writing to or calling
the Public Reference Room, Washington, D.C.
20549-0102 (1-202-942-8090). You may also obtain
reports and other information about the Funds
from the Electronic Data Gathering Analysis and
Retrieval (EDGAR) Database on the SEC's Web site
at http://www.sec.gov.
[JANUS LOGO]
www.janus.com
PO Box 173375
Denver, CO 80217-3375
1-800-525-3713
Investment Company Act File No. 811-1879
BERGER FUNDS
SUPPLEMENT DATED SEPTEMBER 3, 2002
On September 3, 2002, Stilwell Financial Inc. ("Stilwell"), the parent company
of Berger Financial Group LLC ("Berger"), announced its intention to consolidate
all of its investment advisory operations under Janus Capital Management LLC
("Janus"). As the transaction is presently contemplated, Berger, the investment
adviser to the Berger Funds, will be consolidated into Janus and Berger will
cease to exist.
It is anticipated that portfolio management of the following Berger Funds, which
are advised by subadvisers to Berger, will not be affected:
Berger Small Cap Value Fund
Berger Mid Cap Value Fund
Berger Large Cap Value Fund
Berger Small Cap Value Fund II
It is presently anticipated that a change in portfolio management of the
following Berger Funds will occur:
Berger Growth Fund
Berger Large Cap Growth Fund
Berger Mid Cap Growth Fund
Berger Small Company Growth Fund
Berger Balanced Fund
Berger International Fund
Berger International CORE Fund
International Equity Fund
Berger Information Technology Fund
The Trustees of the Berger Funds, not Janus or Stilwell, will be responsible for
selecting a new adviser for these funds. The Trustees have begun considering the
alternatives. Berger will continue to provide investment advisory and
administrative services to the Berger Funds until the completion of the
transaction. It is anticipated that the consolidation of Stilwell will be
completed in the first quarter of 2003.
BERGER GROWTH FUND
BERGER MID CAP GROWTH FUND
BERGER SMALL COMPANY GROWTH FUND
SUPPLEMENT DATED JULY 19, 2002
TO
PROSPECTUS DATED JUNE 14, 2002
Effective July 19, 2002, Berger Financial Group LLC Executive Vice
President and Chief Investment Officer Jay W. Tracey III will be appointed
portfolio manager of Berger Small Company Growth Fund. Also effective July 19,
2002, Berger Financial Group LLC Vice President and Portfolio Manager Steven L.
Fossel will join Mr. Tracey as portfolio manager of Berger Mid Cap Growth Fund
and Berger Growth Fund. Messrs. Tracey and Fossel will manage Berger Mid Cap
Growth Fund and Berger Growth Fund as a team. Mr. Fossel will continue his
position as sole portfolio manager of Berger Large Cap Growth Fund.
The section "Organization of the Berger Funds Family" of the Prospectus
is amended accordingly.
June 14, 2002
Berger Funds
Prospectus
[BERGER FUNDS LOGO]
BERGER GROWTH FUND
BERGER LARGE CAP GROWTH FUND
BERGER MID CAP GROWTH FUND
BERGER SMALL COMPANY GROWTH FUND - INVESTOR SHARES
BERGER INFORMATION TECHNOLOGY FUND - INVESTOR SHARES
BERGER LARGE CAP VALUE FUND - INVESTOR SHARES
BERGER MID CAP VALUE FUND - INVESTOR SHARES
BERGER SMALL CAP VALUE FUND II - INVESTOR SHARES
BERGER BALANCED FUND
In order to receive
documents electronically,
please turn the page for
details.
The Securities and Exchange Commission has not approved or disapproved any
shares offered in this prospectus, or determined whether this prospectus is
accurate or complete. Anyone who tells you otherwise is committing a crime. Like
all mutual funds, an investment in the Berger Funds is not a bank deposit and is
not insured or guaranteed by the FDIC or any other government agency. There is
no guarantee that the Funds will meet their investment goals, and although you
have the potential to make money, you could also lose money in the Funds.
Interested in going paperless?
If you would like to receive financial reports, prospectuses and
proxy statements electronically rather than by mail,
visit bergerfunds.com and sign-up today.
Please note that you may only sign-up for this program electronically.
BERGER FUNDS, BERGER SMALL COMPANY GROWTH FUND, BERGER BALANCED FUND, BERGER MID
CAP GROWTH FUND, BERGER INFORMATION TECHNOLOGY FUND, BERGER GROWTH FUND and
BERGER MID CAP VALUE FUND are registered servicemarks of Berger Financial Group
LLC; THE BERGER MOUNTAIN LOGO is a registered trademark of Berger Financial
Group LLC; BERGER SMALL CAP VALUE FUND II, BERGER LARGE CAP GROWTH FUND and
BERGER LARGE CAP VALUE FUND are servicemarks of Berger Financial Group LLC;
other marks referred to herein are the trademarks, servicemarks, registered
trademarks or registered servicemarks of the respective owners thereof.
3
Table of Contents
BERGER FUNDS(R) are a family of mutual funds. A mutual fund pools money from
shareholders and invests in a portfolio of securities. Each of the following
sections introduces a Fund, its goal(s), principal investment strategies and
principal risks. They also contain expense and performance information.
<Table>
Berger Growth Fund(R)...................................................................................... 4
Berger Large Cap Growth Fund(SM)........................................................................... 6
Berger Mid Cap Growth Fund(R) ............................................................................. 8
Berger Small Company Growth Fund(R) - Investor Shares...................................................... 10
Berger Information Technology Fund(R) - Investor Shares.................................................... 12
Berger Large Cap Value Fund(SM) - Investor Shares.......................................................... 14
Berger Mid Cap Value Fund(R) - Investor Shares............................................................. 16
Berger Small Cap Value Fund II(SM) - Investor Shares....................................................... 18
Berger Balanced Fund(R).................................................................................... 20
Investment Techniques, Securities and Associated Risks .................................................... 22
Risk and Investment Table.................................................................................. 23
Risk and Investment Glossary............................................................................... 24
How to Contact Us...........................................................................................26
To Open an Account or Purchase Shares.......................................................................27
Exchanging Shares.......................................................................................... 28
Selling (Redeeming) Shares..................................................................................29
Signature Guarantee/Special Documentation.................................................................. 29
Information About Your Account..............................................................................30
Excessive Trading.......................................................................................... 30
Online and Telephone Considerations........................................................................ 30
Your Share Price........................................................................................... 30
Privacy Notice............................................................................................. 31
Distributions and Taxes.................................................................................... 32
Tax-Sheltered Retirement Plans............................................................................. 33
Organization of the Berger Funds Family.................................................................... 34
Investment Managers........................................................................................ 34
12b-1 Arrangements......................................................................................... 36
Special Fund Structures.................................................................................... 36
Financial Highlights for the Berger Funds Family........................................................... 37
Berger Growth Fund......................................................................................... 37
Berger Large Cap Growth Fund............................................................................... 38
Berger Mid Cap Growth Fund................................................................................. 38
Berger Small Company Growth Fund - Investor Shares......................................................... 39
Berger Information Technology Fund - Investor Shares....................................................... 39
Berger Mid Cap Value Fund - Investor Shares................................................................ 41
Berger Balanced Fund....................................................................................... 42
</Table>
Berger Funds o June 14, 2002 Combined Prospectus
4
Berger Ticker Symbol BEONX
Growth Fund Fund Number 43
The Fund's Goal and Principal Investment Strategies
The Fund aims for long-term capital appreciation. In pursuing that goal, the
Fund primarily invests in the common stocks of established companies with the
potential for growth.
The Fund's stock selection by the Fund's investment manager focuses on companies
that have demonstrated an ability to generate above-average growth in revenue
and earnings regardless of the company's size.
The Fund's investment manager generally looks for companies with:
o Strong revenue and earnings growth
o Large market potential for their products and services
o Proven, capable management teams with clearly-defined strategies for future
growth.
The Fund's investment manager will generally sell a security when it no longer
meets the manager's investment criteria or when it has met the manager's
expectations for appreciation. The Fund's investment manager may actively trade
the portfolio in pursuit of the Fund's goal.
Principal Risks
You may be interested in the Fund if you are comfortable with the risks of
equity investing and intend to make a long-term investment commitment. Like all
managed funds, there is a risk that the investment manager's strategy for
managing the Fund may not achieve the desired results. In addition, the price of
common stock moves up and down in response to corporate earnings and
developments, economic and market conditions and unanticipated events. As a
result, the price of the Fund's investments may go down, and you could lose
money on your investment.
Although the Fund is expected to invest in stocks of companies of all sizes,
including large companies, the Fund's share price may fluctuate more than that
of funds primarily invested in stocks of large companies. Small and mid-sized
companies may pose greater market, liquidity and information risks because of
narrow product lines, limited financial resources, less depth in management or a
limited trading market for their stocks. The Fund's investments are often
focused in a small number of business sectors, which may pose greater market and
liquidity risks. In addition, the Fund's active trading will cause the Fund to
have an increased portfolio turnover rate. Higher turnover rates may result in
higher brokerage costs to the Fund and in higher net taxable gains for you as an
investor.
See "Investment Techniques, Securities and Associated Risks" later in this
prospectus for more information on principal risks and other risks.
The Fund's Past Performance
The information below shows the Fund's performance through December 31, 2001.
These returns include reinvestment of all dividends and capital gains
distributions and reflects Fund expenses. As with all mutual funds, past
performance does not guarantee future results.
Year-by-year returns show you how the Fund's performance has varied by
illustrating the differences for each full calendar year for the past ten years.
YEAR-BY-YEAR TOTAL RETURN AS OF DECEMBER 31
[GRAPH]
<Table>
1992 8.53%
1193 21.20%
1994 -6.66%
1995 21.34%
1996 13.73%
1997 13.57%
1998 16.23%
1999 52.28%
2000 -18.89%
2001 -32.47%
BEST QUARTER: 12/31/99 42.88%
WORST QUARTER: 12/31/00 -27.99%
Calendar year-to-date through 3/31/02: -6.97%
</Table>
Average annual total return is a measure of the Fund's performance over time.
The Fund's average annual return is compared to the Russell 3000 Growth Index,
the Fund's new benchmark index, and the Standard & Poor's 500 Index (S&P 500),
the Fund's previous benchmark index. The Fund changed its benchmark index to
correlate more closely to the investment style of the Fund. The Russell 3000
Growth Index is an unmanaged index, with dividends reinvested, which measures
the performance of those Russell 3000 companies with higher price-to-book ratios
and higher forecasted growth values. The stocks in this index are also members
of either the Russell 1000 Growth or the Russell 2000 Growth indexes. The S&P
500 Index is an unmanaged index, with dividends reinvested, which consists of
the common stocks of 500 publicly traded U.S. companies. While the Fund does not
seek to match the returns of either index, they are good indicators of general
stock market performance. You may
Berger Funds o June 14, 2002 Combined Prospectus
5
Berger Funds
not invest in either index, and unlike the Fund, they do not incur fees or
charges.
AVERAGE ANNUAL RETURNS AS OF DECEMBER 31, 2001
<Table>
<Caption>
1 Year 5 Years 10 Years
------ ------- --------
The Fund -32.47% 1.94% 6.43%
Russell 3000 Growth -19.63% 7.72% 10.41%
S&P 500 -11.88% 10.70% 12.94%
</Table>
Fund Expenses
As a shareholder in the Fund, you do not pay any sales loads, redemption or
exchange fees, but you do indirectly bear Annual Fund Operating Expenses, which
vary from year to year.
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES
(deducted directly from the Fund) %
- --------------------------------- ----
Management fee .71
Distribution (12b-1) fee .25
Other expenses .30
----
Total Annual Fund Operating Expenses 1.26
====
</Table>
Understanding Expenses
Annual Fund Operating Expenses are paid by the Fund. As a result, they reduce
the Fund's return. Fund expenses include management fees, 12b-1 fees and
administrative costs such as shareholder recordkeeping and reports, custodian
and pricing services and registration fees.
Example Costs
The following example helps you compare the cost of investing in the Fund with
the cost of investing in other mutual funds by showing what your costs may be
over time. It uses the same assumptions that other funds use in their
prospectuses:
o $10,000 initial investment
o 5% total return for each year
o Fund operating expenses remain the same for each period
o Redemption after the end of each period
o Reinvestment of all dividends and distributions
Your actual costs may be higher or lower, so this example should be used for
comparison only. Based on these assumptions, your costs at the end of each
period would be:
<Table>
<Caption>
YEARS $
- ----- ------
One 128
Three 400
Five 692
Ten 1,523
</Table>
Berger Funds o June 14, 2002 Combined Prospectus
6
Berger Large Cap Ticker Symbol BEOOX
Growth Fund Fund Number 44
The Fund's Goal and Principal Investment Strategies
The Fund aims for capital appreciation. In pursuing that goal, the Fund
primarily invests in the securities of large, well-established companies that
have potential for growth.
The Fund's security selection focuses on the common stocks of larger companies
that have demonstrated a history of growth in revenues and earnings.
The Fund's investment manager generally looks for companies with:
o Opportunities for above-average revenue and earnings growth
o Strong market positions for their products and services
o Strong, seasoned management teams with well-established and clearly defined
strategies.
Under normal circumstances, the Fund invests at least 80% of its total assets in
equity securities of companies whose market capitalization, at the time of
initial purchase, is $10 billion or more. Shareholders will be provided at least
60 days notice prior to any change to the Fund's 80% investment policy. In
certain unusual circumstances, the Fund may be unable to remain invested at
these levels in securities of companies with the stated market capitalization.
The Fund may invest up to 20% of its assets in convertible securities rated
below investment grade (BB or lower by Standard & Poor's, Ba or lower by
Moody's). The Fund's investment manager will generally sell a security when it
no longer meets the manager's investment criteria or when it has met the
manager's expectations for appreciation. The Fund's investment manager may
actively trade the portfolio in pursuit of the Fund's goal.
Principal Risks
You may be interested in the Fund if you are comfortable with the risks of
equity investing and intend to make a long-term investment commitment. Like all
managed funds, there is a risk that the investment manager's strategy for
managing the Fund may not achieve the desired results. In addition, the price of
common stock moves up and down in response to corporate earnings and
developments, interest rate movements, economic and market conditions and
unanticipated events. As a result, the price of the Fund's investments may go
down, and you could lose money on your investment.
To the extent the Fund invests in fixed-income securities it takes on different
risks, including movements in interest rates and default on payment of principal
or interest. In addition, the Fund may invest in convertible securities rated
below investment grade, which may pose greater market, interest rate, prepayment
and credit risks. These issuers are less financially secure, and are more likely
to be hurt by interest rate movements. In addition, if the Fund does engage in
active trading, this will cause the Fund to have an increased portfolio turnover
rate. Higher turnover rates may result in higher brokerage costs to the Fund and
in higher net taxable gains for you as an investor.
See "Investment Techniques, Securities and Associated Risks" later in this
prospectus for more information on principal risks and other risks.
The Fund's Past Performance
The information below shows the Fund's performance through December 31, 2001.
These returns include reinvestment of all dividends and capital gains
distributions and reflect Fund expenses. As with all mutual funds, past
performance does not guarantee future results.
Year-by-year returns show you how the Fund's performance has varied by
illustrating the differences for each full calendar year for the past ten years.
YEAR-BY-YEAR TOTAL RETURN AS OF DECEMBER 31(1)
[GRAPH]
<Table>
1992 4.82%
1193 23.57%
1994 -9.07%
1995 23.92%
1996 15.61%
1997 22.70%
1998 22.49%
1999 61.32%
2000 -11.26%
2001 -26.38%
BEST QUARTER: 12/31/99 40.64%
WORST QUARTER: 9/30/01 -21.72%
Calendar year-to-date through 3/31/02: -4.65%
</Table>
(1) Effective January 29, 2001, the Fund changed its name and non-fundamental
investment strategies from that of a growth and income fund to a large cap
growth fund.
Average annual total return is a measure of the Fund's performance over time.
The Fund's average annual return is compared to the Russell 1000 Growth Index,
the Fund's new benchmark index, and the Standard & Poor's 500 Index (S&P 500),
the Fund's previous benchmark index. The Fund
Berger Funds o June 14, 2002 Combined Prospectus
7
Berger Funds
changed its benchmark index to correlate more closely to the investment style of
the Fund. The Russell 1000 Growth Index is an unmanaged index, with dividends
reinvested, which measures the performance of those Russell 1000 companies with
higher price-to-book ratios and higher forecasted growth values. The S&P 500
Index is an unmanaged index, with dividends reinvested, which consists of the
common stocks of 500 publicly traded U.S. companies. While the Fund does not
seek to match the returns of either index, they are good indicators of general
stock market performance. You may not invest in either index, and unlike the
Fund, they do not incur fees or charges.
AVERAGE ANNUAL RETURNS AS OF DECEMBER 31, 2001(1)
<Table>
<Caption>
1 Year 5 Years 10 Years
------ ------- --------
The Fund -26.38% 9.64% 10.33%
Russell 1000 Growth -20.42% 8.27% 10.79%
S&P 500 -11.88% 10.70% 12.94%
</Table>
(1) Effective January 29, 2001, the Fund changed its name and non-fundamental
investment strategies from that of a growth and income fund to a large cap
growth fund.
Fund Expenses
As a shareholder in the Fund, you do not pay any sales loads, redemption or
exchange fees, but you do indirectly bear Annual Fund Operating Expenses, which
vary from year to year.
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES
(deducted directly from the Fund) %
- --------------------------------- -----
Management fee .75
Distribution (12b-1) fee .25
Other expenses .25
----
Total Annual Fund Operating Expenses 1.25
====
</Table>
Understanding Expenses
Annual Fund Operating Expenses are paid by the Fund. As a result, they reduce
the Fund's return. Fund expenses include management fees, 12b-1 fees and
administrative costs such as shareholder recordkeeping and reports, custodian
and pricing services and registration fees.
Example Costs
The following example helps you compare the cost of investing in the Fund with
the cost of investing in other mutual funds by showing what your costs may be
over time. It uses the same assumptions that other funds use in their
prospectuses:
o $10,000 initial investment
o 5% total return for each year
o Fund operating expenses remain the same for each period
o Redemption after the end of each period
o Reinvestment of all dividends and distributions
Your actual costs may be higher or lower, so this example should be used for
comparison only. Based on these assumptions, your costs at the end of each
period would be:
<Table>
<Caption>
YEARS $
- ----- ------
One 127
Three 397
Five 686
Ten 1,511
</Table>
Berger Funds o June 14, 2002 Combined Prospectus
8
Berger Mid Cap Ticker Symbol BEMGX
Growth Fund Fund Number 215
The Fund's Goal and Principal Investment Strategies
The Fund aims for capital appreciation. In pursuing that goal, the Fund
primarily invests in the common stocks of mid-sized companies with the potential
for strong revenue and earnings growth.
The Fund's stock selection focuses on companies that commit their resources to
innovative products or services for unique, changing or rapidly growing markets.
The Fund's investment manager generally looks for companies with:
o Strong revenue and earnings growth fundamentals and leading market share in
their industry or business sector
o Strong management teams with established organizational structures
o Strong balance sheets and the ability to efficiently finance their growth.
Under normal circumstances, the Fund invests at least 80% of its assets in
equity securities of companies whose market capitalization falls, at the time of
initial purchase, within the 12-month average of the capitalization range of the
Russell Midcap Index. This average is updated monthly. Shareholders will be
provided at least 60 days notice prior to any change to the Fund's 80%
investment policy. In certain unusual circumstances, the Fund may be unable to
remain invested at these levels in securities of companies with the stated
market capitalization. The Fund's investment manager will generally sell a
security when it no longer meets the manager's investment criteria or when it
has met the manager's expectations for appreciation. The Fund's investment
manager may actively trade the portfolio in pursuit of the Fund's goal.
Principal Risks
You may be interested in the Fund if you are comfortable with above-average risk
and intend to make a long-term investment commitment. Like all managed funds,
there is a risk that the investment manager's strategy for managing the Fund may
not achieve the desired results. In addition, the price of common stock moves up
and down in response to corporate earnings and developments, economic and market
conditions and unanticipated events. As a result, the price of the Fund's
investments may go down, and you could lose money on your investment.
The Fund's share price may fluctuate more than that of funds primarily invested
in stocks of large companies. Mid-sized companies may pose greater market,
liquidity and information risks because of narrow product lines, limited
financial resources, less depth in management or a limited trading market for
their stocks. The Fund's investments are often focused in a small number of
business sectors, which may pose greater market and liquidity risks. In
addition, the Fund's active trading will cause the Fund to have an increased
portfolio turnover rate. Higher turnover rates may result in higher brokerage
costs to the Fund and in higher net taxable gains for you as an investor.
See "Investment Techniques, Securities and Associated Risks" later in this
prospectus for more information on principal risks and other risks.
The Fund's Past Performance
The information below shows the Fund's performance through December 31, 2001.
These returns include reinvestment of all dividends and capital gains
distributions and reflect Fund expenses. As with all mutual funds, past
performance does not guarantee future results.
Year-by-year returns show you how the Fund's performance has varied by
illustrating the differences for each full calendar year since the Fund began.
YEAR-BY-YEAR TOTAL RETURN AS OF DECEMBER 31(1)
[GRAPH]
<Table>
1998 54.38%
1999 151.46%
2000 -25.15%
2001 -39.03%
BEST QUARTER: 12/31/99 75.17%
WORST QUARTER: 9/30/01 -41.46%
Calendar year-to-date through 3/31/02: -12.18%
</Table>
(1) Initial Public Offerings constituted a significant portion of the Fund's
performance during 1998 and 1999 and there can be no assurance that IPOs will
have such an impact in the future.
Average annual total return is a measure of the Fund's performance over time.
The Fund's average annual return is compared to the Russell Midcap Growth Index,
the Fund's new benchmark index, and the Standard & Poor's MidCap 400 Index, the
Fund's previous benchmark index. The Fund
Berger Funds o June 14, 2002 Combined Prospectus
9
Berger Funds
changed its benchmark index to correlate more closely to the investment style of
the Fund. The Russell Midcap Growth Index is an unmanaged index, with dividends
reinvested, which measures the performance of those Russell Midcap companies
with higher price-to-book ratios and higher forecasted growthvalues. The stocks
in this index are also members of the Russell 1000 Growth Index. The S&P MidCap
400 Index is an unmanaged index, with dividends reinvested, and is generally
representative of the market for mid-sized companies. While the Fund does not
seek to match the returns of either index, they are good indicators of general
stock market performance. You may not invest in either index, and unlike the
Fund, they do not incur fees or charges.
AVERAGE ANNUAL RETURNS AS OF DECEMBER 31, 2001
<Table>
<Caption>
Life of the Fund
1 Year (December 31, 1997)
------ -------------------
The Fund -39.03% 15.37%
Russell Midcap Growth -20.15% 5.87%
S&P MidCap 400 -0.61% 12.37%
</Table>
Fund Expenses
As a shareholder in the Fund, you do not pay any sales loads, redemption or
exchange fees, but you do indirectly bear Annual Fund Operating Expenses, which
vary from year to year.
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES
(deducted directly from the Fund) %
- --------------------------------- -----
Management fee .75
Distribution (12b-1) fee .25
Other expenses .50
----
Total Annual Fund Operating Expenses 1.50
====
</Table>
Understanding Expenses
Annual Fund Operating Expenses are paid by the Fund. As a result, they reduce
the Fund's return. Fund expenses include management fees, 12b-1 fees and
administrative costs such as shareholder recordkeeping and reports, custodian
and pricing services and registration fees.
Example Costs
The following example helps you compare the cost of investing in the Fund with
the cost of investing in other mutual funds by showing what your costs may be
over time. It uses the same assumptions that other funds use in their
prospectuses:
o $10,000 initial investment
o 5% total return for each year
o Fund operating expenses remain the same for each period
o Redemption after the end of each period
o Reinvestment of all dividends and distributions
Your actual costs may be higher or lower, so this example should be used for
comparison only. Based on these assumptions, your costs at the end of each
period would be:
<Table>
<Caption>
YEARS $
- ----- ------
One 153
Three 474
Five 818
Ten 1,791
</Table>
Berger Funds o June 14, 2002 Combined Prospectus
10
Berger Small Company
Growth Fund - Ticker Symbol BESCX
Investor Shares Fund Number 345
The Fund's Goal and Principal Investment Strategies
The Fund aims for capital appreciation. In pursuing that goal, the Fund
primarily invests in the common stocks of small companies with the potential for
rapid revenue and earnings growth.
The Fund's stock selection focuses on companies that either occupy a dominant
position in an emerging industry or have a growing market share in a larger,
fragmented industry.
The Fund's investment manager generally looks for companies with:
o An innovative technology, product or service that may enable the company to
be a market share leader
o Strong entrepreneurial management with clearly defined strategies for growth
o Relatively strong balance sheets.
Under normal circumstances, the Fund invests at least 80% of its assets in
equity securities of companies whose market capitalization, at the time of
initial purchase, is less than the 12-month average of the maximum market
capitalization for companies included in the Russell 2000 Index. This average is
updated monthly. Shareholders will be provided at least 60 days notice prior to
any change to the Fund's 80% investment policy. In certain unusual
circumstances, the Fund may be unable to remain invested at these levels in
securities of companies with the stated market capitalization. The Fund's
investment manager will generally sell a security when it no longer meets the
manager's investment criteria or when it has met the manager's expectations for
appreciation. The Fund's investment manager may actively trade the portfolio in
pursuit of the Fund's goal.
Principal Risks
You may be interested in the Fund if you are comfortable with above-average risk
and intend to make a long-term investment commitment. Like all managed funds,
there is a risk that the investment manager's strategy for managing the Fund may
not achieve the desired results. In addition, the price of common stock moves up
and down in response to corporate earnings and developments, economic and market
conditions and unanticipated events. As a result, the price of the Fund's
investments may go down, and you could lose money on your investment.
The Fund's share price may fluctuate more than that of funds primarily invested
in stocks of mid-sized and large companies. Small company securities may
underperform as compared to the securities of larger companies. They may also
pose greater market, liquidity and information risks because of narrow product
lines, limited financial resources, less depth in management or a limited
trading market for their stocks. The Fund's investments are often focused in a
small number of business sectors, which may pose greater market and liquidity
risks. In addition, the Fund's active trading will cause the Fund to have an
increased portfolio turnover rate. Higher turnover rates may result in higher
brokerage costs to the Fund and in higher net taxable gains for you as an
investor.
See "Investment Techniques, Securities and Associated Risks" later in this
prospectus for more information on principal risks and other risks.
The Fund's Past Performance
The information below shows the Fund's performance through December 31, 2001.
These returns include reinvestment of all dividends and capital gains
distributions and reflect Fund expenses. As with all mutual funds, past
performance does not guarantee future results.
Year-by-year returns show you how the Fund's performance has varied by
illustrating the differences for each full calendar year since the Fund began.
YEAR-BY-YEAR TOTAL RETURN AS OF DECEMBER 31
[GRAPH]
<Table>
1994 13.73%
1995 33.80%
1996 16.77%
1997 16.16%
1998 3.17%
1999 104.39%
2000 -8.27%
2001 -33.82%
BEST QUARTER: 12/31/99 58.97%
WORST QUARTER: 9/30/01 -38.81%
Calendar year-to-date through 3/31/02: -8.83%
</Table>
Average annual total return is a measure of the Fund's performance over time.
The Fund's average annual return is compared to the Russell 2000 Growth Index,
the Fund's new benchmark index, and the Russell 2000 Index, the Fund's previous
benchmark index. The Fund changed its benchmark index to correlate more closely
to the investment style of the
Berger Funds o June 14, 2002 Combined Prospectus
11
Berger Funds
Fund. The Russell 2000 Growth Index is an unmanaged index, with dividends
reinvested, which measures the performance of those Russell 2000 companies with
higher price-to-book ratios and higher forecasted growth values. It is a
generally recognized indicator used to measure overall small company
growth-stock performance. The Russell 2000 Index is an unmanaged index, with
dividends reinvested, which consists of the common stocks of 2000 U.S.
companies. While the Fund does not seek to match the returns of either index,
they are good indicators of general stock market performance. You may not invest
in either index, and unlike the Fund, they do not incur fees or charges.
AVERAGE ANNUAL RETURNS AS OF DECEMBER 31, 2001
<Table>
<Caption>
Life of the Fund
1 Year 5 Years (December 30, 1993)
------ ------- -------------------
The Fund -33.82% 8.26% 12.90%
Russell 2000 Growth -9.23% 2.87% -1.03%
Russell 2000 2.49% 7.52% 9.78%
</Table>
Fund Expenses
As a shareholder in the Fund, you do not pay any sales loads, redemption or
exchange fees, but you do indirectly bear Annual Fund Operating Expenses, which
vary from year to year.
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES
(deducted directly from the Fund) %
- --------------------------------- -----
Management fee .82
Distribution (12b-1) fee .25
Other expenses .25
----
Total Annual Fund Operating Expenses 1.32
====
</Table>
Understanding Expenses
Annual Fund Operating Expenses are paid by the Fund. As a result, they reduce
the Fund's return. Fund expenses include management fees, 12b-1 fees and
administrative costs such as shareholder recordkeeping and reports, custodian
and pricing services and registration fees.
Example Costs
The following example helps you compare the cost of investing in the Fund with
the cost of investing in other mutual funds by showing what your costs may be
over time. It uses the same assumptions that other funds use in their
prospectuses:
o $10,000 initial investment
o 5% total return for each year
o Fund operating expenses remain the same for each period
o Redemption after the end of each period
o Reinvestment of all dividends and distributions
Your actual costs may be higher or lower, so this example should be used for
comparison only. Based on these assumptions, your costs at the end of each
period would be:
<Table>
<Caption>
YEARS $
- ----- ------
One 134
Three 418
Five 723
Ten 1,590
</Table>
Berger Funds o June 14, 2002 Combined Prospectus
12
Berger Information
Technology Fund - Ticker Symbol BINVX
Investor Shares Fund Number 912
The Fund's Goal and Principal Investment Strategies
The Fund aims for capital appreciation. In pursuing that goal, the Fund invests
at least 80% of its assets in common stocks of companies in the information
technology group of industries, such as software, hardware, computer consulting
services, communications and Internet services and products.
The Fund's investment manager analyzes trends in information technology spending
and demand, then identifies companies it believes are best positioned to benefit
from those trends. The Fund generally invests the remainder of its assets in
information technology-related companies whose stock price the investment
manager believes is undervalued relative to their assets, earnings, cash flow or
business franchise.
The Fund's investment manager generally looks for companies:
o That dominate their industries or a particular market segment
o That have or are developing products or services that represent significant
technological advancements or improvements
o That have strong fundamentals, strong management and strong product
positioning.
The Fund primarily invests in common stocks. The Fund is free to invest in
companies of any size market capitalization. In certain unusual circumstances,
the Fund may be unable to remain invested in securities of companies at the
stated level. The Fund's investment manager will generally sell a security when
it no longer meets the manager's investment criteria or when it has met the
manager's expectations for appreciation.
Principal Risks
You may be interested in the Fund if you are comfortable with above-average risk
and intend to make a long-term investment commitment. Like all managed funds,
there is a risk that the investment manager's strategy for managing the Fund may
not achieve the desired results. In addition, the price of common stock moves up
and down in response to corporate earnings and developments, economic and market
conditions and unanticipated events. As a result, the price of the Fund's
investments may go down, and you could lose money on your investment.
Given the Fund's concentration in industries that are rapidly changing, its
share price may fluctuate more than that of funds invested in more stable
industries. Companies in the information technology industries may have narrow
product lines and their products and services are often subject to intense
competition and rapid obsolescence.
Because the Fund's investments are focused in the information technology sector,
the Fund is more susceptible to adverse events and market pressures impacting
the industries included in that sector, which may pose greater market and
liquidity risk.
See "Investment Techniques, Securities and Associated Risks" later in this
prospectus for more information on principal risks and other risks.
The Fund's Past Performance
The information below shows the Fund's performance through December 31, 2001.
These returns include reinvestment of all dividends and capital gains
distributions and reflect Fund expenses. As with all mutual funds, past
performance does not guarantee future results.
Year-by-year returns show how the Fund's performance has varied by illustrating
the differences for each full calendar year since the Fund began.
YEAR-BY-YEAR TOTAL RETURN AS OF DECEMBER 31(1)
[GRAPH]
<Table>
1998 62.72%
1999 161.40%
2000 -28.06%
2001 -39.16%
BEST QUARTER: 12/31/99 97.35%
WORST QUARTER: 3/31/01 -41.65%
Calendar year-to-date through 3/31/02: -5.66%
</Table>
(1) Initial Public Offerings constituted a significant portion of the Fund's
performance during 1999 and there can be no assurance that IPOs will have such
an impact in the future.
Average annual total return is a measure of the Fund's performance over time.
The Fund's average annual return is compared to the Nasdaq-100 Index, the Fund's
new bench-
Berger Funds o June 14, 2002 Combined Prospectus
13
Berger Funds
mark index, and the Wilshire 5000 Index, the Fund's previous benchmark index.
The Fund changed its benchmark index to correlate more closely to the investment
style of the Fund. The Nasdaq-100 Index is an unmanaged index, with dividends
reinvested, which reflects Nasdaq's largest companies across major industry
groups, including computer hardware and software, telecommunications,
retail/wholesale trade and biotechnology. The Wilshire 5000 Index is an
unmanaged index, with dividends reinvested, which measures the performance of
all U.S. headquartered equity securities with readily available price data.
While the Fund does not seek to match the returns of either index, they are good
indicators of general stock market performance. You may not invest in either
index, and unlike the Fund, they do not incur fees or charges.
AVERAGE ANNUAL RETURNS AS OF DECEMBER 31, 2001
<Table>
<Caption>
Life of the Fund
1 Year (April 8, 1997)
------ ----------------
The Fund -39.16% 21.19%
Nasdaq-100 -32.62% -1.37%
Wilshire 5000 -10.97% 9.80%
</Table>
Fund Expenses
As a shareholder in the Fund, you do not pay any sales loads, but you do
indirectly bear Annual Fund Operating Expenses, which vary from year to year.
<Table>
<Caption>
SHAREHOLDER TRANSACTION EXPENSES %
- -------------------------------- ----
Redemption Fee (as a percentage of amount
redeemed or exchanged if shares are held
less than 6 months) 1.00
Exchange Fee* None
</Table>
*The 1% redemption fee referenced in the table will be imposed on shares
exchanged if held less than 6 months, since an exchange is treated as a
redemption followed by a purchase.
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES
(deducted directly from the Fund) %
- --------------------------------- ------
Management fee .85
Distribution (12b-1) fee .25
Other expenses .65
----
Total Annual Fund Operating Expenses 1.75
====
</Table>
Understanding Expenses
Annual Fund Operating Expenses are paid by the Fund. As a result, they reduce
the Fund's return. Fund expenses include management fees, 12b-1 fees and
administrative costs such as shareholder recordkeeping and reports, custodian
and pricing services and registration fees.
Example Costs
The following example helps you compare the cost of investing in the Fund with
the cost of investing in other mutual funds by showing what your costs may be
over time. It uses the same assumptions that other funds use in their
prospectuses:
o $10,000 initial investment
o 5% total return for each year
o Fund operating expenses remain the same for each period
o Redemption after the end of each period
o Reinvestment of all dividends and distributions
Your actual costs may be higher or lower, so this example should be used for
comparison only. Based on these assumptions, your costs at the end of each
period would be:
<Table>
<Caption>
YEARS $
- ----- ------
One 178
Three 551
Five 949
Ten 2,062
</Table>
Berger Funds o June 14, 2002 Combined Prospectus
14
Berger Large Cap Value Ticker Symbol BLCVX
Fund - Investor Shares Fund Number 217
The Fund's Goal and Principal Investment Strategies
The Fund aims for capital appreciation. In pursuing that goal, the Fund invests
primarily in the common stocks of large companies whose stock prices are
believed to be undervalued.
The Fund's investment manager uses fundamental analysis and proprietary
valuation models to select a core holding of stocks for the Fund.
The Fund's investment manager generally looks for companies:
o That have strong fundamentals and strong management
o Whose stock is trading at a discount relative to their intrinsic investment
value based on their assets, earnings, cash flow or franchise value
o Where there is a specific catalyst or event that has the potential to drive
appreciation of their stock toward intrinsic value.
Under normal circumstances, the Fund invests at least 80% of its assets in
common stocks of companies whose market capitalization, at the time of initial
purchase, is $9 billion or more. Shareholders will be provided at least 60 days
notice prior to any change to the Fund's 80% investment policy. In certain
unusual circumstances, the Fund may be unable to remain invested at these levels
in securities of companies with the stated market capitalization. The Fund's
investment manager will generally sell a security when it no longer meets the
manager's investment criteria or when it has met the manager's expectation for
appreciation.
Principal Risks
You may be interested in the Fund if you are comfortable with the risks of
equity investing and intend to make a long-term investment commitment. Like all
managed funds, there is a risk that the investment manager's strategy for
managing the Fund may not achieve the desired results. In addition, the price of
common stock moves up and down in response to corporate earnings and
developments, economic and market conditions and unanticipated events. As a
result, the price of the Fund's investments may go down, and you could lose
money on your investment.
The Fund's investments are often focused in a small number of business sectors,
which may pose greater market and liquidity risks. In addition, the Fund may
invest in certain securities with unique risks, such as special situations,
which could present greater market and information risks.
See "Investment Techniques, Securities and Associated Risks" later in this
prospectus for more information on principal risks and other risks.
The Fund's Past Performance
The Fund has no performance history since it did not commence operations until
September 28, 2001.
Berger Funds o June 14, 2002 Combined Prospectus
15
Berger Funds
Fund Expenses
As a shareholder in the Fund, you do not pay any sales loads, redemption or
exchange fees, but you do indirectly bear Annual Fund Operating Expenses, which
vary from year to year.
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES
(deducted directly from the Fund) %
- --------------------------------- ------
Management fee 0.75
Distribution (12b-1) fee 0.25
Other expenses(1) 0.48
-----
Total Annual Fund Operating Expenses 1.48
=====
Expense Reimbursement(2) (0.26)
=====
Net Expenses 1.22
=====
</Table>
(1) "Other expenses" are based on estimated expenses for the Investor Shares
class and include transfer agency fees, shareholder report expenses,
registration fees and custodian fees.
(2) Pursuant to a written agreement, the Fund's investment adviser reimburses
the Fund's Investor Shares class to the extent transfer agency, shareholder
reporting and registration expenses exceed .15% of the Investor Shares' average
daily net assets during the fiscal year. The agreement may not be terminated
until September 30, 2002.
Understanding Expenses
Annual Fund Operating Expenses are paid by the Fund. As a result, they reduce
the Fund's return. Fund expenses include management fees, 12b-1 fees and
administrative costs such as shareholder recordkeeping and reports, custodian
and pricing services and registration fees.
Example Costs
The following example helps you compare the cost of investing in the Fund with
the cost of investing in other mutual funds by showing what your costs may be
over time. It uses the same assumptions that other funds use in their
prospectuses:
o $10,000 initial investment
o 5% total return for each year
o Fund operating expenses remain the same for each period (except that the
example reflects the expense reimbursement by Berger Financial Group LLC for
the one-year period and the first year of the three-year period)
o Redemption after the end of each period
o Reinvestment of all dividends and distributions
Your actual costs may be higher or lower, so this example should be used for
comparison only. Based on these assumptions, your costs at the end of each
period would be:
<Table>
<Caption>
YEARS $
- ----- ----
One 124
Three 442
</Table>
Berger Funds o June 14, 2002 Combined Prospectus
16
Berger Mid Cap
Value Fund - Ticker Symbol BEMVX
Investor Shares Fund Number 216
The Fund's Goal and Principal Investment Strategies
The Fund aims for capital appreciation. In pursuing that goal, the Fund
primarily invests in the common stocks of mid-sized companies whose stock prices
are believed to be undervalued.
The Fund's investment selection focuses on companies that have fallen out of
favor with the market or are temporarily misunderstood by the investment
community. To a lesser degree, the Fund also invests in companies that
demonstrate special situations or turnarounds, meaning companies that have
experienced significant business problems but are believed to have favorable
prospects for recovery.
The Fund's investment manager generally looks for companies with:
o A low price relative to their assets, earnings, cash flow or business
franchise
o Products and services that give them a competitive advantage
o Quality balance sheets and strong management.
The investment manager's philosophy is to weigh a security's downside risk
before considering its upside potential, which may help provide an element of
capital preservation. Under normal circumstances, the Fund invests at least 80%
of its assets in equity securities of mid-sized companies whose market
capitalization falls, at the time of initial purchase, within the 12-month
average of the capitalization range of the Russell Midcap Index. This average is
updated monthly. Shareholders will be provided at least 60 days notice prior to
any change to the Fund's 80% investment policy. In certain unusual
circumstances, the Fund may be unable to remain invested at these levels in
securities of companies with the stated market capitalization. The Fund's
investment manager will generally sell a security when it no longer meets the
manager's investment criteria or when it has met the manager's expectations for
appreciation. The Fund's investment manager may actively trade the portfolio in
pursuit of the Fund's goal.
Principal Risks
You may be interested in the Fund if you are comfortable with above-average risk
and intend to make a long-term investment commitment. Like all managed funds,
there is a risk that the investment manager's strategy for managing the Fund may
not achieve the desired results. In addition, the price of common stock moves up
and down in response to corporate earnings and developments, economic and market
conditions and unanticipated events. As a result, the price of the Fund's
investments may go down, and you could lose money on your investment.
The Fund's share price may fluctuate more than that of funds primarily invested
in large companies. Mid-sized companies may pose greater market, liquidity and
information risks because of narrow product lines, limited financial resources,
less depth in management or a limited trading market for their stocks. The
Fund's investments are often focused in a small number of business sectors,
which may pose greater market and liquidity risks. In addition, the Fund may
invest in certain securities with unique risks, such as special situations which
could present increased market and information risks. The Fund's active trading
will cause the Fund to have an increased portfolio turnover rate. Higher
turnover rates may result in higher brokerage costs to the Fund and in higher
net taxable gains for you as an investor.
See "Investment Techniques, Securities and Associated Risks" later in this
prospectus for more information on principal risks and other risks.
The Fund's Past Performance
The information below shows the Fund's performance through December 31, 2001.
These returns include reinvestment of all dividends and capital gains
distributions and reflect Fund expenses. As with all mutual funds, past
performance does not guarantee future results.
Year-by-year returns show how the Fund's performance has varied by illustrating
the difference for each full calendar year since the Fund began.
YEAR-BY-YEAR TOTAL RETURN AS OF DECEMBER 31
[GRAPH]
<Table>
1999 21.56%
2000 27.34%
2001 20.52%
BEST QUARTER: 12/31/01 21.28%
WORST QUARTER: 9/30/01 -14.83%
Calendar year-to-date through 3/31/02: 5.54%
</Table>
Berger Funds o June 14, 2002 Combined Prospectus
17
Berger Funds
Average annual total return is a measure of the Fund's performance over time.
The Fund's average annual return is compared to the Russell Midcap Value Index,
the Fund's new benchmark index, and the Standard & Poor's MidCap 400 Index, the
Fund's previous benchmark index. The Fund changed its benchmark index to
correlate more closely to the investment style of the Fund. The Russell Midcap
Value Index is an unmanaged index, with dividends reinvested, that measures the
performance of those Russell Midcap companies with lower price-to-book ratios
and lower forecasted growth values. The stocks are also members of the Russell
1000 Value Index. The S&P MidCap 400 Index is an unmanaged index, with dividends
reinvested, and is generally representative of the market for mid-sized
companies. While the Fund does not seek to match the returns of either index,
they are good indicators of general stock market performance. You may not invest
in either index, and unlike the Fund, they do not incur fees or charges.
AVERAGE ANNUAL RETURNS AS OF DECEMBER 31, 2001
<Table>
<Caption>
Life of the Fund
1 Year (August 12, 1998)
------ -----------------
The Fund 20.52% 25.06%
Russell Midcap Value 2.33% 7.80%
S&P MidCap 400 -0.61% 13.33%
</Table>
Fund Expenses
As a shareholder in the Fund, you do not pay any sales loads, redemption or
exchange fees, but you do indirectly bear Annual Fund Operating Expenses, which
vary from year to year.
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES
(deducted directly from the Fund) %
- --------------------------------- -----
Management fee .75
Distribution (12b-1) fee .25
Other expenses .22
----
Total Annual Fund Operating Expenses 1.22
====
</Table>
Understanding Expenses
Annual Fund Operating Expenses are paid by the Fund. As a result, they reduce
the Fund's return. Fund expenses include management fees, 12b-1 fees and
administrative costs such as shareholder recordkeeping and reports, custodian
and pricing services and registration fees.
Example Costs
The following example helps you compare the cost of investing in the Fund with
the cost of investing in other mutual funds by showing what your costs may be
over time. It uses the same assumptions that other funds use in their
prospectuses:
o $10,000 initial investment
o 5% total return for each year
o Fund operating expenses remain the same for each period
o Redemption after the end of each period
o Reinvestment of all dividends and distributions
Your actual costs may be higher or lower, so this example should be used for
comparison only. Based on these assumptions, your costs at the end of each
period would be:
<Table>
<Caption>
YEARS $
- ----- ----
One 124
Three 387
Five 670
Ten 1,477
</Table>
Berger Funds o June 14, 2002 Combined Prospectus
18
Berger Small Cap
Value Fund II - Ticker Symbol BVSCX
Investor Shares Fund Number 918
The Fund's Goal and Principal Investment Strategies
The Fund aims for capital appreciation. In pursuing that goal, the Fund
primarily invests in the common stocks of small companies whose stock prices are
believed to be undervalued.
The Fund's investment manager uses fundamental analysis and proprietary
valuation models to select stocks for the Fund.
The Fund's investment manager generally looks for companies:
o That have strong fundamentals and competent management
o Whose stock is trading at a discount relative to their intrinsic investment
value based on their assets, earnings, cash flow or franchise value
o Where there is a specific catalyst or event that has the potential to drive
appreciation of their stock toward intrinsic value.
The investment manager's philosophy is to weigh a security's downside risk
before considering its upside potential, which may help provide an element of
capital preservation. Under normal circumstances, the Fund invests at least 80%
of its assets in equity securities of small companies whose market
capitalization, at the time of initial purchase, is less than the 12-month
average of the maximum market capitalization for companies included in the
Russell 2000 Index. This average is updated monthly. Shareholders will be
provided at least 60 days notice prior to any change to the Fund's 80%
investment policy. In certain unusual circumstances, the Fund may be unable to
remain invested at these levels in securities of companies with the stated
market capitalization. The Fund's investment manager will generally sell a
security when it no longer meets the manager's investment criteria or when it
has met the manager's expectations for appreciation. To a certain degree, the
Fund invests in companies that demonstrate special situations or turnarounds,
meaning companies that have experienced significant business problems but are
believed to have favorable prospects for recovery.
Principal Risks
You may be interested in the Fund if you are comfortable with above-average risk
and intend to make a long-term investment commitment. Like all managed funds,
there is a risk that the investment manager's strategy for managing the Fund may
not achieve the desired results. In addition, the price of common stock moves up
and down in response to corporate earnings and developments, economic and market
conditions and unanticipated events. As a result, the price of the Fund's
investments may go down, and you could lose money on your investment.
The Fund's share price may fluctuate more than that of funds primarily invested
in stocks of mid-sized and large companies. Small company securities may
underperform as compared to the securities of larger companies. They may also
pose greater market, liquidity and information risks because of narrow product
lines, limited financial resources, less depth in management or a limited
trading market for their stocks. The Fund's investments are often focused in a
small number of business sectors, which may pose greater market and liquidity
risks. In addition, the Fund may invest in certain securities with unique risks,
such as special situations, which could present increased market and information
risks.
See "Investment Techniques, Securities and Associated Risks" later in this
prospectus for more information on principal risks and other risks.
The Fund's Past Performance
The Fund has no performance history since it did not commence operations until
March 28, 2002.
Berger Funds o June 14, 2002 Combined Prospectus
19
Berger Funds
Fund Expenses
As a shareholder in the Fund, you do not pay any sales loads, redemptions or
exchange fees, but you do indirectly bear Annual Fund Operating Expenses, which
vary from year to year.
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(1)
(deducted directly from the Fund) %
- --------------------------------- -----
Management fee 0.85
Distribution (12b-1) fee 0.25
Other expenses 0.70
-----
Total Annual Fund Operating Expenses 1.80
=====
Expense Reimbursement(2) (0.30)
=====
Net Expenses 1.50
=====
</Table>
(1) Based on estimates for the Fund's first year of operations.
(2) Pursuant to a written agreement, the Fund's investment adviser reimburses
the Fund's Investor Shares class to the extent that transfer agency, shareholder
reporting and registration expenses exceed 0.25% of the Investor Shares' average
daily net assets during the fiscal year. The agreement may not be terminated
until September 30, 2002.
Understanding Expenses
Annual Fund Operating Expenses are paid by the Fund. As a result, they reduce
the Fund's return. Fund expenses include management fees, 12b-1 fees and
administrative costs such as shareholder recordkeeping and reports, custodian
and pricing services and registration fees.
Example Costs
The following example helps you compare the cost of investing in the Fund with
the cost of investing in other mutual funds by showing what your costs may be
over time. It uses the same assumptions that other funds use in their
prospectuses:
o $10,000 initial investment
o 5% total return for each year
o Fund operating expenses remain the same for each period (except that the
example reflects the expense reimbursement by Berger Financial Group LLC for
the one-year period and the first year of the three-year period)
o Redemption after the end of each period
o Reinvestment of all dividends and distributions
Your actual costs may be higher or lower, so this example should be used for
comparison only. Based on these assumptions, your costs at the end of each
period would be:
<Table>
<Caption>
YEARS $
- ----- ----
One 153
Three 537
</Table>
Berger Funds o June 14, 2002 Combined Prospectus
20
Berger Ticker Symbol BEBAX
Balanced Fund Fund Number 213
The Fund's Goals and Principal Investment Strategies
The Fund aims for capital appreciation and current income. In pursuing these
goals, the Fund primarily invests in a diversified group of domestic equity and
fixed-income securities.
The allocation between equity and fixed-income securities is based upon the
investment manager's assessment of available investment opportunities and
relevant market, economic and financial factors.
The Fund's investment manager generally looks for companies:
o That have strong fundamentals and strong management
o Whose stock is trading at a discount relative to their intrinsic investment
value based on their assets, earnings, cash flow or franchise value
o Where there is a specific catalyst or event that has the potential to drive
appreciation of their stock toward intrinsic value.
The Fund's equity investments consist primarily of common stocks of companies
with mid-sized to large market capitalizations. The Fund's fixed-income
investments are a variety of income-producing securities, such as short- to
long-term corporate, U.S. government and government agency debt securities,
convertible securities, preferred stocks and mortgage-backed securities. The
investment manager believes its investment style emphasizing equity securities
offers shareholders the opportunity for capital appreciation along with a
reasonable level of capital preservation. Normally, equity securities are
expected to range from 45% to 65% of the Fund's total assets. However, it is the
Fund's policy to invest at least 25% of its total assets in fixed-income senior
securities and at least 25% in equity securities. The Fund may invest up to 20%
of its assets in convertible securities rated below investment grade (BB or
lower by Standard & Poor's, Ba or lower by Moody's).
The Fund's investment manager will generally sell a security when it no longer
meets the manager's investment criteria or when it has met the manager's
expectations for appreciation.
Principal Risks
You may be interested in the Fund if you are comfortable with the risks of
equity and fixed-income investing and intend to make a long-term investment
commitment. Like all managed funds, there is a risk that the investment
manager's strategy for managing the Fund may not achieve the desired results. In
addition, the price of common stock moves up and down in response to corporate
earnings and developments, interest rate movements, economic and market
conditions and unanticipated events. As a result, the price of the Fund's
investments may go down, and you could lose money on your investment. The Fund
may be riskier than other balanced funds that invest more heavily in
fixed-income securities.
To the extent the Fund invests in fixed-income securities it takes on different
risks, including movements in interest rates and default on payment of principal
or interest, as well as market and call risks. In addition, the Fund may invest
in convertible securities rated below investment grade, which may pose greater
market, interest rate, prepayment and credit risks. These issuers are less
financially secure, and are more likely to be hurt by interest rate movements.
When interest rates are low, the Fund's income distributions to you may be
reduced or eliminated.
See "Investment Techniques, Securities and Associated Risks" later in this
prospectus for more information on principal risks and other risks.
The Fund's Past Performance
The information below shows the Fund's performance through December 31, 2001.
These returns include reinvestment of all dividends and capital gains
distributions and reflect Fund expenses. As with all mutual funds, past
performance does not guarantee future results.
Year-by-year returns show you how the Fund's performance has varied by
illustrating the differences for each full calendar year since the Fund began.
YEAR-BY-YEAR TOTAL RETURN AS OF DECEMBER 31(1)
[GRAPH]
<Table>
1998 34.38%
1999 44.58%
2000 -3.30%
2001 -11.77%
BEST QUARTER: 12/31/99 22.59%
WORST QUARTER: 9/30/01 -12.89%
Calendar year-to-date through 3/31/02: -3.61%
</Table>
(1) Initial Public Offerings constituted a significant portion of the Fund's
performance during 1998 and 1999 and there can be no assurance that IPOs will
have such an impact in the future.
Berger Funds o June 14, 2002 Combined Prospectus
21
Berger Funds
Average annual total return is a measure of the Fund's performance over time.
The Fund's average annual return is compared to the Standard & Poor's 500 Index
(S&P 500) and a 60/40 blend, respectively, of the Russell 1000 Growth Index and
the Lehman Brothers U.S. Government/Credit Index. The Fund is adding the Russell
1000 Growth Index and the Lehman Brothers U.S. Government/Credit Index blend
because of its correlation to the investment style of the Fund. The S&P 500
Index is an unmanaged index, with dividends reinvested, which consists of the
common stocks of 500 publicly traded U.S. companies. The Russell 1000 Growth
Index is an unmanaged index, with dividends reinvested, which measures the
performance of those Russell 1000 companies with higher price-to-book ratios and
higher forecasted growth values. The Lehman Brothers U.S. Government/Credit
Index is an unmanaged index, whose issuers include the U.S. Treasury, U.S.
government agencies, quasi-federal corporations, corporations whose debt is
guaranteed by the U.S. government and other corporations. While the Fund does
not seek to match the returns of the indexes, they are good indicators of
general stock and bond market performance. You may not invest in the indexes,
and unlike the Fund, they do not incur fees or charges.
AVERAGE ANNUAL RETURNS AS OF DECEMBER 31, 2001(2)
<Table>
<Caption>
Life of the Fund
1 Year (September 30, 1997)
------ --------------------
The Fund -11.77% 21.47%
S&P 500 -11.88% 6.02%
Russell 1000 Growth/
Lehman Brothers U.S. Govt./Credit -8.71% 5.78%
</Table>
(2) Includes returns for the last quarter of 1997, which reflect a higher than
normal level of trading activity undertaken to pursue equity opportunities
available as the adviser was beginning to implement the Fund's long-term
approach to equity management.
Fund Expenses
As a shareholder in the Fund, you do not pay any sales loads, redemption or
exchange fees, but you do indirectly bear Annual Fund Operating Expenses, which
vary from year to year.
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES
(deducted directly from the Fund) %
- --------------------------------- -----
Management fee .70
Distribution (12b-1) fee .25
Other expenses .24
----
Total Annual Fund Operating Expenses 1.19
====
</Table>
Understanding Expenses
Annual Fund Operating Expenses are paid by the Fund. As a result, they reduce
the Fund's return. Fund expenses include management fees, 12b-1 fees and
administrative costs such as shareholder recordkeeping and reports, custodian
and pricing services and registration fees.
Example Costs
The following example helps you compare the cost of investing in the Fund with
the cost of investing in other mutual funds by showing what your costs may be
over time. It uses the same assumptions that other funds use in their
prospectuses:
o $10,000 initial investment
o 5% total return for each year
o Fund operating expenses remain the same for each period
o Redemption after the end of each period
o Reinvestment of all dividends and distributions
Your actual costs may be higher or lower, so this example should be used for
comparison only. Based on these assumptions, your costs at the end of each
period would be:
<Table>
<Caption>
YEARS $
- ----- ------
One 121
Three 378
Five 654
Ten 1,443
</Table>
Berger Funds o June 14, 2002 Combined Prospectus
Investment Techniques,
Securities and
Associated Risks
BEFORE YOU INVEST. . .
in any of the Berger Funds, make sure you understand the risks involved. All
investments involve risk. Generally, the greater the risk, the greater the
potential for return. The reverse is also generally true--the lower the risk,
the lower the potential for return.
Like all mutual funds, an investment in the Berger Funds is not a bank deposit
and is not insured or guaranteed by the FDIC or any other government agency. The
Funds are not a complete investment program, but may serve to diversify other
types of investments in your portfolio. There is no guarantee that the Funds
will meet their investment goals, and although you have the potential to make
money, you could also lose money by investing in the Funds.
The table on the following page will help you further understand the risks the
Funds take by investing in certain securities and the investment techniques used
by the Berger Funds. A glossary follows. You may get more detailed information
about the risks of investing in the Berger Funds in the Statement of Additional
Information (SAI), including a discussion of debt security ratings in Appendix A
to the SAI.
KEY TO TABLE
Follow down the columns under the name of the Fund in which you are interested.
The boxes will tell you:
Y Yes, the security or technique is permitted by a Fund and is
emphasized by a Fund.
----------------------------------------------------------------------
< Yes, the security or technique is permitted by a Fund.
[< denotes a hollow Y]
----------------------------------------------------------------------
N No, the security or technique is not permitted by a Fund.
----------------------------------------------------------------------
F The restriction is fundamental to a Fund. (Fundamental restrictions
cannot be changed without a shareholder vote.)
----------------------------------------------------------------------
5 Use of a security or technique is permitted, but subject to a
restriction of up to 5% of total assets.
----------------------------------------------------------------------
25 Use of a security or technique is permitted, but subject to a
restriction of up to 25% of total assets.
----------------------------------------------------------------------
33.3 Use of a security or technique is permitted, but subject to a
restriction of up to 33 1/3% of total assets.
----------------------------------------------------------------------
[] Use of a security or technique is permitted, but subject to a
restriction of up to 5% of net assets. [ [] denotes a hollow 5]
----------------------------------------------------------------------
[][][] Use of a security or technique is permitted, but subject to a
restriction of up to 15% of net assets. [ [][][] denotes a hollow 15]
----------------------------------------------------------------------
NOTES TO TABLE
(1) The Funds have no minimum quality standards for convertible securities,
although they will not invest in defaulted securities. They also will not invest
20% or more of their assets in convertible securities rated below investment
grade or in unrated convertible securities that the adviser or sub-adviser
considers to be below investment grade.
(2) The Berger Balanced Fund may invest only in mortgage-backed securities that
are issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, or in privately issued mortgage-backed or asset-backed
securities that are rated AA/Aa (S&P/Moody's) or above.
(3) The Funds may use futures, forwards and options only for hedging. Not more
than 5% of a Fund's net assets may be used for initial margins for futures and
premiums for options, although a Fund may have more at risk under these
contracts than the initial margin or premium. However, a Fund's aggregate
obligations under these contracts may not exceed the total market value of the
assets being hedged, such as some or all of the value of the Fund's equity
securities.
Berger Funds o June 14, 2002 Combined Prospectus
23
Berger Funds
RISK AND INVESTMENT TABLE
<Table>
<Caption>
Berger Berger Berger Berger
Berger Large Cap Mid Cap Small Company Information
Growth Fund Growth Fund Growth Fund Growth Fund Technology Fund
----------- ----------- ----------- ------------- ---------------
Diversification F F F F F
- ---------------------------------------------------------------------------------------------------------------------------------
Small and mid-sized company securities Y Y Y
Market, liquidity and information risk < <
- ---------------------------------------------------------------------------------------------------------------------------------
Foreign securities
Market, currency, transaction,
liquidity, information,
economic and political risk < < < < <
- ---------------------------------------------------------------------------------------------------------------------------------
Sector focus Y Y Y Y
Market and liquidity risk <
- ---------------------------------------------------------------------------------------------------------------------------------
Convertible securities(1)
Market, interest rate, prepayment and credit risk < < < < <
- ---------------------------------------------------------------------------------------------------------------------------------
Investment grade bonds (nonconvertible)
Interest rate, market, call and credit risk < < < < <
- ---------------------------------------------------------------------------------------------------------------------------------
Companies with limited operating histories 5F 5F
Market, liquidity and information risk < < <
- ---------------------------------------------------------------------------------------------------------------------------------
Illiquid and restricted securities [][][] [][][] [][][] [][][] [][][]
Market, liquidity and transaction risk
- ---------------------------------------------------------------------------------------------------------------------------------
Special situations
Market and information risk < < < < <
- ---------------------------------------------------------------------------------------------------------------------------------
Initial Public Offerings (IPOs)
Market, liquidity and information risk < < < < <
- ---------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed and asset-backed securities(2) N N N N N
Interest rate, prepayment, extension, market
and credit risk
- ---------------------------------------------------------------------------------------------------------------------------------
Temporary defensive measures
Opportunity risk < < < < <
- ---------------------------------------------------------------------------------------------------------------------------------
Lending portfolio securities NF NF 33.3 33.3 33.3
Credit risk
- ---------------------------------------------------------------------------------------------------------------------------------
Borrowing 5F 5F 25F 25F 25F
Leverage risk
- ---------------------------------------------------------------------------------------------------------------------------------
Hedging Strategies
- ------------------
Financial futures(3)
Hedging, correlation, opportunity and leverage risk [] [] [] [] []
- ---------------------------------------------------------------------------------------------------------------------------------
Forward foreign currency contracts(3)
Hedging, credit, correlation,
opportunity and leverage risk < < < < <
- ---------------------------------------------------------------------------------------------------------------------------------
Options(3) (exchange-traded and over-the-counter)
Hedging, credit, correlation and leverage risk [] [] [] [] []
- ---------------------------------------------------------------------------------------------------------------------------------
Writing (selling) covered call options(3) 25 25 25 25 25
(exchange-traded and over-the-counter)
Opportunity, credit and leverage risk
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
Berger Berger Berger Berger
Large Cap Mid Cap Small Cap Balanced
Value Fund Value Fund Value Fund II Fund
---------- ---------- ------------- --------
Diversification F F F F
- --------------------------------------------------------------------------------------------------------
Small and mid-sized company securities Y Y
Market, liquidity and information risk < <
- --------------------------------------------------------------------------------------------------------
Foreign securities <
Market, currency, transaction,
liquidity, information,
economic and political risk < < <
- --------------------------------------------------------------------------------------------------------
Sector focus Y Y Y
Market and liquidity risk <
- --------------------------------------------------------------------------------------------------------
Convertible securities(1) <
Market, interest rate, prepayment and credit risk < < <
- --------------------------------------------------------------------------------------------------------
Investment grade bonds (nonconvertible) < Y
Interest rate, market, call and credit risk < <
- --------------------------------------------------------------------------------------------------------
Companies with limited operating histories <
Market, liquidity and information risk < < <
- --------------------------------------------------------------------------------------------------------
Illiquid and restricted securities [][][] [][][] [][][] [][][]
Market, liquidity and transaction risk
- --------------------------------------------------------------------------------------------------------
Special situations Y Y Y
Market and information risk <
- --------------------------------------------------------------------------------------------------------
Initial Public Offerings (IPOs) <
Market, liquidity and information risk < < <
- --------------------------------------------------------------------------------------------------------
Mortgage-backed and asset-backed securities(2) N N N
Interest rate, prepayment, extension, market
and credit risk <
- --------------------------------------------------------------------------------------------------------
Temporary defensive measures <
Opportunity risk < < <
- --------------------------------------------------------------------------------------------------------
Lending portfolio securities 33.3 33.3 33.3 33.3
Credit risk
- --------------------------------------------------------------------------------------------------------
Borrowing 25F 25F 25F 25F
Leverage risk
- --------------------------------------------------------------------------------------------------------
Hedging Strategies
- ------------------
Financial futures(3) [] []
Hedging, correlation, opportunity and leverage risk [] []
- --------------------------------------------------------------------------------------------------------
Forward foreign currency contracts(3) <
Hedging, credit, correlation,
opportunity and leverage risk < < <
- --------------------------------------------------------------------------------------------------------
Options(3) (exchange-traded and over-the-counter) [] []
Hedging, credit, correlation and leverage risk [] []
- --------------------------------------------------------------------------------------------------------
Writing (selling) covered call options(3) 25 25 25 25
(exchange-traded and over-the-counter)
Opportunity, credit and leverage risk
- --------------------------------------------------------------------------------------------------------
</Table>
Berger Funds o June 14, 2002 Combined Prospectus
24
Risk and Investment
Glossary
BORROWING refers to a loan of money from a bank or other financial institution
undertaken by a Fund for temporary or emergency reasons only.
CALL RISK is the possibility that an issuer may redeem or "call" a fixed-income
security before maturity at a price below its current market price. An increased
likelihood of a call may reduce the security's price.
COMMON STOCK is a share of ownership (equity) interest in a company.
COMPANIES WITH LIMITED OPERATING HISTORIES are securities issued by companies
that have been in continuous operation for less than three years. Sometimes
called "unseasoned" issuers.
CONVERTIBLE SECURITIES are debt or equity securities that may be converted on
specified terms into stock of the issuer.
CORRELATION RISK occurs when a Fund "hedges" - uses one investment to offset the
Fund's position in another. If the two investments do not behave in relation to
each other the way the Fund managers expect them to, then unexpected results may
occur.
CREDIT RISK means that the issuer of a security or the counterparty to an
investment contract may default, be downgraded or become unable to pay its
obligations when due.
CURRENCY RISK happens when a Fund buys or sells a security denominated in
foreign currency. Foreign currencies "float" in value against the U.S. dollar.
Adverse changes in foreign currency values can cause investment losses when a
Fund's investments are converted to U.S. dollars.
DIVERSIFICATION means a diversified fund may not, with respect to at least 75%
of its assets, invest more than 5% of its assets in the securities of one
company. A nondiversified fund may be more volatile than a diversified fund
because it invests more of its assets in a smaller number of companies and the
gains or losses on a single stock will therefore have a greater impact on the
Fund's share price. All of the Berger Funds are diversified funds, except the
Berger Select Fund.
ECONOMIC RISK is the risk associated with the fact that foreign economies are
often less diverse than the U.S. economy. This lack of diversity may lead to
greater volatility and could negatively affect foreign investment values. In
addition, it is often difficult for domestic investors to understand all the
economic factors that influence foreign markets, thus making it harder to
evaluate the Funds' holdings.
EXTENSION RISK is the risk that, as interest rates rise, borrowers are less
likely to refinance their mortgages or other debts. As a result, the principal
on mortgage-backed or asset-backed securities may be paid later than expected,
which could cause the value of the securities to go down.
FINANCIAL FUTURES are exchange-traded contracts on securities, securities
indexes or foreign currencies that obligate the holder to take or make future
delivery of a specified quantity of those underlying securities or currencies on
a predetermined future date at a predetermined price.
FOREIGN SECURITIES are issued by companies located outside the United States. A
Fund considers a company to be located outside the United States if the
principal securities trading market for its equity securities is located outside
the U.S. or it is organized under the laws of, and has a principal office in, a
country other than the U.S.
FORWARD FOREIGN CURRENCY CONTRACTS are privately negotiated contracts committing
the holder to purchase or sell a specified quantity of a foreign currency on a
predetermined future date at a predetermined price.
HEDGING RISK comes into play when a Fund uses a security whose value is based on
an underlying security or index to "offset" the Fund's position in another
security or currency. The objective of hedging is to offset potential losses in
one security with gains in the hedge. However, a hedge can eliminate or reduce
gains as well as offset losses. (Also see "Correlation risk.")
ILLIQUID AND RESTRICTED SECURITIES are securities that, by rules of their issue
or by their nature, cannot be sold readily. These do not include liquid Rule
144A securities.
INFORMATION RISK means that information about a security or issuer might not be
available, complete, accurate or comparable.
INITIAL PUBLIC OFFERING (IPO) is the sale of a company's securities to the
public for the first time. IPO companies can be small and have limited operating
histories. The price of IPO securities can be highly unstable because of
prevailing market psychology and the small number of shares available. In
addition, the quality and number of IPOs available for purchase may diminish in
the future, and their contribution to Fund performance may be less significant
as a Fund grows in size.
INTEREST RATE RISK is the risk that changes in interest rates will adversely
affect the value of an investor's securities. When interest rates rise, the
value of fixed-income securities will generally fall. Conversely, a drop in
interest rates will generally cause an increase in the value of fixed-income
securities. Longer-term securities are subject to greater interest rate risk.
INVESTMENT-GRADE BONDS are rated BBB (Standard & Poor's) or Baa (Moody's) or
above. Bonds rated below investment grade are subject to greater credit risk
than investment-grade bonds.
LENDING PORTFOLIO SECURITIES to qualified financial institutions is undertaken
in order to earn income. The Funds lend securities only on a fully
collateralized basis.
Berger Funds o June 14, 2002 Combined Prospectus
25
Berger Funds
LEVERAGE RISK occurs in some securities or techniques that tend to magnify the
effect of small changes in an index or a market. This magnified change can
result in a loss that exceeds the amount that was invested in the contract or
security.
LIQUIDITY RISK occurs when investments cannot be sold readily. A Fund may have
to accept a less-than-desirable price to complete the sale of an illiquid
security or may not be able to sell it at all.
MARKET CAPITALIZATION is the total current market value of a company's
outstanding common stock.
MARKET RISK exists in all mutual funds and means the risk that the prices of
securities in a market, a sector, or an industry will fluctuate and that such
movements might reduce an investment's value.
MORTGAGE-BACKED SECURITIES are securities that represent interests in "pools" of
mortgages or that are backed by mortgages where the interest and principal
payments on the mortgages are "passed-through" to the security holder.
Mortgage-backed securities may be issued or guaranteed by the U.S. Government.
They may also be privately issued and backed by U.S. Government guaranteed
securities or by private arrangements to make them more secure. ASSET-BACKED
SECURITIES are similar, except backed by assets such as car loans or credit card
receivables rather than mortgages.
OPPORTUNITY RISK means missing out on an investment opportunity because the
assets necessary to take advantage of it are committed to less advantageous
investments or strategies.
OPTIONS are contracts giving the holder the right but not the obligation to
purchase or sell a security on or before a predetermined future date at a fixed
price. Options on securities indexes are similar but settle in cash.
POLITICAL RISK comes into play with investments, particularly foreign
investments, that may be adversely affected by nationalization, taxation, war,
government instability or other economic or political actions or factors.
PREPAYMENT RISK is the risk that, as interest rates fall, borrowers are more
likely to refinance their debts. As a result, the principal on certain
fixed-income securities may be paid earlier than expected, which could cause
investment losses and cause prepaid amounts to have to be reinvested at a
relatively lower interest rate.
SECTOR FOCUS occurs when a significant portion of a Fund's assets are invested
in a relatively small number of related industries. These related industries, or
sectors, are narrowly defined segments of the economy, i.e. utilities,
technology, healthcare services, telecommunications, etc. There may be
additional risks associated with Funds whose investments are focused in a small
number of sectors. For example, competition among technology companies may
result in increasingly aggressive pricing of their products and services, which
may affect the profitability of companies in a Fund's portfolio. In addition,
because of the rapid pace of technological development, products or services
developed by companies in a Fund's portfolio may become rapidly obsolete or have
relatively short product cycles. As a result, the Fund's returns may be
considerably more volatile than the returns of a Fund that does not invest in
similarly related companies. The Funds will not concentrate 25% or more of their
total assets in any one industry. Sector focus may increase both market and
liquidity risk.
SMALL AND MID-SIZED COMPANY SECURITIES are securities issued by small or
mid-sized companies, as measured by their market capitalization. The market
capitalization range targeted by each of the Funds investing primarily in small
or mid-sized companies varies by Fund and appears in the description for those
Funds under the heading "The Fund's Goal and Principal Investment Strategies."
In general, the smaller the company, the greater its risks.
SPECIAL SITUATIONS are companies about to undergo a structural, financial or
management change that may significantly affect the value of their securities.
TEMPORARY DEFENSIVE MEASURES Although the Funds reserve the right to take
temporary defensive measures, it is the intention of the Funds to remain fully
invested at all times. In response to adverse market, economic, political, or
other conditions, a Fund's investment manager may believe taking temporary
defensive measures is warranted. When this happens, the Fund may increase its
investment in government securities and other short-term securities that are
inconsistent with the Fund's principal investment strategies. In addition,
certain unusual circumstances may force a Fund to temporarily depart from the
investment requirement implied by its name.
TRANSACTION RISK means that a Fund may be delayed or unable to settle a
transaction or that commissions and settlement expenses may be higher than
usual. In the case of foreign securities, use of a foreign securities depository
to maintain Fund assets may increase this risk. However, custodial risks of
using the depository may be minimized through analysis and continuous monitoring
by the Funds' primary custodian.
WRITING (SELLING) COVERED CALL OPTIONS is the selling of a contract to another
party that gives them the right but not the obligation to buy a particular
security from you. A Fund will write call options only if it already owns the
security (if it is "covered").
Berger Funds o June 14, 2002 Combined Prospectus
26
How to Contact Us
ONLINE
You can access bergerfunds.com to obtain information about Berger Funds and to
perform maintenance and transactions on your account including:
o Opening new accounts
o Purchasing, exchanging and selling shares
o Reviewing Fund information and performance
o Changing your address
o Viewing electronic financial reports, prospectuses and statements
o Downloading applications and account servicing forms
QUICK ACCESS
You can obtain Fund prices and purchase, exchange, and sell shares using our
automated phone system (voice activated or touch tone).
o 1-800-551-5849, Option 1.
BERGER INVESTOR SERVICE REPRESENTATIVES
Our Representatives can assist you with any questions and requests you have
regarding your Berger Funds or CAT Portfolio accounts.
o 1-800-551-5849
BY MAIL
Send new account applications and written correspondence to:
Berger Funds
P.O. Box 219958
Kansas City, MO 64121-9958
Send overnight, certified or registered mail to:
Berger Funds
330 West 9th Street, 1st Floor
Kansas City, MO 64105
Send purchases for existing accounts to:
Berger Funds
P. O. Box 219529
Kansas City, MO 64121-9529
In Person
If you are in the Denver area, please visit our Investor Center.
Cherry Creek Shopping Center
3000 E. 1st Avenue, 1st Level
Denver, Colorado 80206
Berger Funds o June 14, 2002 Combined Prospectus
27
Berger Funds
To Open an Account or
Purchase Shares
<Table>
<Caption>
Minimum Initial Investments*
- ----------------------------
Regular investment $2,500
Low Minimum Investment Plan $ 50
IRA $ 500
</Table>
<Table>
<Caption>
Minimum Subsequent Investments*
- -------------------------------
Regular investment $ 50
Regular systematic investment $ 50
Low Minimum Investment Plan $ 50
(required monthly systematic investments)
</Table>
*These minimums must be met in each individual Fund account in which you invest.
BY ONLINE ACCESS
o You may open most types of accounts online at bergerfunds.com.
o Investors who establish electronic transfer privileges may make subsequent
investments online. Berger Funds will automatically debit your designated
bank account for payment.
BY MAIL
o If you are opening a new account, complete and sign the appropriate
application and make your check payable to Berger Funds for the amount you
want to invest. Send the application and check in the envelope provided.
o To add to an existing account, use the Invest by Mail slip attached to your
statement. If you do not have an Invest by Mail slip, note your fund and
account number on your check and mail to the appropriate address.
BY TELEPHONE
o Quick Access
Investors who establish electronic transfer privileges may make additional
purchases through our automated phone system.
o Investor Service Representative
To add to an existing account, you may place an order for additional shares
by calling an Investor Service Representative.
You may pay for your shares by overnight delivery of a check, by wire, or if
you have electronic transfer privileges, through an automatic debit to your
bank account.
Payments must be received within three business days. Orders not paid for on
time will be canceled, and shares may be redeemed from your account to
compensate for any decline in the value of the shares canceled.
BY SYSTEMATIC INVESTMENT PLAN
o To automatically purchase more shares on a regular basis for a regular
minimum or Low Minimum Investment Plan account, fill out the Systematic
Investment Plan section of the application. Berger Funds will automatically
debit your designated bank account for payment. If no date is specified on
your application, investments will be made on the 20th of each month.
o The Low Minimum Investment Plan is designed for investors who would like to
begin a regular investment program but prefer a dollar cost averaging
approach rather than a higher lump sum initial investment. Systematic monthly
investments must be made until the value of each Fund account opened under
the Plan meets the required minimum (refer to the "Account Minimums" section
of this Prospectus).
o You may also buy additional shares using Payroll Deduction if your employer
can initiate this type of transaction. You may have all or a portion of your
paycheck invested directly into your account.
Important notes about purchasing shares:
o The Funds are only available to U.S. citizens or residents.
o You should read and understand the Fund's current prospectus before
investing.
o Your check must be made payable to Berger Funds and must be made in U.S.
dollars drawn on U.S. banks.
o Cash, credit cards, third party checks, credit card convenience checks, money
orders, travelers checks or checks drawn on foreign banks will not be
accepted.
o You may also pay for additional shares by wiring money from your bank account
to your Fund account. For current wire instructions, visit bergerfunds.com,
call Quick Access or call an Investor Service Representative.
o If your check or electronic funds transfer does not clear for any reason,
your purchase will be canceled.
o If your purchase is canceled for any reason, you will be responsible for any
losses or fees imposed by your bank and may be responsible for losses that
may be incurred as a result of any decline in the value of the canceled
purchase.
o We may make additional attempts to debit your bank account for any failed
online, telephone or systematic purchases. You are liable for any potential
costs associated with these additional attempts.
Berger Funds o June 14, 2002 Combined Prospectus
28
Exchanging Shares
BY ONLINE ACCESS
o Investors are automatically eligible to exchange shares online at
bergerfunds.com.
BY MAIL
o To exchange all or part of your shares, send a written request to the
appropriate address indicating the name of the Fund(s) you are selling from,
the name of the Fund(s) you are purchasing into, your account number, the
dollar amount or the number of shares you are selling and a daytime telephone
number.
o Your request must be signed by each registered shareholder, with the
signature(s) appearing exactly as they do on your account registration.
BY TELEPHONE
o To exchange all or a portion of your shares into any other available Berger
Fund or Cash Account Trust Portfolio (CAT Portfolio), call Quick Access or an
Investor Service Representative.
BY SYSTEMATIC EXCHANGE PLAN
o Shares may be exchanged automatically ($50 minimum) between funds monthly,
quarterly, semi-annually or annually. You can select the frequency and day of
the month for the exchanges to occur. If no date is specified on your
request, exchanges will be made on the 20th of each month.
o If the balance in the Fund account you are exchanging from falls below the
normal Systematic Exchange Plan amount, all remaining shares will be
exchanged and the program will be discontinued.
Important notes about exchanging shares:
Shares of the Funds described in this prospectus may be exchanged for shares of
any other Berger Fund or for money market shares in the Cash Account Trust
Portfolios (the CAT Portfolios). There are three CAT Portfolios: the Money
Market Portfolio, the Government Securities Portfolio and the Tax-Exempt
Portfolio.
The exchange privilege with the CAT Portfolios does not constitute an offering
or recommendation of the shares of these portfolios by the Berger Funds or
Berger Financial Group LLC. Berger Financial Group LLC is compensated for
administrative services it performs with respect to accounts in the CAT
Portfolios.
When exchanging shares:
o Each account must be registered identically - have the same ownership and
addresses.
o Each Berger Fund or CAT Portfolio must be legally eligible for sale in your
state of residence.
o Generally, you may exchange out of each of the Berger Funds up to four times
per calendar year (systematic exchanges excluded). At this time, there is no
limit on the number of exchanges permitted out of the CAT Portfolios.
o You are responsible for obtaining and reading the current prospectus for the
Fund or CAT Portfolio into which you are exchanging.
o An exchange out of a Berger Fund results in the sale of that Fund's shares
and the purchase of another, normally resulting in a taxable event for you.
o Exchanges into any new Fund or CAT Portfolio must meet the Fund's or
Portfolio's initial and subsequent investment minimums, or be equal to the
total value of the account.
o The Berger Information Technology Fund will deduct a 1% exchange fee from
your exchange proceeds if you exchange out shares of that Fund held less than
6 months. This fee is paid to the Fund and is intended to discourage
investors from short-term trading of Fund shares and to offset the cost to
the Fund of excess brokerage and other costs incurred as a result of such
trading. If you have purchased shares on different days, shares held the
longest will be redeemed first for purposes of determining if a fee is
applicable. This fee will not apply to reinvested dividends and capital
gains, certain retirement plan accounts, or in the case of redemptions
resulting from the death of the shareholder. The Fund may modify, terminate
or waive this fee at any time.
Berger Funds o June 14, 2002 Combined Prospectus
29
Berger Funds
Selling (Redeeming)
Shares
BY ONLINE ACCESS
o Investors with non-retirement accounts are automatically eligible to sell
shares at bergerfunds.com.
BY MAIL
o To sell all or part of your shares, send a written request to the appropriate
address indicating the name of the Fund(s), your account number, the dollar
amount or the number of shares you are selling and a daytime telephone
number.
o Your request must be signed by each registered shareholder, with the
signature(s) appearing exactly as they do on your account registration.
o Include any necessary Signature Guarantees. Refer to the "Signature
Guarantees/Special Documentation" section of this Prospectus.
BY TELEPHONE
o Investors with non-retirement accounts are automatically eligible to sell
shares by telephone. To sell all or a portion of your shares, call Quick
Access or an Investor Service Representative.
BY SYSTEMATIC WITHDRAWAL PLAN
o Shares may be redeemed automatically ($50 minimum) monthly, quarterly,
semi-annually or annually.
o A systematic withdrawal plan may be established if you own shares in the Fund
worth at least $5,000.
Important notes about redeeming shares:
o Generally, payment for your redeemed shares will be sent to you within seven
days after receipt of your redemption request in good order. Payment may be
made by check, wire, or electronic funds transfer.
o You will be charged $10 if you request a wire transfer. There is no charge
for an electronic funds transfer. Your bank may charge an additional fee to
receive the wire transfer. A wire transfer will be sent the next bank
business day after receipt of your order, and an electronic funds transfer
will be sent the second bank business day after receipt of your order.
o Please see the Signature Guarantees/Special Document-ation section for
signature guarantee requirements.
o Proceeds from the redemption of shares purchased by check or electronic funds
transfer may be delayed until full payment for the shares has been received
and cleared, which may take up to 15 days from the purchase date.
o The Berger Information Technology Fund will deduct a 1% redemption fee from
your redemption proceeds if you redeem shares of that Fund held less than 6
months. This fee is paid to the Fund and is intended to discourage investors
from short-term trading of Fund shares and to offset the cost to the Fund of
excess brokerage and other costs incurred as a result of such trading. If you
have bought shares on different days, shares held the longest will be
redeemed first for purposes of determining if a fee is applicable. This fee
will not apply to reinvested dividends and capital gains, certain retirement
plan accounts, or in the case of redemptions resulting from the death of the
shareholder. The Fund may modify, terminate or waive this fee at any time.
o Interest will not be paid for amounts represented by uncashed distribution or
redemption checks.
Signature Guarantees/Special Documentation
The Funds use Signature Guarantees to protect you and the Funds from possible
fraudulent requests for redeemed shares. Your request must be in writing and
accompanied by a Signature Guarantee if:
o Your redemption request exceeds $100,000.
o You request that your redemption be made payable to anyone other than the
registered owner(s).
o You request that payment of your redemption be sent to a bank that is not
already on file for redemption privileges.
o You want to change the bank on file for redemption privileges.
o You request that payment of your redemption be mailed to an address that has
been changed within 15 days of your redemption request or to an address other
than the one of record.
o You declined telephone or online options on your new account application and
wish to add them at a later time.
o You wish to add or remove owners on your account.
Berger Funds reserves the right to require Signature Guarantees under certain
other circumstances.
You can obtain a Signature Guarantee from most broker-dealers, national or state
banks, credit unions, federal savings and loan associations or other eligible
institutions. You cannot obtain a Signature Guarantee from a notary public.
Make sure the Signature Guarantee appears together with the signature(s) of all
registered owner(s) of the redeemed shares on the written redemption request.
Additional documents are required for redemptions by corporations, executors,
administrators, trustees and guardians.
Berger Funds o June 14, 2002 Combined Prospectus
30
Information About
Your Account
Excessive Trading
The Funds do not permit excessive, short-term or other abusive trading practices
due to the potential negative impact upon portfolio management strategies and
overall Fund performance. The Funds reserve the right to reject any purchase or
exchange order and to revoke the exchange privilege from any investor that, in
the Funds' opinion, engages in trading that may be disruptive to the Funds, or
who has a history of excessive trading. Accounts under common ownership or
control may be considered together when evaluating the trading history.
Online and Telephone Considerations
All new accounts are automatically granted online and telephone transaction
privileges unless explicitly declined in writing, either on the account
application or by written notice. Bergerfunds.com and Quick Access may restrict
account access and transaction capabilities for certain types of accounts.
Please contact a representative for more information. You may give up some level
of security by choosing to buy or sell shares by telephone or online, rather
than by mail. The Funds use procedures designed to give reasonable assurance
that telephone and online instructions are genuine, including recording the
transactions, testing the identity of the shareholder placing the order and
sending prompt written confirmation of transactions to the shareholder of
record. You should promptly review all confirmation statements for accuracy.
The Funds and their service providers are not liable for acting upon
instructions communicated by telephone or online that they believe to be genuine
if these procedures are followed.
In times of extreme economic conditions, market conditions, or other events, we
may experience unusually high call volumes, making it difficult to reach a
Berger Funds representative. Please consider using our transaction functionality
on bergerfunds.com or Quick Access, or submit requests in writing.
Your Share Price
The price at which you buy, sell or exchange Fund shares is the share price or
net asset value (NAV). The share price for each Fund is determined by adding the
value of that Fund's investments, cash and other assets, deducting liabilities,
and then dividing that value by the total number of that Fund's shares
outstanding. For Funds offering more than one class of shares, share price is
calculated separately for each class.
Each Fund's share price is calculated at the close of the regular trading
session of the New York Stock Exchange (the "Exchange") (normally 4:00 p.m.
Eastern time) each day that the Exchange is open. Share prices are not
calculated on the days that the Exchange is closed.
For a purchase, redemption or exchange of Fund shares, your price is the share
price next calculated after your request is received in good order and accepted
by the Fund, its authorized agent or designee. To receive a specific day's
price, your request must be received before the close of the Exchange on that
day.
Generally, payment for redeemed shares will be sent within seven days after
receipt of the redemption request in good order. However, payment may be
postponed under unusual circumstances, such as when normal trading is not taking
place on the Exchange, an emergency as defined by the Securities and Exchange
Commission exists, or as permitted by the Securities and Exchange Commission.
When the Funds calculate their share price, they value the securities they hold
at market value. Sometimes market quotes for some securities are not available
or are not representative of market value. Examples would be when events occur
that materially affect the value of a security at a time when the security is
not trading or when the securities are illiquid. In that case, securities may be
valued in good faith at fair value, using consistently applied procedures
decided on by the trustees or directors. Money market instruments maturing
within 60 days are valued at amortized cost, which approximates market value.
Assets and liabilities expressed in foreign currencies are converted into U.S.
dollars at the prevailing market rates quoted by one or more banks or dealers
shortly before the close of the Exchange.
A Fund's foreign securities may trade on days that the Exchange is closed and
the Fund's daily share price is not calculated. As a result, the Fund's daily
share price may be affected, and you will not be able to purchase or redeem
shares.
CONFIRMATION OF YOUR PURCHASES AND REDEMPTIONS
You will receive transaction confirmation statements reflecting the share price,
dollar amount and number of shares associated with your transactions. Fractional
shares will be calculated to three decimal places. Reinvestment of fund
distributions, Systematic Investment Plan purchases and Systematic Withdrawal
Plan redemptions are only confirmed on quarterly statements. You may sign up to
receive your statements electronically at bergerfunds.com.
Berger Funds o June 14, 2002 Combined Prospectus
31
Berger Funds
SHAREHOLDER REPORTS
To reduce expenses, a Fund may mail only one copy of notices, financial reports,
prospectuses and proxy statements to investors who share an address, even if the
accounts are registered under different names. To automatically receive your own
copy or, if at any time you want to request separate copies for individual
account holders, you may do so by calling an Investor Service Representative.
Your request to receive additional copies will take effect within 30 days. A
fund will continue to send only one copy of these documents unless you withdraw
your consent.
SHARE CERTIFICATES
To assist in minimizing administrative costs, share certificates are no longer
issued. Records of share ownership are maintained by the Fund's transfer agent
in book entry form. If you are selling shares previously issued in certificate
form, you need to include the unsigned certificate along with your redemption or
exchange request, and send it to Berger Funds by registered mail. If you have
lost your certificate, please call an Investor Service Representative.
PURCHASES THROUGH BROKER-DEALERS
You may buy Fund shares through certain broker-dealers or other financial
organizations, but these organizations may charge you a fee or may have
different minimums for initial or subsequent investments that are not applicable
if you buy shares directly from the Funds.
THIRD-PARTY ADMINISTRATORS
Certain brokerage firms and other companies may provide administrative services
(such as sub-transfer agency, record-keeping or shareholder communications
services) to investors purchasing shares of the Funds through those companies. A
Fund's adviser or a Fund (if approved by its directors or trustees) may pay fees
to these companies for their services. These companies may also be appointed as
agents for or authorized by the Funds to accept on their behalf purchase and
redemption requests that are received in good order. Subject to Fund approval,
certain of these companies may be authorized to designate other entities to
accept purchase and redemption orders on behalf of the Funds.
Privacy Notice
To service your account, each Fund may collect personal information from you.
Personal information includes information you provide when opening an account or
when requesting investment literature, such as your name and address. Personal
information also includes your account balance and transaction information.
The Funds do not share, distribute or sell this information to any outside
company or individual without permission. Your personal information is used only
to service or maintain your account, including providing you with information on
Berger Funds' products and services. We will not disclose your personal
information to third parties, other than to service your account as permitted by
law, nor sell your personal information to third parties. Nor do we provide your
personal information to third parties for their marketing purposes. We may
disclose information as required by the Securities and Exchange Commission and
other federal and state regulatory agencies.
The Funds recognize the importance of protecting your personal and financial
information entrusted to us. Thus, we restrict access to your personal and
financial data to those authorized to service your account. These personnel,
like all personnel, are subject to a strict employment policy regarding
confidentiality. To further ensure your privacy, our web site uses 128-bit
internet security encryption protocol. As an added measure, we do not include
personal or account information in nonsecure e-mails that we send you via the
internet. Berger Funds' privacy policy may be changed or modified at any time.
RIGHTS RESERVED BY THE FUNDS
Berger Funds and their agents reserve certain rights including the following:
(1) to waive or reduce investment minimums and fees; (2) to increase investment
minimums following notice; (3) to refuse any purchase or exchange order; (4) to
terminate or modify the exchange privilege at any time; (5) to not cancel a
transaction once it has been submitted; (6) to discontinue offering shares of a
Fund; (7) to close any account if it is believed the shareholder is engaging in
activities which may be detrimental to the Funds; (8) to reject any trade not in
good order; (9) to freeze any account and suspend account services when notice
has been received of a dispute between the registered or beneficial account
owners, or there is reason to believe a fraudulent transaction may occur, or if
ordered to do so by a governmental agency; (10) to act on instructions believed
to be genuine; and (11) to suspend temporarily shareholder services and
telephone transactions, in case of an emergency.
REDEMPTIONS IN-KIND
Each Fund intends to redeem its shares only for cash, although in order to
protect the interest of remaining shareholders, it retains the right to redeem
its shares in-kind under unusual circumstances. In-kind payment means payment
will be made to you in portfolio securities rather than cash. If this occurs,
you will incur transaction costs if you sell the securities for cash. You may
have difficulty selling the securities and recovering the amount of your
redemption if the securities are illiquid.
Berger Funds o June 14, 2002 Combined Prospectus
32
Information About
Your Account
(continued)
ACCOUNT MINIMUMS
The Funds may charge a $10 annual fee to all accounts (except IRA and UGMA/UTMA
accounts) with balances that are under the account minimums as follows:
o Regular investment accounts with a balance of less than $2,000 that are not
making systematic monthly investments.
o Low Minimum Investment Plan accounts established before October 1, 2001 with
a balance of less than $2,000 that are not making systematic monthly
investments.
o Low Minimum Investment Plan accounts established on or after October 1, 2001
with a balance of less than $2,500 that are not making systematic monthly
investments.
The annual fee is normally assessed in December and is designed to help offset
the proportionately higher costs of maintaining accounts with lower balances.
This fee will apply to accounts that have been over the stated minimum at some
point in time only if the balance has dropped below this amount because shares
were redeemed, not because the share value declined.
Shares in accounts that do not meet the minimum balance requirements applicable
to them as described may also be subject to involuntary redemption by the Funds.
REDEMPTIONS BY THE FUNDS OF CERTAIN ACCOUNTS
To reduce their expenses, all Funds other than the Berger Growth Fund may
involuntarily redeem the shares in your account if your balance drops below
$2,000 - but only if it drops below this amount because you have redeemed
shares, not because the share value has declined. You will be given at least 60
days' notice before a Fund undertakes any involuntary redemption. During that
time, you may buy more shares to bring your account to or above the minimum.
Distributions and Taxes
DISTRIBUTIONS OF INCOME AND GAINS
Unless you tell us that you want to receive your distributions in cash, they
will be reinvested automatically in Fund shares. The Funds generally make two
kinds of distributions:
o Capital gains from the sale of portfolio securities held by a fund. Each Fund
will distribute any net realized capital gains annually, normally in
December.
o Net investment income from interest or dividends received on securities held
by a fund. The Funds will distribute their investment income annually,
normally in December.
The Funds reserve the right to reinvest into your account undeliverable or
uncashed distribution checks that remain outstanding for six months, or
dividends or distributions of less than $10. The distribution amount will be
reinvested in shares of the applicable Fund at the share price next computed
after the check is canceled.
BUYING A DISTRIBUTION
Unless you have a tax-deferred account, purchasing shares in an account shortly
before a distribution occurs is called "buying a dividend." Income taxes must be
paid in taxable accounts on any distributions, regardless of whether the
distribution was reinvested or received in cash. This tax liability is incurred
whether the actual value of your account increased, decreased or remained the
same after your share purchase.
Throughout the period covered by a distribution, funds may build up taxable
gains on securities sold at a profit. Any shareholders of record on the "record"
date receive the applicable distributions, even if they did not own the shares
when the actual gains occurred.
In other words, "buying a dividend" results in you incurring the full tax
liability for the entire distribution period, even though you may not have
participated in the gains realized by the portfolio.
YOUR TAXES
You generally will owe tax on amounts distributed to you by the Funds in any
non-retirement account whether you reinvest them in additional shares or receive
them in cash.
Distributions of gains from the sale of assets held by a Fund for more than one
year generally are taxable to you at the applicable long-term capital gains
rate, regardless of how long you have owned your Fund shares. Distributions from
other sources generally are taxed as ordinary income.
Distributions made by the Funds to you will normally be capital gains. A portion
of those gains may be net short-term capital gains, which are taxed as ordinary
income. The Berger Balanced Fund normally will also distribute net investment
income, which is taxed as ordinary income. The other Berger Funds generally will
not distribute net investment income, although any net investment income that is
generated as a by-product of managing their portfolios will be distributed to
you.
If you redeem Fund shares that have appreciated in value, you will have a
taxable gain upon redemption. Exchanges are treated as a redemption and purchase
for tax purposes. Therefore, you will also have a taxable gain if you exchange
shares that have appreciated in value.
Berger Funds o June 14, 2002 Combined Prospectus
33
Berger Funds
ADDITIONAL TAX INFORMATION
You should consult your own tax adviser about your particular situation. For
more information about other tax matters, including backup withholding for
certain taxpayers and other tax aspects of redemptions, see the SAI.
Tax-Sheltered Retirement Plans
The Funds offer several tax-qualified retirement plans for individuals,
businesses and nonprofit organizations. For information about establishing an
IRA, Roth IRA, profit sharing or money purchase pension plan, 403(b) Custodial
Account, SEP-IRA, SIMPLE IRA, Coverdell Education Savings Account (formerly the
Education IRA account) or other retirement plans, please call or write to Berger
Funds. Trustees for existing 401(k) or other plans interested in using Fund
shares as an investment or investment alternative in their plans are invited to
call the Funds at 1-800-259-2820.
Berger Funds o June 14, 2002 Combined Prospectus
34
Organization of the
Berger Funds Family
Investment Managers
The following companies provide investment management and administrative
services to the Funds. The advisory fees paid for the most recent fiscal year
are shown in the following table as a percentage of each Fund's average daily
net assets.
Berger Financial Group LLC (BFG) (formerly Berger LLC) (210 University Blvd.,
Denver, CO 80206) serves as investment adviser, sub-adviser or administrator to
mutual funds and institutional investors. BFG has been in the investment
advisory business since 1974. When acting as investment adviser, BFG is
responsible for managing the investment operations of the Funds. BFG also
provides administrative services to the Funds.
Bay Isle Financial LLC (Bay Isle) (475 14th Street, Suite 550, Oakland, CA
94612), serves as investment adviser or sub-adviser to mutual funds,
institutional investors and individual separate accounts. As sub-adviser, Bay
Isle provides day-to-day management of the investment operations of the Berger
Information Technology Fund, Berger Large Cap Value Fund, and Berger Small Cap
Value Fund II. Bay Isle presently uses a team approach in which no one person of
the investment team is primarily responsible for the selection of a Fund's
portfolio securities. The Bay Isle investment team that manages the Berger Large
Cap Value Fund also comprises the BFG investment team that manages the Berger
Balanced Fund. Bay Isle has been managing value accounts since 1987.
Perkins, Wolf, McDonnell & Company (PWM) (310 So. Michigan Avenue, Suite 2600,
Chicago, IL 60604) has been in the investment management business since 1984 and
provides day-to-day management of the investment operations as sub-adviser of
the Berger Mid Cap Value Fund.
Berger Funds o June 14, 2002 Combined Prospectus
35
Berger Funds
<Table>
<Caption>
Advisory Fee
Paid by the Fund
Fund or Portfolio The Fund's Investment Manager
- ---- ---------------- -----------------------------
Berger Growth 0.71% paid to Jay W. Tracey, CFA, Executive Vice President and Chief Investment
Fund BFG Officer of BFG, assumed management of the Fund in August 2000. Mr.
Tracey joined BFG in June 2000. From November 1995 to May 2000, he was
Vice President and Portfolio Manager of Oppenheimer Funds where he
managed emerging growth funds. Mr. Tracey has more than 25 years
experience in the investment management industry.
- ----------------------------------------------------------------------------------------------------------------
Berger Large Cap 0.75% paid to Steven L. Fossel, CFA, Vice President of BFG, has been the portfolio
Growth Fund BFG manager of the Large Cap Growth Fund since August 2000. Mr. Fossel
assumed sole portfolio management of the Fund in December 2001. Mr.
Fossel managed the Fund on an interim basis from August 2000 to January
2001, and as a team portfolio manager with Jay W. Tracey from January
to December 2001. Mr. Fossel joined BFG in March 1998 as a Senior
Equity Analyst. Previously, Mr. Fossel was Vice President (from January
1996 to February 1998) and an equity analyst (from August 1992 to
January 1996) with Salomon Brothers Asset Management and assistant
portfolio manager of the Salomon Total Return Fund from January 1997 to
February 1998. Mr. Fossel has more than 10 years of experience in the
investment management industry."
- ----------------------------------------------------------------------------------------------------------------
Berger Mid Cap 0.75% paid to Jay W. Tracey, CFA (see Berger Growth Fund) and Paul A. LaRocco, CFA
Growth Fund BFG (see Berger Small Company Growth Fund) were appointed team portfolio
managers of the Berger Mid Cap Growth Fund in December 2001.
- ----------------------------------------------------------------------------------------------------------------
Berger Small 0.82% paid to Paul A. LaRocco, CFA, Vice President of BFG, assumed management of the
Company Growth BFG Fund in January 2001 when he joined BFG. Prior to joining BFG, Mr.
Fund LaRocco co-managed small and mid-cap funds for Montgomery Asset
Management from-January 2000 to December 2000. From March 1998 to
December 1999, he was a Senior Portfolio Manager for small and mid-cap
growth funds at Founders Asset Management and from 1993 to March 1998,
he was a Portfolio Manager for small and mid-cap funds with Oppenheimer
Funds. Mr. LaRocco has more than 11 years of experience in the
investment management industry.
- ----------------------------------------------------------------------------------------------------------------
Berger Information 0.85% paid to An investment team at Bay Isle has managed the Fund since its inception
Technology Fund BFG in April 1997.
- ----------------------------------------------------------------------------------------------------------------
Berger Large Cap 0.75% paid to An investment team at Bay Isle has managed the Fund since its inception
Value Fund(1) BFG in September 2001.
- ----------------------------------------------------------------------------------------------------------------
Berger Mid Cap 0.75% paid to Thomas M. Perkins has been the lead investment manager for the Berger
Value Fund BFG Mid Cap Value Fund since its inception in August 1998. Thomas Perkins
has been an investment manager since 1974 and joined Perkins, Wolf,
McDonnell & Company as a portfolio manager in 1998. Previously, he was
a portfolio manager of valuation sensitive growth portfolios for
Alliance Capital from 1984 to June 1998. As lead manager, Thomas
Perkins is responsible for the daily decisions of the Fund's security
selection. Robert H. Perkins has served as investment manager of the
Berger Mid Cap Value Fund since its inception in August 1998, and as
investment manager of the Berger Small Cap Value Fund since its
inception in 1985. Robert Perkins has been an investment manager since
1970 and serves as President and a director of PWM. Jeffrey Kautz, CFA,
has been an investment manager for the Berger Mid Cap Value Fund since
January 2002. Jeff Kautz has served as a research analyst for the value
products of PWM since October 1997. Previously, Jeff worked as a market
maker for the G.V.R. Company from 1995 to October 1997.
- ----------------------------------------------------------------------------------------------------------------
Berger Small Cap 0.85% paid to An investment team at Bay Isle has managed the Fund since its inception
Value Fund II(2) BFG in March 2002.
- ----------------------------------------------------------------------------------------------------------------
Berger Balanced 0.70% paid to BFG has been the investment manager for the Fund since its inception in
Fund BFG June 2000. BFG has managed the Fund using a team approach since June
2002. No one person of the investment team is primarily responsible for
the selection of the Fund's portfolio securities.
- ----------------------------------------------------------------------------------------------------------------
</Table>
(1) The investment advisory fee charged to the Berger Large Cap Value Fund is:
0.75% of the first $500 million of average daily net assets; 0.70% of the next
$500 million and 0.65% in excess of $1 billion.
(2) The investment advisory fee charged to the Berger Small Cap Value Fund II
is: 0.85% of the first $500 million of average daily net assets; 0.80% of the
next $500 million and 0.75% in excess of $1 billion.
Berger Funds o June 14, 2002 Combined Prospectus
36
Organization of the
Berger Funds Family
(continued)
PORTFOLIO TURNOVER
Portfolio changes are made whenever a Fund's investment manager believes that
the Fund's goal could be better achieved by investment in another security,
regardless of portfolio turnover. At times, portfolio turnover for a Fund may
exceed 100% per year. A turnover rate of 100% means the securities owned by a
Fund were replaced once during the year. Higher turnover rates may result in
higher brokerage costs to the Funds and in higher net taxable gains for you as
an investor. Each Fund's portfolio turnover rate can be found under the heading
"Financial Highlights for the Berger Funds Family."
12b-1 Arrangements
You pay no sales charge or commissions when you buy or sell Fund shares.
However, each Fund has adopted a 12b-1 plan permitting it to pay a fee in
connection with distribution of its shares. Berger Financial Group LLC is
entitled to be paid a fee under each plan of 0.25% of each Fund's average daily
net assets. Because this fee is paid on an ongoing basis, this may result in the
cost of your investment increasing and over time may cost you more than other
types of sales charges. The fee may be used for such things as marketing and
promotion, compensation to dealers and others who provide distribution and
administrative services, and shareholder support services (such as routine
requests for information).
Special Fund Structures
MULTI-CLASS
The Berger Small Company Growth Fund, the Berger Information Technology Fund,
the Berger Large Cap Value Fund, and the Berger Mid Cap Value Fund each
currently have two classes of shares. The Berger Small Cap Value Fund II
currently has three classes of shares. The Investor Shares are offered through
this prospectus and are available to the general public. The Institutional
Shares are offered through a separate prospectus and are designed for investors
who maintain a minimum account balance of $250,000. The Service Shares (for
Berger Small Cap Value Fund II only) are offered through a separate prospectus
and are available through retirement plans, brokers, bank trust departments,
financial advisers or other financial intermediaries. Each class of shares has
its own expenses so that share price, performance and distributions will differ
between classes. The 12b-1 plans adopted by these Funds apply to the Investor
Shares and the Service Shares (for Berger Small Cap Value Fund II only). For
more information on Institutional Shares, please call 1-800-259-2820. For more
information on Service Shares, please call 1-800-333-1001.
For more information on the multi-class fund structure, see the SAI.
Berger Funds o June 14, 2002 Combined Prospectus
37
Financial Highlights
Financial Highlights
for the Berger Funds
Family
The financial highlights will help you understand each Fund's financial
performance for the periods indicated. Certain information reflects financial
results for a single Fund share. Total return shows how much your investment in
the Fund increased or decreased during each period, assuming you reinvested all
dividends and distributions. Except as otherwise noted, PricewaterhouseCoopers
LLP, independent accountants, audited this information. Their report is included
in the Funds' annual report, which is available without charge upon request.
Berger Growth Fund
For a Share Outstanding Throughout the Period
<Table>
<Caption>
Years Ended September 30,
2001 2000 1999 1998 1997(1)
----------- ----------- ----------- ----------- -----------
Net asset value, beginning of period $ 20.87 $ 15.56 $ 11.99 $ 21.51 $ 19.64
----------- ----------- ----------- ----------- -----------
From investment operations
Net investment loss (0.00)(2) -- (0.00)(2) -- (0.09)
Net realized and unrealized gains (losses)
from investments and foreign currency transactions (11.22) 8.89 4.55 (2.57) 4.73
----------- ----------- ----------- ----------- -----------
Total from investment operations (11.22) 8.89 4.55 (2.57) 4.64
----------- ----------- ----------- ----------- -----------
Less dividends and distributions
Distributions (from capital gains) -- (3.58) (0.98) (6.95) (2.77)
Distributions (in excess of capital gains) (2.70) -- -- -- --
----------- ----------- ----------- ----------- -----------
Total dividends and distributions (2.70) (3.58) (0.98) (6.95) (2.77)
----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 6.95 $ 20.87 $ 15.56 $ 11.99 $ 21.51
----------- ----------- ----------- ----------- -----------
Total Return (59.38)% 60.93% 38.96% (16.08)% 26.50%
----------- ----------- ----------- ----------- -----------
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $ 722,977 $ 1,947,772 $ 1,333,794 $ 1,286,828 $ 1,889,048
Expense ratio to average net assets 1.26% 1.13% 1.36% 1.38% 1.41%
Ratio of net investment loss to average net assets (0.77)% (0.87)% (0.38)% (0.38)% (0.40)%
Portfolio turnover rate 131% 70% 274% 280% 200%
</Table>
(1) Per share calculations for the period were based on average shares
outstanding.
(2) Amount represents less than $0.01 per share.
Berger Funds o June 14, 2002 Combined Prospectus
38
Financial Highlights
for the Berger Funds
Family (continued)
Berger Large Cap Growth Fund
For a Share Outstanding Throughout the Period
<Table>
<Caption>
Years Ended September 30,
2001(3) 2000 1999 1998 1997
--------- --------- --------- --------- ---------
Net asset value, beginning of period $ 21.41 $ 15.32 $ 13.60 $ 16.72 $ 14.06
--------- --------- --------- --------- ---------
From investment operations
Net investment income (loss) (0.00)(1) -- (0.00)(1) 0.04 0.14
Net realized and unrealized gains (losses) from
investments and foreign currency transactions (9.49) 8.27 4.53 (0.30) 4.28
--------- --------- --------- --------- ---------
Total from investment operations (9.49) 8.27 4.53 (0.26) 4.42
--------- --------- --------- --------- ---------
Less dividends and distributions
Dividends (from net investment income) -- -- -- (0.03) (0.13)
Dividends (in excess of net investment income) -- -- (0.01) (0.01) --
Distributions (from capital gains) (0.56) (2.18) (2.80) (2.82) (1.63)
Distributions (in excess of capital gains) (1.63) -- -- -- --
--------- --------- --------- --------- ---------
Total dividends and distributions (2.19) (2.18) (2.81) (2.86) (1.76)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 9.73 $ 21.41 $ 15.32 $ 13.60 $ 16.72
--------- --------- --------- --------- ---------
Total Return (47.79)% 56.09% 38.67% (1.60)% 34.56%
--------- --------- --------- --------- ---------
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $ 318,504 $ 725,272 $ 379,356 $ 301,330 $ 357,023
Expense ratio to average net assets 1.25% 1.18% 1.35% 1.44% 1.51%
Ratio of net investment income (loss) to average net
assets (0.00)% (0.17)% (0.22)% 0.25% 0.87%
Portfolio turnover rate 70% 74% 173% 417%(2) 173%
</Table>
(1) Amount represents less than $0.01 per share.
(2) Portfolio turnover was greater than expected during this period due to
active trading undertaken in response to market conditions that existed at
the time.
(3) Effective January 29, 2001, the directors approved a change in the name and
non-fundamental investment strategies of the Fund.
Berger Mid Cap Growth Fund
For a Share Outstanding Throughout the Period
<Table>
<Caption>
Period from
Years Ended September 30, December 31, 1997(1)
2001 2000 1999 to September 30, 1998
--------- --------- --------- ---------------------
Net asset value, beginning of period $ 41.27 $ 21.82 $ 10.93 $ 10.00
--------- --------- --------- ---------
From investment operations
Net investment income (loss) (0.00)(5) -- (0.00)(5) --
Net realized and unrealized gains (losses) from
investments and foreign currency transactions (25.80) 20.75 11.10 0.93
--------- --------- --------- ---------
Total from investment operations (25.80) 20.75 11.10 0.93
--------- --------- --------- ---------
Less dividends and distributions
Distributions (from capital gains) -- (1.30) (0.21) --
Distributions (in excess of capital gains) (4.71) -- -- --
--------- --------- --------- ---------
Total dividends and distributions (4.71) (1.30) (0.21) --
--------- --------- --------- ---------
Net asset value, end of period $ 10.76 $ 41.27 $ 21.82 $ 10.93
--------- --------- --------- ---------
Total Return(2) (68.35)% 95.98% 102.76% 9.30%
--------- --------- --------- ---------
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $ 30,418 $ 122,564 $ 25,550 $ 4,283
Net expense ratio to average net assets(3) 1.50% 1.28% 1.78% 2.00%(4)
Ratio of net investment loss to average net assets (1.15)% (0.84)% (1.03)% (0.82)%(4)
Gross expense ratio to average net assets 1.50% 1.28% 1.78% 2.46%(4)
Portfolio turnover rate(2) 216% 150% 178% 262%
</Table>
(1) Commencement of investment operations.
(2) Not annualized.
(3) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Advisor.
(4) Annualized.
(5) Amount represents less than $0.01 per share.
Berger Funds o June 14, 2002 Combined Prospectus
39
Financial Highlights
Berger Small Company Growth Fund - Investor Shares
For a Share Outstanding Throughout the Period
<Table>
<Caption>
Years Ended September 30,
2001 2000 1999 1998 1997
--------- ----------- ----------- ----------- ---------
Net asset value, beginning of period $ 7.43 $ 4.86 $ 3.61 $ 5.33 $ 4.74
--------- ----------- ----------- ----------- ---------
From investment operations
Net investment income (loss) (0.00)(1) (0.00)(1) (0.00)(1) -- (0.05)
Net realized and unrealized gains (losses) from
investments and foreign currency transactions (3.93) 3.85 1.95 (1.24) 0.84
--------- ----------- ----------- ----------- ---------
Total from investment operations (3.93) 3.85 1.95 (1.24) 0.79
--------- ----------- ----------- ----------- ---------
Less dividends and distributions
Distributions (from capital gains) -- (1.28) (0.70) (0.48) (0.20)
Distributions (in excess of capital gains) (1.04) -- -- -- --
--------- ----------- ----------- ----------- ---------
Total dividends and distributions (1.04) (1.28) (0.70) (0.48) (0.20)
--------- ----------- ----------- ----------- ---------
Net asset value, end of period $ 2.46 $ 7.43 $ 4.86 $ 3.61 $ 5.33
--------- ----------- ----------- ----------- ---------
Total Return (59.36)% 84.27% 62.78% (24.70)% 17.68%
--------- ----------- ----------- ----------- ---------
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $ 586,070 $ 1,468,541 $ 675,637 $ 561,741 $ 902,685
Net expense ratio to average net assets(2) 1.32% 1.27% 1.60% 1.48% 1.67%
Ratio of net investment loss to average net assets (0.88)% (0.83)% (1.21)% (1.01)% (1.09)%
Gross expense ratio to average net assets 1.32% 1.27% 1.60% 1.59% 1.67%
Portfolio turnover rate 147% 92% 128% 97% 111%
</Table>
(1) Amount represents less than $0.01 per share
(2) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Advisor.
Berger Information Technology Fund - Investor Shares
For a Share Outstanding Throughout the Period
<Table>
<Caption>
Period from
Years Ended September 30, July 2, 1999(1)
2001(2) 2000(2) to September 30, 1999(2)
-------- -------- ------------------------
Net asset value, beginning of period $ 17.59 $ 8.21 $ 7.64
-------- -------- --------
From investment operations
Net investment income (loss) (0.13)(8) (0.00)(5) (0.00)(5)
Net realized and unrealized gains (losses) from
investments and foreign currency transactions (12.47)(8) 9.43 0.57
-------- -------- --------
Total from investment operations (12.60) 9.43 0.57
-------- -------- --------
Less dividends and distributions
Distributions (from capital gains) -- (0.05) --
-------- -------- --------
Total dividends and distributions -- (0.05) --
-------- -------- --------
Net asset value, end of period $ 4.99 $ 17.59 $ 8.21
-------- -------- --------
Total Return(6),(7) (71.64)% 114.97% 7.46%
-------- -------- --------
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $ 23,764 $ 72,173 $ 4,811
Net expense ratio to average net assets(3) 1.75% 1.63% 1.83%(4)
Ratio of net investment loss to average net assets (1.32)% (1.36)% (1.58)%(4)
Gross expense ratio to average net assets 1.75% 1.63% 2.16%(4)
Portfolio turnover rate(6) 80% 38% 31%
</Table>
(1) Commencement of investment operations for Investor Shares.
(2) All per share data has been adjusted to reflect a 7-for-1 share split,
effective October 17, 2000.
(3) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Advisor.
(4) Annualized.
(5) Amount represents less than $0.01 per share.
(6) Not annualized.
(7) Applicable redemption fees are not included in Total Return calculation.
(8) Per share calculations for the period were based on average shares
outstanding.
Berger Funds o June 14, 2002 Combined Prospectus
40
Financial Highlights
for the Berger Funds
Family (continued)
Berger Information Technology Fund
Supplemental Financial Highlights
For a Share Outstanding Throughout the Period
The following financial highlights are for the Fund for periods ending February
28, 1998 and 1999, and for the period from March 1, 1999 to July 1, 1999, prior
to the Fund's reorganization. Prior to the Fund's reorganization on July 2,
1999, the Fund was known as the InformationTech 100(R) Fund. At the time of the
reorganization, the Fund adopted share classes and first began offering the
Investor Shares. Therefore, the 0.25% 12b-1 fee paid by the Investor Shares is
not reflected in the data on the table. Unless otherwise noted, this information
was audited by the Fund's prior independent accountants. Their report appears in
the 1999 Annual Report to Shareholders of the InformationTech 100(R) Fund and is
available from the Fund without charge upon request. The information for the
period March 1, 1999 to July 1, 1999 is unaudited.
<Table>
<Caption>
Period from
March 1, 1999 Period from
to July 1, 1999(2) Year Ended April 8, 1997(1)
(Unaudited) February 28, 1999(2) to February 28, 1998(2)
------------------ -------------------- -----------------------
Net asset value, beginning of period $ 6.34 $ 4.31 $ 2.86
---------- ---------- ----------
From investment operations
Net investment loss (0.03) (0.04) (0.01)
Net realized and unrealized gains (losses) from
investments and foreign currency transactions 1.43 2.07 1.46
---------- ---------- ----------
Total from investment operations 1.40 2.03 1.45
---------- ---------- ----------
Less dividends and distributions
Distributions (from capital gains) (0.10) -- --
---------- ---------- ----------
Total dividends and distributions (0.10) -- --
---------- ---------- ----------
Net asset value, end of period $ 7.64 $ 6.34 $ 4.31
---------- ---------- ----------
Total Return(5) 20.54% 47.13% 50.75%
---------- ---------- ----------
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $ 18,101 $ 12,446 $ 2,674
Net expense ratio to average net assets(3) 1.48%(4) 1.50% 1.50%(4)
Ratio of net income (loss) to average net assets (1.22)%(4) (1.19)% (1.01)%(4)
Gross expense ratio to average net assets 2.03%(4) 2.67% 12.17%(4)
Portfolio turnover rate(5) 11% 35% 33%
</Table>
(1) Commencement of investment operations for the Fund.
(2) All per share data has been adjusted to reflect a 7-for-1 share split,
effective October 17, 2000.
(3) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Advisor.
(4) Annualized.
(5) Not annualized.
Berger Funds o June 14, 2002 Combined Prospectus
41
Financial Highlights
Berger Mid Cap Value Fund - Investor Shares
For a Share Outstanding Throughout the Period
<Table>
<Caption>
Period from
Years Ended September 30, August 12, 1998(1)
2001 2000 1999 to September 30, 1998
--------- --------- --------- ---------------------
Net asset value, beginning of period $ 14.43 $ 12.17 $ 9.33 $ 10.00
--------- --------- --------- ---------
From investment operations
Net investment income 0.06 0.08 0.07 0.03
Net realized and unrealized gains (losses) from
investments and foreign currency transactions 1.27 3.46 2.83 (0.70)
--------- --------- --------- ---------
Total from investment operations 1.33 3.54 2.90 (0.67)
--------- --------- --------- ---------
Less dividends and distributions
Dividends (from net investment income) (0.10) (0.04) (0.06) --
Distributions (from capital gains) (1.36) (1.24) -- --
--------- --------- --------- ---------
Total dividends and distributions (1.46) (1.28) (0.06) --
--------- --------- --------- ---------
Net asset value, end of period $ 14.30 $ 14.43 $ 12.17 $ 9.33
--------- --------- --------- ---------
Total Return(2) 9.70% 31.11% 31.12% (6.70)%
--------- --------- --------- ---------
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $ 148,505 $ 33,013 $ 22,918 $ 19,710
Expense ratio to average net assets 1.22% 1.59% 1.62% 1.68%(3)
Ratio of net investment income to average net assets 0.78% 0.72% 0.54% 2.30%(3)
Portfolio turnover rate(2) 116% 129% 154% 25%
</Table>
(1) Commencement of investment operations.
(2) Not annualized.
(3) Annualized.
Berger Funds o June 14, 2002 Combined Prospectus
42
Financial Highlights
for the Berger Funds
Family (continued)
Berger Balanced Fund
For a Share Outstanding Throughout the Period
<Table>
<Caption>
Years Ended September 30,
2001 2000 1999 1998(1)
--------- --------- --------- ---------
Net asset value, beginning of period $ 19.38 $ 16.62 $ 13.28 $ 10.00
--------- --------- --------- ---------
From investment operations
Net investment income 0.27 0.28 0.23 0.22
Net realized and unrealized gains (losses) from
investments and foreign currency transactions (4.89) 4.57 4.69 5.17
--------- --------- --------- ---------
Total from investment operations (4.62) 4.85 4.92 5.39
--------- --------- --------- ---------
Less dividends and distributions
Dividends (from net investment income) (0.26) (0.27) (0.23) (0.21)
Distributions (from capital gains) (0.96) (1.82) (1.35) (1.90)
Distributions (in excess of capital gains) (1.04) -- -- --
--------- --------- --------- ---------
Total dividends and distributions (2.26) (2.09) (1.58) (2.11)
--------- --------- --------- ---------
Net asset value, end of period $ 12.50 $ 19.38 $ 16.62 $ 13.28
--------- --------- --------- ---------
Total Return (25.82)% 30.08% 39.41% 56.77%
--------- --------- --------- ---------
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $ 90,013 $ 176,798 $ 122,766 $ 30,721
Net expense ratio to average net assets(2) 1.19% 1.14% 1.23% 1.50%
Ratio of net investment income to average net assets 1.66% 1.48% 1.63% 1.81%
Gross expense ratio to average net assets 1.19% 1.14% 1.23% 1.57%
Portfolio turnover rate 65% 82% 227% 658%(3)
</Table>
(1) The Fund had no financial highlights for the one day of operations during
the period ended September 30, 1997.
(2) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Advisor.
(3) Portfolio turnover was greater than expected during this period due to
higher than normal trading activity undertaken in response to market
conditions at a time when the Fund's assets were still relatively small and
before the Fund was fully invested.
Berger Funds o June 14, 2002 Combined Prospectus
FOR MORE INFORMATION:
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. The Funds' annual report
contains a discussion of the market conditions and investment strategies that
affected the Funds' performance over the past year.
You may wish to read the Statement of Additional Information (SAI) for more
information on the Funds and the securities in which they invest. The SAI is
incorporated into this prospectus by reference, which means that it is
considered to be part of the prospectus.
You can get free copies of the annual and semi-annual reports and the SAI,
request other information or get answers to your questions about the Funds by
writing or calling the Funds at:
Berger Funds
P.O. Box 219958
Kansas City, MO 64121-9958
(800) 333-1001
bergerfunds.com
A downloadable file of the SAI and annual and semi-annual reports may also be
obtained at bergerfunds.com. Text-only versions of Fund documents can be viewed
online or downloaded from the EDGAR database on the SEC's web site at
http://www.sec.gov.
You can also review and obtain copies of more information about the Funds
(including the SAI) by visiting the SEC's Public Reference Room in Washington,
D.C. For information on the operation of the Public Reference Room, call (202)
942-8090. Copies of documents may also be obtained, after paying a duplicating
fee, by sending your request to the following e-mail address:
publicinfo@sec.gov, or by writing to the SEC's Public Reference Room,
Washington, D.C. 20549-0102.
INVESTMENT COMPANY ACT FILE NUMBERS:
Berger Investment Portfolio Trust 811-8046
o Berger Mid Cap Growth Fund
o Berger Small Company Growth Fund --
Investor Shares
o Berger Information Technology Fund --
Investor Shares
o Berger Large Cap Value Fund --
Investor Shares
o Berger Mid Cap Value Fund --
Investor Shares
o Berger Small Cap Value Fund II --
Investor Shares
o Berger Balanced Fund
Berger Growth Fund, Inc. 811-1382
o Berger Growth Fund
Berger Large Cap Growth Fund, Inc. 811-1383
o Berger Large Cap Growth Fund
COMPROS 6/02
BERGER FUNDS
SUPPLEMENT DATED SEPTEMBER 3, 2002
On September 3, 2002, Stilwell Financial Inc. ("Stilwell"), the parent company
of Berger Financial Group LLC ("Berger"), announced its intention to consolidate
all of its investment advisory operations under Janus Capital Management LLC
("Janus"). As the transaction is presently contemplated, Berger, the investment
adviser to the Berger Funds, will be consolidated into Janus and Berger will
cease to exist.
It is anticipated that portfolio management of the following Berger Funds, which
are advised by subadvisers to Berger, will not be affected:
Berger Small Cap Value Fund
Berger Mid Cap Value Fund
Berger Large Cap Value Fund
Berger Small Cap Value Fund II
It is presently anticipated that a change in portfolio management of the
following Berger Funds will occur:
Berger Growth Fund
Berger Large Cap Growth Fund
Berger Mid Cap Growth Fund
Berger Small Company Growth Fund
Berger Balanced Fund
Berger International Fund
Berger International CORE Fund
International Equity Fund
Berger Information Technology Fund
The Trustees of the Berger Funds, not Janus or Stilwell, will be responsible for
selecting a new adviser for these funds. The Trustees have begun considering the
alternatives. Berger will continue to provide investment advisory and
administrative services to the Berger Funds until the completion of the
transaction. It is anticipated that the consolidation of Stilwell will be
completed in the first quarter of 2003.
BERGER SMALL COMPANY GROWTH FUND
Institutional Shares
SUPPLEMENT DATED JULY 19, 2002
TO
PROSPECTUS DATED JANUARY 29, 2002
Effective July 19, 2002, Berger Financial Group LLC Executive Vice
President and Chief Investment Officer Jay W. Tracey III will be appointed
portfolio manager of Berger Small Company Growth Fund. Mr. Tracey joined Berger
Financial Group LLC in June of 2000. From November 1995 to May 2000, he was Vice
President and Portfolio Manager of Oppenheimer Funds where he managed emerging
growth funds. Mr. Tracey has more than 25 years experience in the securities
industry.
The section "Organization of the Fund" of the Prospectus is amended
accordingly.
BERGER LARGE CAP GROWTH FUND
BERGER MID CAP GROWTH FUND
BERGER SMALL COMPANY GROWTH FUND
BERGER LARGE CAP VALUE FUND
BERGER MID CAP VALUE FUND
BERGER SMALL CAP VALUE FUND
SUPPLEMENT DATED June 14, 2002
To
PROSPECTUS DATED January 29, 2002
Effective June 14, 2002, the Berger Funds listed above adopted a non-fundamental
investment policy pursuant to Rule 35d-1 of the Investment Company Act of 1940,
which requires that at least 80% of the Fund's net assets (plus the amount of
any borrowings for investment purposes) be invested, under normal circumstances,
in securities suggested by the Fund's name. To implement the new requirement,
the Funds revised their investment policies to increase from 65% to 80% the
amount of assets required to be invested in the market capitalization suggested
by a Fund's name.
In addition, the Berger Mid Cap Growth Fund and Berger Mid Cap Value Fund
revised their investment policies concerning market capitalization to provide
that, under normal market circumstances, at least 80% of their assets will be
invested in securities that have a market capitalization, at the time of initial
purchase, within the 12-month average of the capitalization range of the Russell
Midcap Index. Investors will be given at least 60 days notice prior to any
future change in a Fund's 80% investment policy.
The section of the Prospectus titled "The Fund's Goals and Principal Investment
Strategies" for each Fund is amended accordingly.
January 29, 2002
BERGER FUNDS
PROSPECTUS
[BERGER FUNDS LOGO]
BERGER SMALL COMPANY GROWTH FUND - INSTITUTIONAL SHARES
The Securities and Exchange Commission has not approved or disapproved any
shares offered in this prospectus or determined whether this prospectus is
accurate or complete. Anyone who tells you otherwise is committing a crime. Like
all mutual funds, an investment in the Fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency. There is no
guarantee that the Fund will meet its investment goal, and although you have the
potential to make money, you could also lose money in the Fund.
BERGER FUNDS and BERGER SMALL COMPANY GROWTH FUND are registered servicemarks of
Berger Financial Group LLC; THE BERGER MOUNTAIN LOGO is a registered trademark
of Berger Financial Group LLC; other marks referred to herein are the
trademarks, servicemarks, registered trademarks or registered servicemarks of
the respective owners thereof.
3
Table of Contents
BERGER FUNDS(R) are a no-load family of mutual funds. A mutual fund pools money
from shareholders and invests in a portfolio of securities. This prospectus
offers the class of shares designated as Institutional Shares of the Berger
Small Company Growth Fund. These shares are designed for pension and
profit-sharing plans, employee benefit trusts, endowments, foundations and
corporations, as well as high net worth individuals and financial intermediaries
who are willing to maintain a minimum account balance of $250,000.
<Table>
Berger Small Company Growth Fund(R) - Institutional Shares ................ 4
The Fund's Goal and Principal Investment Strategies ....................... 4
Principal Risks ........................................................... 4
The Fund's Past Performance ............................................... 5
Fund Expenses ............................................................. 6
Investment Techniques, Securities and Associated Risks .................... 8
Risk and Investment Glossary .............................................. 8
How to Contact Us ......................................................... 13
To Open an Account or Purchase Shares ..................................... 14
Exchanging Shares ......................................................... 16
Selling (Redeeming) Shares ................................................ 18
Signature Guarantees/Special Documentation ................................ 19
Information About Your Account ............................................ 20
Excessive Trading ......................................................... 20
Online and Telephone Considerations ....................................... 20
Your Share Price .......................................................... 20
Privacy Notice ............................................................ 22
Distributions and Taxes ................................................... 23
Tax-Sheltered Retirement Plans ............................................ 24
Organization of the Fund .................................................. 25
Investment Manager ........................................................ 25
Special Fund Structure .................................................... 25
Financial Highlights for the Fund ......................................... 26
</Table>
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
4
Berger Small Company
Growth Fund -
Institutional Shares Ticker Symbol BSGIX
The Fund's Goal and Principal Investment Strategies
The Fund aims for capital appreciation. In pursuing that goal, the Fund
primarily invests in the common stocks of small companies with the potential for
rapid revenue and earnings growth.
The Fund's stock selection focuses on companies that either occupy a dominant
position in an emerging industry or have a growing market share in a larger,
fragmented industry.
The Fund's investment manager generally looks for companies with:
o An innovative technology, product or service that may enable the company to
be a market share leader
o Strong entrepreneurial management with clearly defined strategies for growth
o Relatively strong balance sheets
Under normal circumstances, the Fund invests at least 65% of its assets in
equity securities of companies whose market capitalization, at the time of
initial purchase, is less than the 12-month average of the maximum market
capitalization for companies included in the Russell 2000 Index. This average is
updated monthly. In certain unusual circumstances, the Fund may be unable to
remain invested at these levels in securities of companies with the stated
market capitalization. The Fund's investment manager will generally sell a
security when it no longer meets the manager's investment criteria or when it
has met the manager's expectations for appreciation. The Fund's investment
manager may actively trade the portfolio in pursuit of the Fund's goal.
Principal Risks
You may be interested in the Fund if you are comfortable with above-average risk
and intend to make a long-term investment commitment. Like all managed funds,
there is a risk that the investment manager's strategy for managing the Fund may
not achieve the desired results. In addition, the price of common stock moves up
and down in response to corporate earnings and developments, economic and market
conditions and unanticipated events. As a result, the price of the Fund's
investments may go down, and you could lose money on your investment.
The Fund's share price may fluctuate more than that of funds primarily invested
in stocks of mid-sized and large companies. Small company securities may
underperform as compared to the securities of larger companies. They may also
pose greater market, liquidity and information risks because of narrow product
lines, limited financial resources, less depth in management or a limited
trading market for their stocks. The Fund's investments are often focused in a
small number of business sectors, which may pose greater market and liquidity
risks. In addition the Fund's active trading will cause the Fund to have an
increased portfolio turnover rate. Higher turnover rates may result in higher
brokerage costs to the Fund and in higher net taxable gains for you as an
investor.
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
5
Berger Small Company Growth Fund
See "Investment Techniques, Securities and Associated Risks" later in this
prospectus for more information on principal risks and other risks.
The Fund's Past Performance
The information below shows the Fund's performance through December 31, 2001.
These returns include reinvestment of all dividends and capital gains
distributions and reflect Fund expenses. As with all mutual funds, past
performance does not guarantee future results.
Year-by-year returns show you how the Fund's performance has varied by
illustrating the differences for each full calendar year since the Fund began.
YEAR-BY-YEAR TOTAL RETURN AS OF DECEMBER 31(1)
[GRAPH]
<Table>
1994 13.73%
1995 33.80%
1996 16.77%
1997 16.16%
1998 3.17%
1999 102.59%
2000 -6.77%
2001 -33.54%
BEST QUARTER: 12/31/99 57.57%
WORST QUARTER: 9/30/01 -38.61%
</Table>
Average annual total return is a measure of the Fund's performance over time.
The Fund's average annual return is compared to the Russell 2000 Growth Index,
the Fund's new benchmark index, and the Russell 2000 Index, the Fund's previous
benchmark index. The Fund is changing its benchmark index so that it correlates
more closely to the investment style of the Fund. The Russell 2000 Growth Index
is an unmanaged index, with dividends reinvested, which measures the performance
of those Russell 2000 companies with higher price-to-book ratios and higher
forecasted growth values. It is a generally recognized indicator used to measure
overall small company growth-stock performance. The Russell 2000 Index is an
unmanaged index, with dividends reinvested, which consists of the common stocks
of 2000 U.S. companies. While the Fund does not seek to match the returns of
either index, they are good indicators of general stock market performance. You
may not invest in either index, and unlike the Fund, they do not incur fees or
charges.
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
6
Berger Small Company
Growth Fund -
Institutional Shares
AVERAGE ANNUAL RETURNS AS OF DECEMBER 31, 2001(1)
<Table>
<Caption>
Life of the Fund
1 Year 5 Years (December 30, 1993)
------ ------- -------------------
The Fund -33.54% 8.51% 13.06%
Russell 2000 Growth -9.23% 2.87% -1.03%
Russell 2000 2.49% 7.52% 9.78%
</Table>
(1) Fund returns include periods prior to the Fund's adoption of share classes
and therefore reflect a 0.25% 12b-1 fee which has not been paid by the
Institutional Shares since that class commenced investment operations on October
16, 1999.
Fund Expenses
As a shareholder in the Fund, you do not pay any sales loads, redemption or
exchange fees, but you do indirectly bear Annual Fund Operating Expenses, which
vary from year to year.
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES
(deducted directly from the Fund) %
- --------------------------------- -----
Management fee .82
Other expenses .48
Total Annual Fund Operating Expenses 1.30
Expense Reimbursement(1) (.28)
----
Net Expenses 1.02
====
</Table>
(1) Pursuant to a written agreement, the Fund's investment adviser reimburses
the Fund's Institutional Shares class to the extent the normal transfer agency
and registration expenses exceed .20% of the Institutional Shares' average daily
net assets in any fiscal year. The agreement may not be terminated until
September 30, 2002.
Understanding Expenses
Annual Fund operating expenses are paid by the Fund. As a result, they reduce
the Fund's return. Fund expenses include management fees and administrative
costs such as shareholder recordkeeping and reports, custodian and pricing
services and registration fees.
Example Costs
The following example helps you compare the cost of investing in the Fund with
the cost of investing in other mutual funds by showing what your costs may be
over time. It uses the same assumptions that other funds use in their
prospectuses:
o $10,000 initial investment
o 5% total return for each year
o Fund operating expenses remain the same for each period
o Redemption after the end of each period
o Reinvestment of all dividends and distributions
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
7
Berger Small Company Growth Fund
Your actual costs may be higher or lower, so this example should be used for
comparison only. Based on these assumptions, your costs at the end of each
period would be:
<Table>
<Caption>
YEARS $
- ----- -----
One 104
Three 325
Five 563
Ten 1,248
</Table>
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
8
Investment Techniques,
Securities and
Associated Risks
BEFORE YOU INVEST. . .
in the Fund, make sure you understand the risks involved. All investments
involve risk. Generally, the greater the risk, the greater the potential for
return. The reverse is also generally true--the lower the risk, the lower the
potential for return.
Like all mutual funds, an investment in the Fund is not a bank deposit and is
not insured or guaranteed by the FDIC or any other government agency. The Fund
is not a complete investment program but may serve to diversify other types of
investments in your portfolio. There is no guarantee that the Fund will meet its
investment goal, and although you have the potential to make money, you could
also lose money by investing in the Fund.
The following glossary will help you further understand the risks the Fund takes
by investing in certain securities and the investment techniques used by the
Fund. You may get more detailed information about the risks of investing in the
Fund in the Statement of Additional Information (SAI), including a discussion of
debt security ratings in Appendix A to the SAI.
Risk and Investment
Glossary
BORROWING refers to a loan of money from a bank or other financial institution
undertaken by the Fund for temporary or emergency reasons only. The Fund will
not borrow more than 25% of
its total assets. Leverage Risk
CALL RISK is the possibility that an issuer may redeem or "call" a fixed-income
security before maturity at a price below its current market price. An increase
in the likelihood of a call may reduce the security's price.
COMMON STOCK is a share of ownership (equity) interest in a company.
COMPANIES WITH LIMITED OPERATING HISTORIES are securities issued by companies
that have been in continuous operation for less than three years. Sometimes
called "unseasoned" issuers. Market, Liquidity and Information Risks
CONVERTIBLE SECURITIES(1) are debt or equity securities that may be converted on
specified terms into stock of the issuer. Market, Interest Rate, Prepayment and
Credit Risks
CORRELATION RISK occurs when the Fund "hedges"--uses one investment to offset
the Fund's position in another. If the two investments do not behave in relation
to each other the way the Fund managers expect them to, then unexpected results
may occur.
CREDIT RISK means that the issuer of a security or the counterparty to an
investment contract may default, be downgraded or become unable to pay its
obligations when due.
CURRENCY RISK happens when the Fund buys or sells a security denominated in
foreign currency. Foreign currencies "float" in value against the U.S. dollar.
Adverse changes in foreign currency values can cause investment losses when the
Fund's investments are converted to U.S. dollars.
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
9
Berger Small Company Growth Fund
DIVERSIFICATION means a diversified fund may not, with respect to at least 75%
of its assets, invest more than 5% of its assets in the securities of one
company. A nondiversified fund may be more volatile than a diversified fund
because it invests more of its assets in a smaller number of companies and the
gains or losses on a single stock will therefore have a greater impact on the
fund's share price. The Fund is a diversified fund.
ECONOMIC RISK is the risk associated with the fact that foreign economies are
often less diverse than the U.S. economy. This lack of diversity may lead to
greater volatility and could negatively effect foreign investment values. In
addition, it is often difficult for domestic investors to understand all the
economic factors that influence foreign markets, thus making it harder to
evaluate the Fund's holdings.
FINANCIAL FUTURES(2) are exchange-traded contracts on securities, securities
indexes or foreign currencies that obligate the holder to take or make future
delivery of a specified quantity of those underlying securities or currencies on
a predetermined future date at a predetermined price. Hedging, Correlation,
Opportunity and Leverage Risks
FOREIGN SECURITIES are issued by companies located outside the United States.
The Fund considers a company to be located outside the United States if the
principal securities trading market for its equity securities is located outside
the U.S. or it is organized under the laws of, and has a principal office in, a
country other than the U.S. Market, Currency, Transaction, Liquidity,
Information, Economic and Political Risks
FORWARD FOREIGN CURRENCY CONTRACTS(2) are privately negotiated contracts
committing the holder to purchase or sell a specified quantity of a foreign
currency on a predetermined future date at a predetermined price. Hedging,
Credit, Correlation, Opportunity and Leverage Risks
HEDGING RISK comes into play when the Fund uses a security whose value is based
on an underlying security or index to "offset" the Fund's position in another
security or currency. The objective of hedging is to offset potential losses in
one security with gains in the hedge. However, a hedge can eliminate or reduce
gains as well as offset losses. (Also see "Correlation risk.")
ILLIQUID AND RESTRICTED SECURITIES are securities that, by rules of their issue
or by their nature, cannot be sold readily. These do not include liquid Rule
144A securities. The Fund will not invest more than 15% of its net assets in
illiquid securities, including restricted securities not deemed to be liquid.
Market, Liquidity and Transaction Risks
INFORMATION RISK means that information about a security or issuer might not be
available, complete, accurate or comparable.
INITIAL PUBLIC OFFERING (IPO) is the sale of a company's securities to the
public for the first time. IPO companies can be small and have limited operating
histories. The price of IPO securities can be highly unstable because of
prevailing market psychology and the small number of shares available. In
addition, the quality and number of IPOs
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
10
Investment Techniques,
Securities and Associated
Risks (continued)
available for purchase may diminish in the future, and their contribution to
Fund performance may be less significant as the Fund grows in size. Market,
Liquidity and Information Risks
INTEREST RATE RISK is the risk that changes in interest rates will adversely
affect the value of an investor's securities. When interest rates rise, the
value of fixed-income securities will generally fall. Conversely, a drop in
interest rates will generally cause an increase in the value of fixed-income
securities. Longer-term securities are subject to greater interest rate risk.
INVESTMENT-GRADE BONDS are rated BBB (Standard & Poor's) or Baa (Moody's) or
above. Bonds rated below investment grade are subject to greater credit risk
than investment-grade bonds. Interest Rate, Market, Call and Credit Risks
LENDING PORTFOLIO SECURITIES to qualified financial institutions is undertaken
in order to earn income. The Fund lends securities only on a fully
collateralized basis. The Fund may lend portfolio securities only up to 33 1/3%
of its total assets. Credit Risk
LEVERAGE RISK occurs in some securities or techniques that tend to magnify the
effect of small changes in an index or a market. This magnified change can
result in a loss that exceeds the amount that was invested in the contract or
security.
LIQUIDITY RISK occurs when investments cannot be sold readily. The Fund may have
to accept a less-than-desirable price to complete the sale of an illiquid
security or may not be able to sell it at all.
MARKET CAPITALIZATION is the total current market value of a company's
outstanding common stock.
MARKET RISK exists in all mutual funds and means the risk that the prices of
securities in a market, a sector, or an industry will fluctuate and that such
movements might reduce an investment's value.
OPPORTUNITY RISK means missing out on an investment opportunity because the
assets necessary to take advantage of it are committed to less advantageous
investments or strategies.
OPTIONS(2) are contracts giving the holder the right but not the obligation to
purchase or sell a security on or before a predetermined future date for a fixed
price. Options on securities indexes are similar but settle in cash. Not more
than 5% of the Fund's net assets may be used for initial margins for futures and
premiums for options. Hedging, Credit, Correlation, and Leverage Risks
POLITICAL RISK comes into play with investments, particularly foreign
investments, that may be adversely affected by nationalization, taxation, war,
government instability or other economic or political actions or factors.
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
11
Berger Small Company Growth Fund
PREPAYMENT RISK is the risk that, as interest rates fall, borrowers are more
likely to refinance their debts. As a result, the principal on certain
fixed-income securities may be paid earlier than expected, which could cause
investment losses and cause prepaid amounts to have to be reinvested at a
relatively lower interest rate.
SECTOR FOCUS(3) occurs when a significant portion of the Fund's assets are
invested in a relatively small number of related industries. These related
industries, or sectors, are narrowly defined segments of the economy, i.e.
utilities, technology, healthcare services, telecommunications, etc. There may
be additional risks associated with a Fund whose investments are focused in a
small number of sectors. For example, competition among technology companies may
result in increasingly aggressive pricing of their products and services, which
may affect the profitability of companies in the Fund's portfolio. In addition,
because of the rapid pace of technological development, products or services
developed by companies in the Fund's portfolio may become rapidly obsolete or
have relatively short product cycles. As a result, the Fund's returns may be
considerably more volatile than the returns of a Fund that does not invest in
similarly related companies. The Fund will not concentrate more than 25% of
their total assets in any one industry. Sector focus may increase both market
and liquidity risk. Market and Liquidity Risks
SMALL COMPANY SECURITIES(3) are securities issued by small companies, as
measured by their market capitalization. The market capitalization range
targeted by the Fund appears under the heading "The Fund's Goal and Principal
Investment Strategies." In general, the smaller the company, the greater its
risks. Market, Liquidity and Information Risks
SPECIAL SITUATIONS are companies about to undergo a structural, financial or
management change that may significantly affect the value of their securities.
Market and Information Risks
TEMPORARY DEFENSIVE MEASURES Although the Fund reserves the right to take
temporary defensive measures, it is the intention of the Fund to remain fully
invested at all times. In response to adverse market, economic, political, or
other conditions, a Fund's investment manager may believe taking temporary
defensive measures is warranted. When this happens, the Fund may increase its
investment in government securities and other short-term securities that are
inconsistent with the Fund's principal investment strategies. In addition,
certain unusual circumstances may force a Fund to temporarily depart from the
investment requirement implied by its name. Opportunity Risk
TRANSACTION RISK means that the Fund may be delayed or unable to settle a
transaction or that commissions and settlement expenses may be higher than
usual. In the case of foreign securities, use of a foreign securities depository
to maintain Fund assets may increase this risk. However, custodial risks of
using the depository may be minimized through analysis and continuous monitoring
by the Funds' primary custodian.
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
12
Small Investment Techniques,
Securities and Associated
Risks (continued)
WRITING (SELLING) COVERED CALL OPTIONS(2) is the selling of a contract to
another party that gives them the right but not the obligation to buy a
particular security from you. The Fund will write call options only if it
already owns the security (if it is "covered"). The Fund may only write call
options up to 25% of its total assets. Opportunity, Credit and Leverage Risks
(1) The Fund has no minimum quality standards for convertible securities,
although it will not invest in defaulted securities. It also will not invest 20%
or more of its assets in convertible securities rated below investment grade or
in unrated convertible securities that the adviser considers to be below
investment grade.
(2) The Fund may use futures, forwards and options only for hedging. Not more
than 5% of the Fund's net assets may be used for initial margins for futures and
premiums for options, although the Fund may have more at risk under these
contracts than the initial margin or premium. However, the Fund's aggregate
obligations under these contracts may not exceed the total market value of the
assets being hedged, such as some or all of the value of the Fund's equity
securities.
(3) The security or technique is emphasized by the Fund.
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
13
Berger Small Company Growth Fund
How to Contact Us
ONLINE
You can access bergerfunds.com to obtain information about Berger Funds and to
perform maintenance and transactions on your account including:
o Purchasing, exchanging and selling shares
o Reviewing Fund information and performance
o Viewing electronic financial reports and prospectuses
o Downloading applications and account servicing forms
BERGER INVESTOR SERVICE REPRESENTATIVES
Our Representatives can assist you with any questions and requests you have
regarding your Berger Funds or CAT Portfolio accounts.
o 1-800-960-8427
BY MAIL
Send new account applications and written correspondence to:
Berger Funds
P.O. Box 219958
Kansas City, MO 64121-9958
Send overnight, certified or registered mail to:
Berger Funds
330 West 9th Street, 1st Floor
Kansas City, MO 64105
Send purchases for existing accounts to:
Berger Funds
P.O. Box 219529
Kansas City, MO 64121-9529
IN PERSON
If you are in the Denver area, please visit our Investor Center.
Cherry Creek Shopping Center
3000 E. 1st Avenue, 1st Level
Denver, Colorado 80206
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
14
To Open an Account or
Purchase Shares
<Table>
<Caption>
Minimum
- -------
Initial investment $250,000
Subsequent investments No minimum
</Table>
BY ONLINE ACCESS
o Investors who establish electronic transfer privileges may make subsequent
investments online. Berger Funds will automatically debit your designated
bank account for payment.
BY MAIL
o If you are opening a new account, complete and sign the appropriate
application and make your check payable to Berger Funds for the amount you
want to invest. Send the application and check in the envelope provided.
o To add to an existing account, use the Invest by Mail slip attached to your
statement. If you do not have an Invest by Mail slip, note your fund and
account number on your check and mail to the appropriate address.
BY TELEPHONE
o Investor Service Representative
To add to an existing account, you may place an order for additional shares
by calling an Investor Service Representative.
You may pay for your shares by overnight delivery of a check, by wire, or
if you have electronic transfer privileges, through an automatic debit to
your bank account.
Payments must be received within three business days. Orders not paid for
on time will be canceled, and shares may be redeemed from your account to
compensate for any decline in the value of the shares canceled.
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
15
Berger Small Company Growth Fund
BY SYSTEMATIC INVESTMENT PLAN
o To automatically purchase more shares on a regular basis, fill out the
Systematic Investment Plan section of the application. Berger Funds will
automatically debit your designated bank account for payment. If no date is
specified on your application, investments will be made on the 20th of each
month.
Important notes about purchasing shares:
o The Fund is only available to U.S. citizens or residents.
o You should read and understand the Fund's current prospectus before
investing.
o Your check must be made payable to Berger Funds and must be made in U.S.
dollars drawn on U.S. banks.
o Cash, credit cards, third party checks, credit card convenience checks,
money orders, travelers checks or checks drawn on foreign banks will not be
accepted.
o You may also pay for additional shares by wiring money from your bank
account to your Fund account. For current wire instructions, visit
bergerfunds.com or call an Investor Service Representative.
o Subject to approval by the Fund, you may purchase Fund shares with liquid
securities that the Fund is eligible to purchase. These securities must
have a value that can be readily determined in accordance with the fund's
valuation policies. You may pay for Fund shares with securities only if it
is the investment manager's intention to retain them in the Fund's
portfolio. The Fund may amend or terminate this practice at any time.
o If your check or electronic funds transfer does not clear for any reason,
your purchase will be canceled.
o If your purchase is canceled for any reason, you will be responsible for
any losses or fees imposed by your bank and may be responsible for losses
that may be incurred as a result of any decline in the value of the
canceled purchase.
o We may make additional attempts to debit your bank account for any failed
online, telephone or systematic purchases. You are liable for any potential
costs associated with these additional attempts.
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
16
Exchanging Shares
BY ONLINE ACCESS
o In general, investor accounts are automatically eligible to exchange shares
online at bergerfunds.com.
BY MAIL
o To exchange all or part of your shares, send a written request indicating
the name of the Fund(s) you are selling from, the name of the Fund(s) you
are purchasing into, your account number, the dollar amount or the number
of shares you are selling and a daytime telephone number to the appropriate
address.
o Your request must be signed by each registered shareholder, with the
signature(s) appearing exactly as they do on your account registration.
BY TELEPHONE
o To exchange all or a portion of your shares into any other available Berger
Fund or Cash Account Trust Portfolio (CAT Portfolio), call an Investor
Service Representative.
BY SYSTEMATIC EXCHANGE PLAN
o Shares may be exchanged automatically ($50 minimum) between funds monthly,
quarterly, semi-annually or annually. You can select the frequency and day
of the month for the exchanges to occur. If no date is specified on your
request, exchanges will be made on the 20th of each month.
o If the balance in the Fund account you are exchanging from falls below the
normal Systematic Exchange Plan amount, all remaining shares will be
exchanged and the program will be discontinued.
Important notes about exchanging shares:
Shares of the funds described in this prospectus may be exchanged for shares of
any other Berger Fund or for money market shares in the Cash Account Trust
Portfolios (the CAT Portfolios). There are three CAT Portfolios: the Money
Market Portfolio, the Government Securities Portfolio and the Tax-Exempt
Portfolio.
The exchange privilege with the CAT Portfolios does not constitute an offering
or recommendation of the shares of these portfolios by the Berger Funds or
Berger Financial Group LLC. Berger Financial Group LLC is compensated for
administrative services it performs with respect to accounts in the CAT
Portfolios.
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
17
Berger Small Company Growth Fund
When exchanging shares:
o Each account must be registered identically - have the same ownership and
addresses.
o Each Berger Fund or CAT Portfolio must be legally eligible for sale in your
state of residence.
o Generally, you may exchange out of each of the Berger Funds up to four
times per calendar year (systematic exchanges excluded). At this time,
there is no limit on the number of exchanges permitted out of the CAT
Portfolios.
o You are responsible for obtaining and reading the current prospectus for
the Fund or CAT Portfolio into which you are exchanging.
o An exchange out of a Berger Fund results in the sale of that Fund's shares
and the purchase of another, normally resulting in a taxable event for you.
o Exchanges into any new Fund or CAT Portfolio must meet the Fund's or
Portfolio's initial and subsequent investment minimums, or be equal to the
total value of the account.
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
18
Selling (Redeeming)
Shares
BY ONLINE ACCESS
o In general, investors with non-retirement accounts are automatically
eligible to sell shares online at bergerfunds.com
BY MAIL
o To sell all or part of your shares, send a written request indicating the
name of the Fund(s), your account number, the dollar amount or the number
of shares you are selling and a daytime telephone number to the appropriate
address.
o Your request must be signed by each registered shareholder, with the
signature(s) appearing exactly as they do on your account registration.
o Include any necessary Signature Guarantees. Refer to the "Signature
Guarantees/Special Documentation" section of this Prospectus.
BY TELEPHONE
o Investors with non-retirement accounts are automatically eligible to sell
shares by telephone. To sell all or a portion of your shares, call an
Investor Service Representative.
BY SYSTEMATIC WITHDRAWAL PLAN
o Shares may be redeemed automatically ($50 minimum) monthly, quarterly,
semi-annually or annually.
Important notes about redeeming shares:
o Generally, payment for your redeemed shares will be sent to you within
seven days after receipt of your redemption request in good order. Payment
may be made by check, wire, or electronic funds transfer.
o A wire transfer will be sent the next bank business day after receipt of
your order, and an electronic funds transfer will be sent the second bank
business day after receipt of your order.
o Please see the Signature Guarantees/Special Documentation section for
signature guarantee requirements.
o Proceeds from the redemption of shares purchased by check or electronic
funds transfer may be delayed until full payment for the shares has been
received and cleared, which may take up to 15 days from the purchase date.
o Interest will not be paid for amounts represented by uncashed distribution
or redemption checks.
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
19
Berger Small Company Growth Fund
Signature Guarantees/Special Documentation
The Fund uses Signature Guarantees to protect you and the Fund from possible
fraudulent requests for redeemed shares. Your request must be in writing and
accompanied by a Signature Guarantee if:
o Your redemption request exceeds $100,000.
o You request that your redemption be made payable to anyone other than the
registered owner(s).
o You request that payment of your redemption be sent to a bank that is not
already on file for redemption privileges.
o You want to change the bank on file for redemption privileges.
o You request that payment of your redemption be mailed to an address that
has been changed within 15 days of your redemption request or to an address
other than the one of record.
o You declined telephone or online options on your new account application
and wish to add them at a later time.
o You wish to add or remove owners on your account.
Berger Funds reserves the right to require Signature Guarantees under certain
other circumstances.
You can obtain a Signature Guarantee from most broker-dealers, national or state
banks, credit unions, federal savings and loan associations or other eligible
institutions. You cannot obtain a Signature Guarantee from a notary public.
Make sure the Signature Guarantee appears together with the signature(s) of all
registered owner(s) of the redeemed shares on the written redemption request.
Additional documents are required for redemptions by corporations, executors,
administrators, trustees and guardians.
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
20
Information About
Your Account
EXCESSIVE TRADING
The Fund does not permit excessive, short-term or other abusive trading
practices due to the potential negative impact upon portfolio management
strategies and overall fund performance. The Fund reserves the right to reject
any purchase or exchange order and to revoke the exchange privilege from any
investor that, in the Fund's opinion, engages in trading that may be disruptive
to the Fund, or who has a history of excessive trading. Accounts under common
ownership or control may be considered together when evaluating the trading
history.
ONLINE AND TELEPHONE CONSIDERATIONS
Generally, all new accounts are automatically granted online and telephone
transaction privileges unless explicitly declined in writing, either on the
account application or by written notice. Bergerfunds.com may restrict account
access and transaction capabilities for certain types of accounts. Please
contact a representative for more information.
You may give up some level of security by choosing to buy or sell shares by
telephone or online, rather than by mail. The Fund uses procedures designed to
give reasonable assurance that telephone and online instructions are genuine,
including recording the transactions, testing the identity of the shareholder
placing the order and sending prompt written confirmation of transactions to the
shareholder of record. You should promptly review all confirmation statements
for accuracy.
The Fund and its service providers are not liable for acting upon instructions
communicated by telephone or online that they believe to be genuine if these
procedures are followed.
In times of extreme economic conditions, market conditions, or other events, we
may experience unusually high call volumes, making it difficult to reach a
Berger Funds representative. Please consider using our transaction functionality
on bergerfunds.com or submit requests in writing.
YOUR SHARE PRICE
The price at which you buy, sell or exchange Fund shares is the share price or
net asset value (NAV). The share price for the Institutional Shares of the Fund
is determined by adding the Institutional Shares' pro rata portion of the total
value of the Fund's investments, cash and other assets, deducting the
Institutional Shares' pro rata portion of the Fund's liabilities and the
liabilities attributable directly to the Institutional Shares, and then dividing
that value by the total number of the Institutional Shares outstanding. Share
price is calculated separately for each class of Fund shares.
The Fund's share price is calculated at the close of the regular trading session
of the New York Stock Exchange (normally 4:00 p.m. Eastern time) each day that
the Exchange is open. Share prices are not calculated on the days that the
Exchange is closed.
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
21
Berger Small Company Growth Fund
For a purchase, redemption or exchange of Fund shares, your price is the share
price next calculated after your request is received in good order and accepted
by the Fund, its authorized agent or designee. To receive a specific day's
price, your request must be received before the close of the New York Stock
Exchange on that day.
When the Fund calculates its share price, it values the securities it holds at
market value. Sometimes market quotes for some securities are not available or
are not representative of market value. Examples would be when events occur that
materially affect the value of a security at a time when the security is not
trading or when the securities are illiquid. In that case, securities may be
valued in good faith at fair value, using consistently applied procedures
decided on by the trustees or directors. Money market instruments maturing
within 60 days are valued at amortized cost, which approximates market value.
Assets and liabilities expressed in foreign currencies are converted into U.S.
dollars at the prevailing market rates quoted by one or more banks or dealers
shortly before the close of the Exchange.
The Fund's foreign securities may trade on days that the Exchange is closed and
the Fund's daily share price is not calculated. As a result, the Fund's daily
share price may be affected, and you will not be able to purchase or redeem
shares.
CONFIRMATION OF YOUR PURCHASES AND REDEMPTIONS
You will receive transaction confirmation statements reflecting the share price,
dollar amount and number of shares associated with your transactions. Fractional
shares will be calculated to three decimal places. Reinvestment of fund
distributions, Systematic Investment Plan purchases and Systematic Withdrawal
Plan redemptions are only confirmed on quarterly statements. You may sign up to
receive your statements electronically at bergerfunds.com.
SHAREHOLDER REPORTS
To reduce expenses, the Fund may mail only one copy of notices, financial
reports, prospectuses and proxy statements to investors who share an address,
even if the accounts are registered under different names. To automatically
receive your own copy or, if at any time you want to request separate copies for
individual account holders, you may do so by calling an Investor Service
Representative. Your request to receive additional copies will take effect
within 30 days. The Fund will continue to send only one copy of these documents
unless you withdraw your consent.
SHARE CERTIFICATES
To assist in minimizing administrative costs, share certificates are no longer
issued. Records of share ownership are maintained by the Fund's transfer agent
in book entry form. If you are selling shares previously issued in certificate
form, you need to include the unsigned certificate along with your redemption or
exchange request, and send it to Berger Funds by registered mail. If you have
lost your certificate, please call an Investor Service Representative.
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
22
Information About
Your Account (continued)
PURCHASES THROUGH BROKER-DEALERS
You may buy Fund shares through certain broker-dealers or other financial
organizations, but these organizations may charge you a fee or may have
different minimums for initial or subsequent investments that are not applicable
if you buy shares directly from the Fund.
THIRD-PARTY ADMINISTRATORS
Certain brokerage firms and other companies may provide administrative services
(such as sub-transfer agency, record-keeping or shareholder communications
services) to investors purchasing shares of the Fund through those companies.
The Fund's adviser or the Fund (if approved by its directors or trustees) may
pay fees to these companies for their services. These companies may also be
appointed as agents for or authorized by the Fund to accept on their behalf
purchase and redemption requests that are received in good order. Subject to
Fund approval, certain of these companies may be authorized to designate other
entities to accept purchase and redemption orders on behalf of the Fund.
Privacy Notice
To service your account, the Fund may collect personal information from you.
Personal information includes information you provide when opening an account or
when requesting investment literature, such as your name and address. Personal
information also includes your account balance and transaction information.
The Fund does not share, distribute or sell this information to any outside
company or individual without permission. Your personal information is used only
to service or maintain your account, including providing you with information on
Berger Funds' products and services. We will not disclose your personal
information to third parties, other than to service your account as permitted by
law, nor sell your personal information to third parties. Nor do we provide your
personal information to third parties for their marketing purposes. We may
disclose information as required by the Securities and Exchange Commission and
other federal and state regulatory agencies.
The Fund recognizes the importance of protecting your personal and financial
information entrusted to us. Thus, we restrict access to your personal and
financial data to those authorized to service your account. These personnel,
like all personnel, are subject to a strict employment policy regarding
confidentiality. To further ensure your privacy, our web site uses 128-bit
internet security encryption protocol. As an added measure, we do not include
personal or account information in nonsecure emails that we send you via the
internet. Berger Funds' privacy policy may be changed or modified at any time.
RIGHTS RESERVED BY THE FUNDS
Berger Funds and their agents reserve certain rights including the following:
(1) to waive or reduce investment minimums and fees; (2) to increase investment
minimums following notice; (3) to refuse any purchase or exchange order; (4) to
terminate or modify the exchange privilege at any time; (5) to not cancel a
transaction once it has
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
23
Berger Small Company Growth Fund
been submitted; (6) to discontinue offering shares of a Fund; (7) to close any
account if it is believed the shareholder is engaging in activities which may be
detrimental to the Fund; (8) to reject any trade not in good order; (9) to
freeze any account and suspend account services when notice has been received of
a dispute between the registered or beneficial account owners, or there is
reason to believe a fraudulent transaction may occur, or if ordered to do so by
a governmental agency; (10) to act on instructions believed to be genuine; and
(11) to suspend temporarily shareholder services and telephone transactions, in
case of an emergency.
REDEMPTIONS IN-KIND
The Fund intends to redeem its shares only for cash, although in order to
protect the interest of remaining shareholders, it retains the right to redeem
its shares in-kind under unusual circumstances. In-kind payment means payment
will be made to you in portfolio securities rather than cash. If this occurs,
you will incur transaction costs if you sell the securities for cash. You may
have difficulty selling the securities and recovering the amount of your
redemption if the securities are illiquid.
REDEMPTIONS BY THE FUNDS OF CERTAIN ACCOUNTS
To reduce its expenses, the Fund may involuntarily redeem the shares in your
account if your balance drops below $250,000 - but only if it drops below this
amount because you have redeemed shares, not because the share value has
declined. You will be given at least 60 days' notice before the Fund undertakes
any involuntary redemption. During that time, you may buy more shares to bring
your account to or above the minimum.
Distribution and Taxes
DISTRIBUTIONS OF INCOME AND GAINS
Unless you tell us that you want to receive your distributions in cash, they
will be reinvested automatically in Fund shares. The Fund generally makes two
kinds of distributions:
o Capital gains from the sale of portfolio securities held by a fund. The
Fund will distribute any net realized capital gains annually, normally in
December.
o Net investment income from interest or dividends received on securities
held by a fund. The Fund will distribute its investment income annually,
normally in December.
The Fund reserves the right to reinvest into your account undeliverable or
uncashed distribution checks that remain outstanding for six months, or
dividends or distributions of less than $10. The distribution amount will be
reinvested in shares of the applicable Fund at the share price next computed
after the check is canceled.
BUYING A DISTRIBUTION
Unless you have a tax-deferred account, purchasing shares in an account shortly
before a distribution occurs is called "buying a dividend." Income taxes must be
paid in taxable accounts on any distributions, regardless of whether the
distribution was
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
24
Information About
Your Account (continued)
reinvested or received in cash. This tax liability is incurred whether the
actual value of your account increased, decreased or remained the same after
your share purchase.
Throughout the period covered by a distribution, funds may build up taxable
gains on securities sold at a profit. Any shareholders of record on the "record"
date receive the applicable distributions, even if they did not own the shares
when the actual gains occurred.
In other words, "buying a dividend" results in you incurring the full tax
liability for the entire distribution period, even though you may not have
participated in the gains realized by the portfolio.
YOUR TAXES
You generally will owe tax on amounts distributed to you by the Fund in any
non-retirement account whether you reinvest them in additional shares or receive
them in cash.
Distributions of gains from the sale of assets held by the Fund for more than
one year generally are taxable to you at the applicable long-term capital gains
rate, regardless of how long you have owned your Fund shares. Distributions from
other sources generally are taxed as ordinary income.
Distributions made by the Fund to you will normally be capital gains. A portion
of those gains may be net short-term capital gains, which are taxed as ordinary
income. The Fund generally will not distribute net investment income, although
any net investment income that is generated as a by-product of managing its
portfolio will be distributed to you.
If you redeem Fund shares that have appreciated in value, you will have a
taxable gain upon redemption. Exchanges are treated as a redemption and purchase
for tax purposes. Therefore, you will also have a taxable gain if you exchange
shares that have appreciated in value.
ADDITIONAL TAX INFORMATION
You should consult your own tax adviser about your particular situation. For
more information about other tax matters, including backup withholding for
certain taxpayers and other tax aspects of redemptions, see the SAI.
Tax-Sheltered Retirement Plans
The Fund offers several tax-qualified retirement plans for individuals,
businesses and nonprofit organizations. For information about establishing an
IRA, Roth IRA, profit sharing or money purchase pension plan, 403(b) Custodial
Account, SEP-IRA, SIMPLE IRA or other retirement plans, please call or write to
Berger Funds. Trustees for existing 401(k) or other plans interested in using
Fund shares as an investment or investment alternative in their plans are
invited to call the Funds at (800) 259-2820.
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
25
Berger Small Company Growth Fund
Organization of the Fund
INVESTMENT MANAGER
Berger Financial Group LLC (BFG) (formerly Berger LLC) (210 University Blvd.,
Suite 800, Denver, CO 80206) is the Fund's investment adviser. BFG serves as
investment adviser, sub-adviser or administrator to mutual funds and
institutional investors. BFG has been in the investment advisory business since
1974. When acting as investment adviser, BFG is responsible for managing the
investment operations of the Fund. For the most recent fiscal year, the Fund
paid BFG an advisory fee of 0.82% of net assets. After expense reimbursements,
the Fund paid BFG an advisory fee of 0.54%. BFG also provides administrative
services to the Fund.
Paul A. LaRocco, CFA, Vice President of BFG, assumed management of the Fund in
January 2001 when he joined BFG. Prior to joining Berger, Mr. LaRocco co-managed
small and mid-cap funds for Montgomery Asset Management from January 2000 to
December 2000. From March 1998 to December 1999, he was a Senior Portfolio
Manager for small and mid-cap growth funds at Founders Asset Management and from
1993 to March 1998, he was a Portfolio Manager for small and mid-cap funds with
Oppenheimer Funds. Mr. LaRocco has more than 10 years of experience in the
investment management industry.
PORTFOLIO TURNOVER
Portfolio changes are made whenever the Fund's investment manager believes that
the Fund's goal could be better achieved by investment in another security,
regardless of portfolio turnover. At times, portfolio turnover for the Fund may
exceed 100% per year. A turnover rate of 100% means the securities owned by the
Fund were replaced once during the year. Higher turnover rates may result in
higher brokerage costs to the Fund and in higher net taxable gains for you as an
investor. The Fund's portfolio turnover rate can be found under the heading
"Financial Highlights for the Fund."
SPECIAL FUND STRUCTURE
The Fund offers two classes of shares. The Institutional Shares are offered
through this prospectus and are designed for investors who maintain a minimum
account balance of $250,000. The other class of shares, Investor Shares, are
offered through a separate prospectus and are available to the general public
with a minimum account balance of $2,500. Each class of shares has its own
expenses so that share price, performance and distributions will differ between
classes. The 12b-1 plan adopted by the Fund applies only to the Investor Shares.
For more information on Investor Shares, please call (800) 333-1001.
For more information on the multi-class fund structure, see the SAI.
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
26
Financial Highlights
for the Fund
The financial highlights will help you understand the Fund's financial
performance for the periods shown. Certain information reflects financial
results for a single Fund share. Total return shows you how much your investment
in the Fund increased or decreased during each period, assuming you reinvested
all dividends and distributions. PricewaterhouseCoopers LLP, independent
accountants, audited this information. Their report is included in the Fund's
annual report, which is available without charge upon request.
Berger Small Company Growth Fund - Institutional Shares
For a Share Outstanding Throughout the Period
<Table>
<Caption>
PERIOD FROM
OCTOBER 16, 1999(1)
YEAR ENDED TO SEPTEMBER 30,
SEPTEMBER 30, 2001 2000
------------------ ------------------
Net asset value, beginning of period $ 7.43 $ 4.87
--------- ---------
From investment operations
Net investment income (0.00)(5) (0.00)(5)
Net realized and unrealized gains (losses) from
investments and foreign currency transactions (3.91) 3.86
--------- ---------
Total from investment operations (3.91) 3.86
--------- ---------
Less dividends and distributions
Distributions (from capital gains) -- (1.30)
Distributions (in excess of capital gains) (1.04) --
--------- ---------
Total dividends and distributions (1.04) (1.30)
--------- ---------
Net asset value, end of period $ 2.48 $ 7.43
--------- ---------
Total Return(3) (59.03)% 84.87%
--------- ---------
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $ 2,036 $ 5,886
Net expense ratio to average net assets(4) 1.02% 1.05%(2)
Ratio of net investment loss to average net assets (0.57)% (0.47)%(2)
Gross expense ratio to average net assets 1.30% 1.59%(2)
Portfolio turnover rate(3) 147% 92%
</Table>
(1) Commencement of investment operations for Institutional Shares.
(2) Annualized.
(3) Not annualized.
(4) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Advisor.
(5) Amount represents less than $0.01 per share.
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
27
Financial Highlights
The following supplemental financial highlights are for the Berger Small Company
Growth Fund for periods before October 16, 1999, when the Fund first adopted
share classes and began offering Institutional Shares. Therefore, the data on
the table reflect a 0.25% 12b-1 fee not paid by the Institutional Shares. Unless
otherwise noted, the information in the table was audited by
PricewaterhouseCoopers LLP, the Fund's independent accountants. The information
for the period from October 1, 1999 through October 15, 1999 is unaudited.
Berger Small Company Growth Fund
Supplemental Financial Highlights
For a Share Outstanding Throughout the Period
<Table>
<Caption>
PERIOD FROM
OCTOBER 1, 1999 TO
OCTOBER 15, 1999 YEARS ENDED SEPTEMBER 30,
(UNAUDITED) 1999 1998 1997 1996 1995
------------------ -------- --------- -------- -------- --------
Net asset value, beginning of period $ 4.86 $ 3.61 $ 5.33 $ 4.74 $ 3.61 $ 2.74
-------- -------- --------- -------- -------- --------
From investment operations
Net investment income (loss) (0.00)(1) (0.00)(1) -- (0.05) (0.03) (0.02)
Net realized and unrealized gains
(losses) from investments and
foreign currency transactions 0.01 1.95 (1.24) 0.84 1.16 0.89
-------- -------- --------- -------- -------- --------
Total from investment operations 0.01 1.95 (1.24) 0.79 1.13 0.87
-------- -------- --------- -------- -------- --------
Less dividends and distributions
Dividends (from net investment
income) -- -- -- -- -- (0.00)(2)
Distributions (from capital gains) -- (0.70) (0.48) (0.20) -- --
-------- -------- --------- -------- -------- --------
Total dividends and distributions -- (0.70) (0.48) (0.20) -- --
-------- -------- --------- -------- -------- --------
Net asset value, end of period $ 4.87 $ 4.86 $ 3.61 $ 5.33 $ 4.74 $ 3.61
-------- -------- --------- -------- -------- --------
Total Return(3) 0.21% 62.78% (24.70)% 17.68% 31.30% 31.90%
-------- -------- --------- -------- -------- --------
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $675,143 $675,637 $ 561,741 $902,685 $871,467 $522,667
Net expense ratio to average
net assets(2) 1.17%(4) 1.60% 1.48% 1.67% 1.68% 1.89%
Ratio of net investment loss
to average net assets (1.00)%(4) (1.21)% (1.01)% (1.09)% (0.97)% (0.74)%
Gross expense ratio to average
net assets 1.17%(4) 1.60% 1.59% 1.67% 1.68% 1.89%
Portfolio turnover rate(3) 3% 128% 97% 111% 91% 109%
</Table>
(1) Amount represents less than $0.01 per share.
(2) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Adviser.
(3) Not annualized.
(4) Annualized.
Berger Funds - January 29, 2002
Berger Small Company Growth Fund - Institutional Shares
FOR MORE INFORMATION:
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. The Fund's annual report
contains a discussion of the market conditions and investment strategies that
affected the Fund's performance over the past year.
You may wish to read the Statement of Additional Information (SAI) for more
information on the Fund and the securities it invests in. The SAI is
incorporated into this prospectus by reference, which means that it is
considered to be part of the prospectus.
You can get free copies of the annual and semi-annual reports and the SAI,
request other information or get answers to your questions about the Fund by
writing or calling the Fund at:
Berger Funds
P.O. Box 219958
Kansas City, MO 64121-9958
(800) 259-2820
bergerfunds.com
Text-only versions of Fund documents can be viewed online or downloaded from the
EDGAR database on the SEC's Web site at sec.gov.
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, D.C. For information on the operation of the Public Reference Room,
call (202) 942-8090. Copies of documents may also be obtained, after paying a
duplicating fee, by sending your request to the following e-mail address:
publicinfo@sec.gov, or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-6009.
INVESTMENT COMPANY ACT FILE NUMBER:
Berger Investment Portfolio Trust 811-8046
(Berger Small Company Growth Fund - Institutional Shares)
SCGIPROS
BERGER FUNDS
SUPPLEMENT DATED SEPTEMBER 3, 2002
On September 3, 2002, Stilwell Financial Inc. ("Stilwell"), the parent company
of Berger Financial Group LLC ("Berger"), announced its intention to consolidate
all of its investment advisory operations under Janus Capital Management LLC
("Janus"). As the transaction is presently contemplated, Berger, the investment
adviser to the Berger Funds, will be consolidated into Janus and Berger will
cease to exist.
It is anticipated that portfolio management of the following Berger Funds, which
are advised by subadvisers to Berger, will not be affected:
Berger Small Cap Value Fund
Berger Mid Cap Value Fund
Berger Large Cap Value Fund
Berger Small Cap Value Fund II
It is presently anticipated that a change in portfolio management of the
following Berger Funds will occur:
Berger Growth Fund
Berger Large Cap Growth Fund
Berger Mid Cap Growth Fund
Berger Small Company Growth Fund
Berger Balanced Fund
Berger International Fund
Berger International CORE Fund
International Equity Fund
Berger Information Technology Fund
The Trustees of the Berger Funds, not Janus or Stilwell, will be responsible for
selecting a new adviser for these funds. The Trustees have begun considering the
alternatives. Berger will continue to provide investment advisory and
administrative services to the Berger Funds until the completion of the
transaction. It is anticipated that the consolidation of Stilwell will be
completed in the first quarter of 2003.
BERGER INFORMATION TECHNOLOGY FUND
SUPPLEMENT DATED June 14, 2002
To
PROSPECTUS DATED January 29, 2002
Effective May 17, 2002, Berger Financial Group LLC ("BFG") entered into a
sub-advisory agreement for the Berger Information Technology Fund with Bay Isle
Financial LLC ("Bay Isle"), a wholly owned subsidiary of BFG. Bay Isle presently
uses a team approach in which no one person of the investment team is primarily
responsible for the selection of the Fund's portfolio securities. BFG remains as
the Fund's investment adviser and continues to provide administrative,
supervisory and other services. The new sub-advisory agreement will not result
in any material change in the nature or the level of advisory and administrative
services provided to the Fund, nor will it result in any increase in advisory
fees.
The section "Organization of the Funds" of the Prospectus is amended
accordingly.
January 29, 2002
BERGER INFORMATION
TECHNOLOGY FUND -
INSTITUTIONAL SHARES
PROSPECTUS
[BERGER FUNDS LOGO]
The Securities and Exchange Commission has not approved or disapproved any
shares offered in this prospectus or determined whether this prospectus is
accurate or complete. Anyone who tells you otherwise is committing a crime. Like
all mutual funds, an investment in the Fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency. There is no
guarantee that the Fund will meet its investment goal, and although you have the
potential to make money, you could also lose money in the Fund.
BERGER FUNDS and BERGER INFORMATION TECHNOLOGY FUND are registered servicemarks
of Berger Financial Group LLC; THE BERGER MOUNTAIN LOGO is a registered
trademark of Berger Financial Group LLC; is a servicemark of Berger Financial
Group LLC; other marks referred to herein are the trademarks, servicemark,
registered trademarks or registered servicemark of the respective owners
thereof.
3
Table of Contents
BERGER FUNDS(R) are a no-load family of mutual funds. A mutual fund pools money
from shareholders and invests in a portfolio of securities. This prospectus
offers the class of shares designated as Institutional Shares of the Berger
Information Technology Fund. These shares are designed for pension and
profit-sharing plans, employee benefit trusts, endowments, foundations and
corporations, as well as high net worth individuals and financial
intermediaries, who are willing to maintain a minimum account balance of
$250,000. Institutional Shares are also made available for purchase and dividend
reinvestment in the account of all holders of Institutional Shares who received
their shares in the Fund's reorganization on July 2, 1999.
<Table>
Berger Information Technology Fund(R) - Institutional Shares .............. 4
The Fund's Goal and Principal Investment Strategies ....................... 4
Principal Risks ........................................................... 4
The Fund's Past Performance ............................................... 5
Fund Expenses ............................................................. 6
Investment Techniques, Securities and Associated Risks .................... 8
Risk and Investment Glossary .............................................. 8
How to Contact Us ......................................................... 13
To Open an Account or Purchase Shares ..................................... 14
Exchanging Shares ......................................................... 16
Selling (Redeeming) Shares ................................................ 18
Signature Guarantees/Special Documentation ................................ 19
Information About Your Account ............................................ 20
Excessive Trading ......................................................... 20
Online and Telephone Considerations ....................................... 20
Your Share Price .......................................................... 20
Privacy Notice ............................................................ 22
Distributions and Taxes ................................................... 23
Tax-Sheltered Retirement Plans ............................................ 25
Organization of the Fund .................................................. 26
Investment Managers ....................................................... 26
Special Fund Structure .................................................... 26
Financial Highlights for the Fund ......................................... 27
</Table>
Berger Funds - January 29, 2002 Berger Information Technology Fund -
Institutional Shares
4
Berger Information
Technology Fund -
Institutional Shares Ticker Symbol BINFX
The Fund's Goal and Principal Investment Strategies
The Fund aims for capital appreciation. In pursuing that goal, the Fund invests
at least 80% of its assets in common stocks of companies in the information
technology group of industries, such as software, hardware, computer consulting
services, communications and Internet services and products.
The Fund's investment manager analyzes trends in information technology spending
and demand, then identifies companies it believes are best positioned to benefit
from those trends. The Fund generally invests the remainder of its assets in
information technology-related companies whose stock price the investment
manager believes is undervalued relative to their assets, earnings, cash flow or
business franchise.
The Fund's investment manager generally looks for companies:
o That dominate their industries or a particular market segment
o That have or are developing products or services that represent significant
technological advancements or improvements
o That have strong fundamentals, strong management and strong product
positioning.
The Fund primarily invests in common stocks. The Fund is free to invest in
companies of any size market capitalization. In certain unusual circumstances,
the Fund may be unable to remain invested in securities of companies at the
stated level. The Fund's investment manager will generally sell a security when
it no longer meets the manager's investment criteria or when it has met the
manager's expectations for appreciation.
Principal Risks
You may be interested in the Fund if you are comfortable with above-average risk
and intend to make a long-term investment commitment. Like all managed funds,
there is a risk that the investment manager's strategy for managing the Fund may
not achieve the desired results. In addition, the price of common stock moves up
and down in response to corporate earnings and developments, economic and market
conditions and unanticipated events. As a result, the price of the Fund's
investments may go down, and you could lose money on your investment.
Given the Fund's concentration in industries that are rapidly changing, its
share price may fluctuate more than that of funds invested in more stable
industries. Companies in the information technology industries may have narrow
product lines and their products and services are often subject to intense
competition and rapid obsolescence.
Because the Fund's investments are focused in the information technology sector,
the Fund is more susceptible to adverse events and market pressures impacting
the industries included in that sector, which may pose greater market and
liquidity risk.
See "Investment Techniques, Securities and Associated Risks" later in this
prospectus for more information on principal risks and other risks.
Berger Funds - January 29, 2002 Berger Information Technology Fund -
Institutional Shares
5
Berger Information Technology Fund
The Fund's Past Performance
The information below shows the Fund's performance through December 31, 2001.
These returns include reinvestment of all dividends and capital gains
distributions and reflect Fund expenses. As with all mutual funds, past
performance does not guarantee future results.
Year-by-year returns show you how the Fund's performance has varied by
illustrating the differences for each full calendar year since the Fund began.
YEAR-BY-YEAR TOTAL RETURN AS OF DECEMBER 31(1)
[GRAPH]
<Table>
1998 62.72%
1999 165.53%
2000 -27.85%
2001 -38.61%
BEST QUARTER: 12/31/99 97.76%
WORST QUARTER: 3/31/01 -41.61%
</Table>
(1) Initial Public Offerings constituted a significant portion of the Fund's
performance during 1999 and there can be no assurance that IPOs will have such
an impact in the future.
Average annual total return is a measure of the Fund's performance over time.
The Fund's average annual return is compared to the Nasdaq-100 Index, the Fund's
new benchmark index, and the Wilshire 5000 Index, the Fund's previous benchmark
index. The Fund is changing its benchmark index so that it correlates more
closely to the investment style of the Fund. The Nasdaq-100 Index is an
unmanaged index, with dividends reinvested, which reflects Nasdaq's largest
companies across major industry groups, including computer hardware and
software, telecommunications, retail/wholesale trade and biotechnology. The
Wilshire 5000 Index is an unmanaged index, with dividends reinvested, which
measures the performance of all U.S. headquartered equity securities with
readily available price data. While the Fund does not seek to match the returns
of either index, they are good indicators of general stock market performance.
You may not invest in either index, and unlike the Fund, they do not incur fees
or charges.
Berger Funds - January 29, 2002 Berger Information Technology Fund -
Institutional Shares
6
Berger Information
Technology Fund -
Institutional Shares
AVERAGE ANNUAL RETURNS AS OF DECEMBER 31, 2001
<Table>
<Caption>
Life of the Fund
1 Year (April 8, 1997)
------ ----------------
The Fund -38.61% 21.89%
Nasdaq-100 -32.62% -1.37%
Wilshire 5000 -10.97% 9.80%
</Table>
Fund Expenses
As a shareholder in the Fund, you do not pay any sales loads, but you do
indirectly bear Annual Fund Operating Expenses, which vary from year to year.
<Table>
<Caption>
SHAREHOLDER TRANSACTION EXPENSES %
- -------------------------------- ----
Redemption Fee (as a percentage of amount redeemed or
exchanged if shares are held less than 6 months) 1.00
Exchange Fee* None
</Table>
* The 1% redemption fee referenced in the table will be imposed on shares
exchanged if held less than 6 months, since an exchange is treated as a
redemption followed by a purchase.
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES
(deducted directly from the Fund) %
- --------------------------------- ----
Management fee .85
Other expenses .30
Total Annual Fund Operating Expenses 1.15
</Table>
Understanding Expenses
Annual Fund operating expenses are paid by the Fund. As a result, they reduce
the Fund's return. Fund expenses include management fees and administrative
costs such as shareholder recordkeeping and reports, custodian and pricing
services and registration fees.
Example Costs
The following example helps you compare the cost of investing in the Fund with
the cost of investing in other mutual funds by showing what your costs may be
over time. It uses the same assumptions that other funds use in their
prospectuses:
o $10,000 initial investment
o 5% total return for each year
o Fund operating expenses remain the same for each period
o Redemption after the end of each period
o Reinvestment of all dividends and distributions
Berger Funds - January 29, 2002 Berger Information Technology Fund -
Institutional Shares
7
Berger Information Technology Fund
Your actual costs may be higher or lower, so this example should be used for
comparison only. Based on these assumptions, your costs at the end of each
period would be:
<Table>
<Caption>
Years $
- ----- -----
One 117
Three 365
Five 633
Ten 1,398
</Table>
Berger Funds - January 29, 2002 Berger Information Technology Fund -
Institutional Shares
8
Investment Techniques,
Securities and Associated
Risks
BEFORE YOU INVEST...
in the Fund, make sure you understand the risks involved. All investments
involve risk. Generally, the greater the risk, the greater the potential for
return. The reverse is also generally true-the lower the risk, the lower the
potential for return.
Like all mutual funds, an investment in the Fund is not a bank deposit and is
not insured or guaranteed by the FDIC or any other government agency. The Fund
is not a complete investment program but may serve to diversify other types of
investments in your portfolio. There is no guarantee that the Fund will meet its
investment goal, and although you have the potential to make money, you could
also lose money by investing in the Fund.
The following glossary will help you further understand the risks the Fund takes
by investing in certain securities and the investment techniques used by the
Fund. You may get more detailed information about the risks of investing in the
Fund in the Statement of Additional Information (SAI), including a discussion of
debt security ratings in Appendix A to the SAI.
Risk and Investment Glossary
BORROWING refers to a loan of money from a bank or other financial institution
undertaken by the Fund for temporary or emergency reasons only. The Fund will
not borrow more than 25% of its total assets. Leverage Risk
CALL RISK is the possibility that an issuer may redeem or "call" a fixed-income
security before maturity at a price below its current market price. An increase
in the likelihood of a call may reduce the security's price.
COMMON STOCK is a share of ownership (equity) interest in a company.
COMPANIES WITH LIMITED OPERATING HISTORIES are securities issued by companies
that have been in continuous operation for less than three years. Sometimes
called "unseasoned" issuers. Market, Liquidity and Information Risks
CONVERTIBLE SECURITIES(1) are debt or equity securities that may be converted on
specified terms into stock of the issuer. Market, Interest Rate, Prepayment and
Credit Risks
CORRELATION RISK occurs when the Fund "hedges" -- uses one investment to offset
the Fund's position in another. If the two investments do not behave in relation
to each other the way the Fund managers expect them to, then unexpected results
may occur.
CREDIT RISK means that the issuer of a security or the counterparty to an
investment contract may default, be downgraded or become unable to pay its
obligations when due.
CURRENCY RISK happens when the Fund buys or sells a security denominated in
foreign currency. Foreign currencies "float" in value against the U.S. dollar.
Adverse changes in foreign currency values can cause investment losses when the
Fund's investments are converted to U.S. dollars.
Berger Funds - January 29, 2002 Berger Information Technology Fund -
Institutional Shares
9
Berger Information Technology Fund
DIVERSIFICATION means a diversified fund may not, with respect to at least 75%
of its assets, invest more than 5% of its assets in the securities of one
company. A nondiversified fund may be more volatile than a diversified fund
because it invests more of its assets in a smaller number of companies and the
gains or losses on a single stock will therefore have a greater impact on the
fund's share price. The Fund is a diversified fund.
ECONOMIC RISK is the risk associated with the fact that foreign economies are
often less diverse than the U.S. economy. This lack of diversity may lead to
greater volatility and could negatively effect foreign investment values. In
addition, it is often difficult for domestic investors to understand all the
economic factors that influence foreign markets, thus making it harder to
evaluate the Fund's holdings.
FINANCIAL FUTURES(2) are exchange-traded contracts on securities, securities
indexes or foreign currencies that obligate the holder to take or make future
delivery of a specified quantity of those underlying securities or currencies on
a predetermined future date at a predetermined price. Hedging, Correlation,
Opportunity and Leverage Risks
FOREIGN SECURITIES are issued by companies located outside the United States.
The Fund considers a company to be located outside the United States if the
principal securities trading market for its equity securities is located outside
the U.S. or it is organized under the laws of, and has a principal office in, a
country other than the U.S. Market, Currency, Transaction, Liquidity,
Information, Economic and Political Risks
FORWARD FOREIGN CURRENCY CONTRACTS(2) are privately negotiated contracts
committing the holder to purchase or sell a specified quantity of a foreign
currency on a predetermined future date at a predetermined price. Hedging,
Credit, Correlation, Opportunity and Leverage Risks
HEDGING RISK comes into play when the Fund uses a security whose value is based
on an underlying security or index to "offset" the Fund's position in another
security or currency. The objective of hedging is to offset potential losses in
one security with gains in the hedge. However, a hedge can eliminate or reduce
gains as well as offset losses. (Also see "Correlation risk.")
ILLIQUID AND RESTRICTED SECURITIES are securities that, by rules of their issue
or by their nature, cannot be sold readily. These do not include liquid Rule
144A securities. The Fund will not invest more than 15% of its net assets in
illiquid securities, including restricted securities not deemed to be liquid.
Market, Liquidity and Transaction Risks
INFORMATION RISK means that information about a security or issuer might not be
available, complete, accurate or comparable.
INITIAL PUBLIC OFFERING (IPO) is the sale of a company's securities to the
public for the first time. IPO companies can be small and have limited operating
histories. The price of IPO securities can be highly unstable because of
prevailing market psychology and the small number of shares available. In
addition, the quality and number of IPOs avail-
Berger Funds - January 29, 2002 Berger Information Technology Fund -
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Investment Techniques,
Securities and Associated
Risks (continued)
able for purchase may diminish in the future, and their contribution
to Fund performance may be less significant as a Fund grows in size. Market,
Liquidity and Information Risks
INTEREST RATE RISK is the risk that changes in interest rates will adversely
affect the value of an investor's securities. When interest rates rise, the
value of fixed-income securities will generally fall. Conversely, a drop in
interest rates will generally cause an increase in the value of fixed-income
securities. Longer-term securities are subject to greater interest rate risk.
INVESTMENT-GRADE BONDS are rated BBB (Standard & Poor's) or Baa (Moody's) or
above. Bonds rated below investment grade are subject to greater credit risk
than investment-grade bonds. Interest Rate, Market, Call and Credit Risks
LENDING PORTFOLIO SECURITIES to qualified financial institutions is
undertaken in order to earn income. The Fund lends securities only on a fully
collateralized basis. The Fund may lend portfolio securities only up to 33 1/3%
of its total assets. Credit Risk
LEVERAGE RISK occurs in some securities or techniques that tend to magnify the
effect of small changes in an index or a market. This magnified change can
result in a loss that exceeds the amount that was invested in the contract or
security.
LIQUIDITY RISK occurs when investments cannot be sold readily. The Fund may have
to accept a less-than-desirable price to complete the sale of an illiquid
security or may not be able to sell it at all.
MARKET CAPITALIZATION is the total current market value of a company's
outstanding common stock.
MARKET RISK exists in all mutual funds and means the risk that the prices of
securities in a market, a sector, or an industry will fluctuate and that such
movements might reduce an investment's value.
OPPORTUNITY RISK means missing out on an investment opportunity because the
assets necessary to take advantage of it are committed to less advantageous
investments or strategies.
OPTIONS(2) are contracts giving the holder the right but not the obligation to
purchase or sell a security on or before a predetermined future date for a fixed
price. Options on securities indexes are similar but settle in cash. Not more
than 5% of the Fund's net assets may be used for initial margins for futures and
premiums for options. Hedging, Credit, Correlation and Leverage Risks
POLITICAL RISK comes into play with investments, particularly foreign
investments, that may be adversely affected by nationalization, taxation, war,
government instability or other economic or political actions or factors.
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Berger Information Technology Fund
PREPAYMENT RISK is the risk that, as interest rates fall, borrowers are more
likely to refinance their debts. As a result, the principal on certain
fixed-income securities may be paid earlier than expected, which could cause
investment losses and cause prepaid amounts to have to be reinvested at a
relatively lower interest rate.
SECTOR FOCUS(3) occurs when a significant portion of the Fund's assets are
invested in a relatively small number of related industries. These related
industries, or sectors, are narrowly defined segments of the economy, i.e.
utilities, technology, healthcare services, telecommunications, etc. There may
be additional risks associated with a Fund whose investments are focused in a
small number of sectors. For example, competition among technology companies may
result in increasingly aggressive pricing of their products and services, which
may affect the profitability of companies in the Fund's portfolio. In addition,
because of the rapid pace of technological development, products or services
developed by companies in a Fund's portfolio may become rapidly obsolete or have
relatively short product cycles. As a result, the Fund's returns may be
considerably more volatile than the returns of a Fund that does not invest in
similarly related companies. The Fund will not concentrate more than 25% of
their total assets in any one industry. Sector focus may increase both market
and liquidity risk. Market and Liquidity Risks
SMALL AND MID-SIZED COMPANY SECURITIES are securities issued by small or
mid-sized companies, as measured by their market capitalization. The market
capitalization range targeted by funds investing in small or mid-sized companies
varies by fund. In general, the smaller the company, the greater its risks.
Market, Liquidity and Information Risks
SPECIAL SITUATIONS are companies about to undergo a structural, financial or
management change that may significantly affect the value of their securities.
Market and Information Risks
TEMPORARY DEFENSIVE MEASURES Although the Fund reserves the right to take
temporary defensive measures, it is the intention of the Fund to remain fully
invested at all times. In response to adverse market, economic, political, or
other conditions, a Fund's investment manager may believe taking temporary
defensive measures is warranted. When this happens, the Fund may increase its
investment in government securities and other short-term securities that are
inconsistent with the Fund's principal investment strategies. In addition,
certain unusual circumstances may force a Fund to temporarily depart from the
investment requirement implied by its name. Opportunity Risk
TRANSACTION RISK means that the Fund may be delayed or unable to settle a
transaction or that commissions and settlement expenses may be higher than
usual. In the case of foreign securities, use of a foreign securities depository
to maintain Fund assets may increase this risk. However, custodial risks of
using the depository may be minimized through analysis and continuous monitoring
by the Fund's primary custodian.
Berger Funds - January 29, 2002 Berger Information Technology Fund -
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Investment Techniques,
Securities and Associated
Risks (continued)
WRITING (SELLING) COVERED CALL OPTIONS(2) is the selling of a contract to
another party that gives them the right but not the obligation to buy a
particular security from you. The Fund will write call options only if it
already owns the security (if it is "covered"). The Fund may only write call
options up to 25% of its total assets. Opportunity, Credit and Leverage Risks
(1) The Fund has no minimum quality standards for convertible securities,
although it will not invest in defaulted securities. It also will not invest 20%
or more of its assets in convertible securities rated below investment grade or
in unrated convertible securities that the adviser considers to be below
investment grade.
(2) The Fund may use futures, forwards and options only for hedging. Not more
than 5% of the Fund's net assets may be used for initial margins for futures and
premiums for options, although the Fund may have more at risk under these
contracts than the initial margin or premium. However, the Fund's aggregate
obligations under these contracts may not exceed the total market value of the
assets being hedged, such as some or all of the value of the Fund's equity
securities.
(3) The security or technique is emphasized by the Fund.
Berger Funds - January 29, 2002 Berger Information Technology Fund -
Institutional Shares
13
How to Contact Us
ONLINE
You can access bergerfunds.com to obtain information about Berger Funds and to
perform maintenance and transactions on your account including:
o Purchasing, exchanging and selling shares
o Reviewing Fund information and performance
o Viewing electronic financial reports and prospectuses
o Downloading applications and account servicing forms
BERGER INVESTOR SERVICE REPRESENTATIVES
Our Representatives can assist you with any questions and requests you have
regarding your Berger Funds or CAT Portfolio accounts.
o 1-800-960-8427
BY MAIL
Send new account applications and written correspondence to:
Berger Funds
P.O. Box 219958
Kansas City, MO 64121-9958
Send overnight, certified or registered mail to:
Berger Funds
330 West 9th Street, 1st Floor
Kansas City, MO 64105
Send purchases for existing accounts to:
Berger Funds
P.O. Box 219529
Kansas City, MO 64121-9529
IN PERSON
If you are in the Denver area, please visit our Investor Center.
Cherry Creek Shopping Center
3000 E. 1st Avenue, 1st Level
Denver, Colorado 80206
Berger Funds - January 29, 2002 Berger Information Technology Fund -
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14
To Open an Account or
Purchase Shares
<Table>
<Caption>
Minimum
- -------
Initial investment $250,000
Subsequent investments No minimum
</Table>
BY ONLINE ACCESS
o Investors who establish electronic transfer privileges may make subsequent
investments online. Berger Funds will automatically debit your designated
bank account for payment.
BY MAIL
o If you are opening a new account, complete and sign the appropriate
application and make your check payable to Berger Funds for the amount you
want to invest. Send the application and check in the envelope provided.
o To add to an existing account, use the Invest by Mail slip attached to your
statement. If you do not have an Invest by Mail slip, note your fund and
account number on your check and mail to the appropriate address.
BY TELEPHONE
o INVESTOR SERVICE REPRESENTATIVE
To add to an existing account, you may place an order for additional shares
by calling an Investor Service Representative. You may pay for your shares by
overnight delivery of a check, by wire, or if you have electronic transfer
privileges, through an automatic debit to your bank account. Payments must be
received within three business days. Orders not paid for on time will be
canceled, and shares may be redeemed from your account to compensate for any
decline in the value of the shares canceled.
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15
Berger Information Technology Fund
BY SYSTEMATIC INVESTMENT PLAN
o To automatically purchase more shares on a regular basis, fill out the
Systematic Investment Plan section of the application. Berger Funds will
automatically debit your designated bank account for payment. If no date is
specified on your application, investments will be made on the 20th of each
month.
Important notes about purchasing shares:
o The Fund is only available to U.S. citizens or residents.
o You should read and understand the Fund's current prospectus before
investing.
o Your check must be made payable to Berger Funds and must be made in U.S.
dollars drawn on U.S. banks.
o Cash, credit cards, third party checks, credit card convenience checks, money
orders, travelers checks or checks drawn on foreign banks will not be
accepted.
o You may also pay for additional shares by wiring money from your bank account
to your Fund account. For current wire instructions, visit bergerfunds.com or
call an Investor Service Representative.
o Subject to approval by the Fund, you may purchase Fund shares with liquid
securities that the Fund is eligible to purchase. These securities must have
a value that can be readily determined in accordance with the fund's
valuation policies. You may pay for Fund shares with securities only if it is
the investment manager's intention to retain them in the Fund's portfolio.
The Fund may amend or terminate this practice at any time.
o If your check or electronic funds transfer does not clear for any reason,
your purchase will be canceled. o If your purchase is canceled for any
reason, you will be responsible for any losses or fees imposed by your bank
and may be responsible for losses that may be incurred as a result of any
decline in the value of the canceled purchase.
o We may make additional attempts to debit your bank account for any failed
online, telephone or systematic purchases. You are liable for any potential
costs associated with these additional attempts.
Berger Funds - January 29, 2002 Berger Information Technology Fund -
Institutional Shares
16
Exchange Shares
BY ONLINE ACCESS
o In general, investor accounts are automatically eligible to exchange shares
online at bergerfunds.com.
BY MAIL
o To exchange all or part of your shares, send a written request indicating the
name of the Fund(s) you are selling from, the name of the Fund(s) you are
purchasing into, your account number, the dollar amount or the number of
shares you are selling and a daytime telephone number to the appropriate
address.
o Your request must be signed by each registered shareholder, with the
signature(s) appearing exactly as they do on your account registration.
BY TELEPHONE
o To exchange all or a portion of your shares into any other available Berger
Fund or Cash Account Trust Portfolio (CAT Portfolio), call an Investor
Service Representative.
BY SYSTEMATIC EXCHANGE PLAN
o Shares may be exchanged automatically ($50 minimum) between funds monthly,
quarterly, semi-annually or annually. You can select the frequency and day of
the month for the exchanges to occur. If no date is specified on your
request, exchanges will be made on the 20th of each month.
o If the balance in the Fund account you are exchanging from falls below the
normal Systematic Exchange Plan amount, all remaining shares will be
exchanged and the program will be discontinued.
Important notes about exchanging shares:
Shares of the funds described in this prospectus may be exchanged for shares of
any other Berger Fund or for money market shares in the Cash Account Trust
Portfolios (the CAT Portfolios). There are three CAT Portfolios: the Money
Market Portfolio, the Government Securities Portfolio and the Tax-Exempt
Portfolio.
The exchange privilege with the CAT Portfolios does not constitute an offering
or recommendation of the shares of these portfolios by the Berger Funds or
Berger Financial Group LLC. Berger Financial Group LLC is compensated for
administrative services it performs with respect to accounts in the CAT
Portfolios.
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17
Berger Information Technology Fund
When exchanging shares:
o Each account must be registered identically - have the same ownership and
addresses.
o Each Berger Fund or CAT Portfolio must be legally eligible for sale in your
state of residence.
o Generally, you may exchange out of each of the Berger Funds up to four times
per calendar year (systematic exchanges excluded). At this time, there is no
limit on the number of exchanges permitted out of the CAT Portfolios.
o You are responsible for obtaining and reading the current prospectus for the
Fund or CAT Portfolio into which you are exchanging.
o An exchange out of a Berger Fund results in the sale of that Fund's shares
and the purchase of another, normally resulting in a taxable event for you.
o Exchanges into any new Fund or CAT Portfolio must meet the Fund's or
Portfolio's initial and subsequent investment minimums, or be equal to the
total value of the account
o The Fund will deduct a 1% exchange fee from your exchange proceeds if you
exchange out shares of the Fund held less than 6 months. This fee is paid to
the Fund and is intended to discourage investors from short-term trading of
Fund shares and to offset the cost to the Fund of excess brokerage and other
costs incurred as a result of such trading. If you have purchased shares on
different days, shares held the longest will be redeemed first for purposes
of determining if a fee is applicable. This fee will not apply to reinvested
dividends and capital gains, certain retirement plan accounts, or in the case
of redemptions resulting from the death of the shareholder. The Fund may
modify, terminate or waive this fee at any time.
Berger Funds - January 29, 2002 Berger Information Technology Fund -
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18
Selling (Redeeming)
Shares
BY ONLINE ACCESS
o In general, investors with non-retirement accounts are automatically eligible
to sell shares online at bergerfunds.com.
BY MAIL
o To sell all or part of your shares, send a written request indicating the
name of the Fund(s), your account number, the dollar amount or the number of
shares you are selling and a daytime telephone number to the appropriate
address.
o Your request must be signed by each registered shareholder, with the
signature(s) appearing exactly as they do on your account registration.
o Include any necessary Signature Guarantees. Refer to the "Signature
Guarantees/ Special Documentation" section of this Prospectus.
BY TELEPHONE
o Investors with non-retirement accounts are automatically eligible to sell
shares by telephone. To sell all or a portion of your shares, call an
Investor Service Representative.
BY SYSTEMATIC WITHDRAWAL PLAN
o Shares may be redeemed automatically ($50 minimum) monthly, quarterly,
semi-annually or annually.
Important notes about redeeming shares:
o Generally, payment for your redeemed shares will be sent to you within seven
days after receipt of your redemption request in good order. Payment may be
made by check, wire, or electronic funds transfer.
o A wire transfer will be sent the next bank business day after receipt of your
order, and an electronic funds transfer will be sent the second bank business
day after receipt of your order.
o Please see the Signature Guarantees/Special Documentation section for
signature guarantee requirements.
o Proceeds from the redemption of shares purchased by check or electronic funds
transfer may be delayed until full payment for the shares has been received
and cleared, which may take up to 15 days from the purchase date.
o The Fund is intended as a long-term investment, and not as a short-term
trading vehicle. Therefore, the Fund will deduct a 1% redemption fee from
your redemption proceeds if you redeem shares of the Fund held less than 6
months. This fee is paid to the Fund and is intended to discourage investors
from short-term trading of Fund shares and to offset the cost to the Fund of
excess brokerage and other costs
Berger Funds - January 29, 2002 Berger Information Technology Fund -
Institutional Shares
19
Berger Information Technology Fund
incurred as a result of such trading. If you have bought shares on different
days, shares held the longest will be redeemed first for purposes of
determining if a fee is applicable. This fee will not apply to reinvested
dividends and capital gains, certain retirement plan accounts, or in the case
of redemptions resulting from the death of the shareholder. The Fund may
modify, terminate or waive this fee at any time.
o Interest will not be paid for amounts represented by uncashed distribution or
redemption checks.
Signature Guarantees/Special Documentation
The Fund uses Signature Guarantees to protect you and the Fund from possible
fraudulent requests for redeemed shares. Your request must be in writing and
accompanied by a Signature Guarantee if: o Your redemption request exceeds
$100,000.
o You request that your redemption be made payable to anyone other than the
registered owner(s).
o You request that payment of your redemption be sent to a bank that is not
already on file for redemption privileges.
o You want to change the bank on file for redemption privileges.
o You request that payment of your redemption be mailed to an address that has
been changed within 15 days of your redemption request or to an address other
than the one of record.
o You declined telephone or online options on your new account application and
wish to add them at a later time.
o You wish to add or remove owners on your account.
Berger Funds reserves the right to require Signature Guarantees under certain
other circumstances.
You can obtain a Signature Guarantee from most broker-dealers, national or state
banks, credit unions, federal savings and loan associations or other eligible
institutions. You cannot obtain a Signature Guarantee from a notary public.
Make sure the Signature Guarantee appears together with the signature(s) of all
registered owner(s) of the redeemed shares on the written redemption request.
Additional documents are required for redemptions by corporations, executors,
administrators, trustees and guardians.
Berger Funds - January 29, 2002 Berger Information Technology Fund -
Institutional Shares
20
Information About
Your Account
EXCESSIVE TRADING
The Fund does not permit excessive, short-term or other abusive trading
practices due to the potential negative impact upon portfolio management
strategies and overall fund performance. The Fund reserves the right to reject
any purchase or exchange order and to revoke the exchange privilege from any
investor that, in the Fund's opinion, engages in trading that may be disruptive
to the Fund, or who has a history of excessive trading. Accounts under common
ownership or control may be considered together when evaluating the trading
history.
ONLINE AND TELEPHONE CONSIDERATIONS
Generally, all new accounts are automatically granted online and telephone
transaction privileges unless explicitly declined in writing, either on the
account application or by written notice. Bergerfunds.com may restrict account
access and transaction capabilities for certain types of accounts. Please
contact a representative for more information.
You may give up some level of security by choosing to buy or sell shares by
telephone or online, rather than by mail. The Fund uses procedures designed to
give reasonable assurance that telephone and online instructions are genuine,
including recording the transactions, testing the identity of the shareholder
placing the order and sending prompt written confirmation of transactions to the
shareholder of record. You should promptly review all confirmation statements
for accuracy.
The Fund and its service providers are not liable for acting upon instructions
communicated by telephone or online that they believe to be genuine if these
procedures are followed.
In times of extreme economic conditions, market conditions, or other events, we
may experience unusually high call volumes, making it difficult to reach a
Berger Funds representative. Please consider using our transaction functionality
on bergerfunds.com or submit requests in writing.
YOUR SHARE PRICE
The price at which you buy, sell or exchange Fund shares is the share price or
net asset value (NAV). The share price for the Institutional Shares of the Fund
is determined by adding the Institutional Shares' pro rata portion of the total
value of the Fund's investments, cash and other assets, deducting the
Institutional Shares' pro rata portion of the Fund's liabilities and the
liabilities attributable directly to the Institutional Shares, and then dividing
that value by the total number of the Institutional Shares outstanding. Share
price is calculated separately for each class of Fund shares.
The Fund's share price is calculated at the close of the regular trading session
of the New York Stock Exchange (normally 4:00 p.m. Eastern time) each day that
the Exchange is open. Share prices are not calculated on the days that the
Exchange is closed.
Berger Funds - January 29, 2002 Berger Information Technology Fund -
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21
Berger Information Technology Fund
For a purchase, redemption or exchange of Fund shares, your price is the share
price next calculated after your request is received in good order and accepted
by the Fund, its authorized agent or designee. To receive a specific day's
price, your request must be received before the close of the New York Stock
Exchange on that day.
When the Fund calculates its share price, it values the securities it holds at
market value. Sometimes market quotes for some securities are not available or
are not representative of market value. Examples would be when events occur that
materially affect the value of a security at a time when the security is not
trading or when the securities are illiquid. In that case, securities may be
valued in good faith at fair value, using consistently applied procedures
decided on by the trustees or directors. Money market instruments maturing
within 60 days are valued at amortized cost, which approximates market value.
Assets and liabilities expressed in foreign currencies are converted into U.S.
dollars at the prevailing market rates quoted by one or more banks or dealers
shortly before the close of the Exchange.
The Fund's foreign securities may trade on days that the Exchange is closed and
the Fund's daily share price is not calculated. As a result, the Fund's daily
share price may be affected, and you will not be able to purchase or redeem
shares.
CONFIRMATION OF YOUR PURCHASES AND REDEMPTIONS
You will receive transaction confirmation statements reflecting the share price,
dollar amount and number of shares associated with your transactions. Fractional
shares will be calculated to three decimal places. Reinvestment of fund
distributions, Systematic Investment Plan purchases and Systematic Withdrawal
Plan redemptions are only confirmed on quarterly statements. You may sign up to
receive your statements electronically at bergerfunds.com.
SHAREHOLDER REPORTS
To reduce expenses, the Fund may mail only one copy of notices, financial
reports, prospectuses and proxy statements to investors who share an address,
even if the accounts are registered under different names. To automatically
receive your own copy or, if at any time you want to request separate copies for
individual account holders, you may do so by calling an Investor Service
Representative. Your request to receive additional copies will take effect
within 30 days. The Fund will continue to send only one copy of these documents
unless you withdraw your consent.
SHARE CERTIFICATES
To assist in minimizing administrative costs, share certificates are no longer
issued. Records of share ownership are maintained by the Fund's transfer agent
in book entry form. If you are selling shares previously issued in certificate
form, you need to include the unsigned certificate along with your redemption or
exchange request, and send it to Berger Funds by registered mail. If you have
lost your certificate, please call an Investor Service Representative.
Berger Funds - January 29, 2002 Berger Information Technology Fund -
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Information About
Your Account (continued)
PURCHASES THROUGH BROKER-DEALERS
You may buy Fund shares through certain broker-dealers or other financial
organizations, but these organizations may charge you a fee or may have
different minimums for initial or subsequent investments that are not applicable
if you buy shares directly from the Fund.
THIRD-PARTY ADMINISTRATORS
Certain brokerage firms and other companies may provide administrative services
(such as sub-transfer agency, record-keeping or shareholder communications
services) to investors purchasing shares of the Fund through those companies.
The Fund's adviser or the Fund (if approved by its directors or trustees) may
pay fees to these companies for their services. These companies may also be
appointed as agents for or authorized by the Fund to accept on their behalf
purchase and redemption requests that are received in good order. Subject to
Fund approval, certain of these companies may be authorized to designate other
entities to accept purchase and redemption orders on behalf of the Fund.
PRIVACY NOTICE
To service your account, the Fund may collect personal information from you.
Personal information includes information you provide when opening an account or
when requesting investment literature, such as your name and address. Personal
information also includes your account balance and transaction information.
The Fund does not share, distribute or sell this information to any outside
company or individual without permission. Your personal information is used only
to service or maintain your account, including providing you with information on
Berger Funds' products and services. We will not disclose your personal
information to third parties, other than to service your account as permitted by
law, nor sell your personal information to third parties. Nor do we provide your
personal information to third parties for their marketing purposes. We may
disclose information as required by the Securities and Exchange Commission and
other federal and state regulatory agencies.
The Fund recognizes the importance of protecting your personal and financial
information entrusted to us. Thus, we restrict access to your personal and
financial data to those authorized to service your account. These personnel,
like all personnel, are subject to a strict employment policy regarding
confidentiality. To further ensure your privacy, our web site uses 128-bit
internet security encryption protocol. As an added measure, we do not include
personal or account information in nonsecure emails that we send you via the
internet. Berger Funds' privacy policy may be changed or modified at any time.
RIGHTS RESERVED BY THE FUNDS
Berger Funds and their agents reserve certain rights including the following:
(1) to waive or reduce investment minimums and fees; (2) to increase investment
minimums following notice; (3) to refuse any purchase or exchange order; (4) to
terminate or modify the exchange privilege at any time; (5) to not cancel a
transaction once it has
Berger Funds - January 29, 2002 Berger Information Technology Fund -
Institutional Shares
23
Berger Information Technology Fund
been submitted; (6) to discontinue offering shares of a Fund; (7) to close any
account if it is believed the shareholder is engaging in activities which may be
detrimental to the Fund; (8) to reject any trade not in good order; (9) to
freeze any account and suspend account services when notice has been received of
a dispute between the registered or beneficial account owners, or there is
reason to believe a fraudulent transaction may occur, or if ordered to do so by
a governmental agency; (10) to act on instructions believed to be genuine; and
(11) to suspend temporarily shareholder services and telephone transactions, in
case of an emergency.
REDEMPTIONS IN-KIND
The Fund intends to redeem its shares only for cash, although in order to
protect the interest of remaining shareholders, it retains the right to redeem
its shares in-kind under unusual circumstances. In-kind payment means payment
will be made to you in portfolio securities rather than cash. If this occurs,
you will incur transaction costs if you sell the securities for cash. You may
have difficulty selling the securities and recovering the amount of your
redemption if the securities are illiquid.
REDEMPTIONS BY THE FUNDS OF CERTAIN ACCOUNTS
To reduce its expenses, the Fund may involuntarily redeem the shares in your
account if your balance drops below $250,000 - but only if it drops below this
amount because you have redeemed shares, not because the share value has
declined. You will be given at least 60 days' notice before the Fund undertakes
any involuntary redemption. During that time, you may buy more shares to bring
your account to or above the minimum.
Holders of Institutional Shares who received their shares in the Fund's
reorganization in July 1999, will not be subject to this minimum account balance
requirement in their existing accounts, but instead will be subject to the
regular Berger Funds retail minimum account balance requirement of $2,000.
Distribution And Taxes
Distribution of income and gains
Unless you tell us that you want to receive your distributions in cash, they
will be reinvested automatically in Fund shares. The Fund generally makes two
kinds of distributions:
o Capital gains from the sale of portfolio securities held by a fund. The Fund
will distribute any net realized capital gains annually, normally in
December.
o Net investment income from interest or dividends received on securities held
by a fund. The Fund will distribute its investment income annually, normally
in December.
The Fund reserves the right to reinvest into your account undeliverable or
uncashed distribution checks that remain outstanding for six months, or
dividends or distributions of less than $10. The distribution amount will be
reinvested in shares of the applicable Fund at the share price next computed
after the check is canceled.
Berger Funds - January 29, 2002 Berger Information Technology Fund -
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Information About
Your Account (continued)
BUYING A DISTRIBUTION
Unless you have a tax-deferred account, purchasing shares in an account shortly
before a distribution occurs is called "buying a dividend." Income taxes must be
paid in taxable accounts on any distributions, regardless of whether the
distribution was reinvested or received in cash. This tax liability is incurred
whether the actual value of your account increased, decreased or remained the
same after your share purchase.
Throughout the period covered by a distribution, funds may build up taxable
gains on securities sold at a profit. Any shareholders of record on the "record"
date receive the applicable distributions, even if they did not own the shares
when the actual gains occurred.
In other words, "buying a dividend" results in you incurring the full tax
liability for the entire distribution period, even though you may not have
participated in the gains realized by the portfolio.
YOUR TAXES
You generally will owe tax on amounts distributed to you by the Fund in any
non-retirement account whether you reinvest them in additional shares or receive
them in cash.
Distributions of gains from the sale of assets held by a Fund for more than one
year generally are taxable to you at the applicable long-term capital gains
rate, regardless of how long you have owned your Fund shares. Distributions from
other sources generally are taxed as ordinary income.
Distributions made by the Fund to you will normally be capital gains. A portion
of those gains may be net short-term capital gains, which are taxed as ordinary
income. The Fund generally will not distribute net investment income, although
any net investment income that is generated as a by-product of managing its
portfolio will be distributed to you.
If you redeem Fund shares that have appreciated in value, you will have a
taxable gain upon redemption. Exchanges are treated as a redemption and purchase
for tax purposes. Therefore, you will also have a taxable gain if you exchange
shares that have appreciated in value.
ADDITIONAL TAX INFORMATION
You should consult your own tax adviser about your particular situation. For
more information about other tax matters, including backup withholding for
certain taxpayers and other tax aspects of redemptions, see the SAI.
Berger Funds - January 29, 2002 Berger Information Technology Fund -
Institutional Shares
25
Berger Information Technology Fund
Tax-Sheltered Retirement Plans
The Fund offers several tax-qualified retirement plans for individuals,
businesses and nonprofit organizations. For information about establishing an
IRA, Roth IRA, profit sharing or money purchase pension plan, 403(b) Custodial
Account, SEP-IRA, SIMPLE IRA or other retirement plans, please call or write to
Berger Funds. Trustees for existing 401(k) or other plans interested in using
Fund shares as an investment or investment alternative in their plans are
invited to call the Funds at (800) 259-2820.
Berger Funds - January 29, 2002 Berger Information Technology Fund -
Institutional Shares
26
Organization of the Fund
Investment Managers
The following companies provide investment management and administrative
services to the Fund.
Berger Financial Group LLC (BFG) (formerly Berger LLC) (210 University Blvd.,
Suite 800, Denver, CO 80206) is the Fund's investment adviser. BFG serves as
investment adviser, sub-adviser or administrator to mutual funds and
institutional investors. BFG has been in the investment advisory business since
1974. As investment adviser, BFG is responsible for managing investment
operations of the Fund. For the most recent fiscal year, the Fund paid BFG and
advisory fee of 0.85% of net assets. BFG also provides administrative services
to the Fund.
William F. K. Schaff, CFA, has been an investment manager for the Fund since its
inception in April 1997. Mr. Schaff joined BFG as a Portfolio Manager in
September 2001. Mr. Schaff co-founded and was the Chief Executive Officer and
Chief Investment Officer of Bay Isle Financial Corporation. Effective December
2001, BFG acquired all outstanding shares of Bay Isle Financial Corporation and
Bay Isle Financial Corporation, now Bay Isle Financial LLC, became a subsidiary
of BFG. Mr. Schaff is President of Bay Isle Financial LLC ("Bay Isle"). Mr.
Schaff has been managing large cap value accounts of Bay Isle clients since
1987.
PORTFOLIO TURNOVER
Portfolio changes are made whenever the Fund's investment manager believes that
the Fund's goal could be better achieved by investment in another security,
regardless of portfolio turnover. At times, portfolio turnover for the Fund may
exceed 100% per year. A turnover rate of 100% means the securities owned by the
Fund were replaced once during the year. Higher turnover rates may result in
higher brokerage costs to the Fund and in higher net taxable gains for you as an
investor. The Fund's portfolio turnover rate can be found under the heading
"Financial Highlights for the Fund."
SPECIAL FUND STRUCTURE
On July 2, 1999, the Fund began offering two classes of shares. The
Institutional Shares are offered through this prospectus and are designed for
investors who maintain a minimum account balance of $250,000. Institutional
Shares are also made available for purchase and dividend reinvestment to all
holders of Institutional Shares who received their shares in the Fund's
reorganization on July 2, 1999. The other class of shares, Investor Shares, are
offered through a separate prospectus and are available to the general public
with a minimum account balance of $2,500. Each class of shares has its own
expenses so that share price, performance and distributions will differ between
classes. The 12b-1 plan adopted by the Fund applies only to the Investor Shares.
For more information on Investor Shares, please call (800) 333-1001.
For more information on the multi-class fund structure, see the SAI.
Berger Funds - January 29, 2002 Berger Information Technology Fund -
Institutional Shares
27
Financial Highlights
Financial Highlights
for the Fund
These financial highlights are intended to help you understand the Fund's
financial performance for the periods shown. Certain information reflects
financial results for a single Fund share. Total return shows you how much an
investment in the Fund increased or decreased during each period, assuming you
reinvested all dividends and distributions. PricewaterhouseCoopers, LLP,
independent accountants, audited the information for the seven months ended
September 30, 1999 and for the years ended September 30, 2000 and 2001. Their
report is included in the Fund's annual report, which is available without
charge upon request. Information for the periods ended February 28, 1999 and
1998, was audited by other independent accountants.
Berger Information Technology Fund - Institutional Shares
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Period
<Table>
<Caption>
Period from Period from
March 1, 1999 Year Ended April 8, 1997(1)
Years September 30, to September 30, February 28,to February 28,
2001(2) 2000(2) 1999(2) 1999(2) 1998(2)
------- ------- ---------------- -------------- ----------------
Net asset value, beginning of period $ 17.67 $ 8.21 $ 6.34 $ 4.31 $ 2.86
------- ------- ------------- -------------- ----------------
From investment operations
Net investment income (loss) (0.07)(8) (0.00)(5) (0.00)(5) (0.04) (0.01)
Net realized and unrealized gains
(losses)from investments and
foreign currency transactions (12.56)(8) 9.51 1.97 2.07 1.46
------- ------- ------------- -------------- ----------------
Total from investment operations (12.63) 9.51 1.97 2.03 1.45
------- ------- ------------- -------------- ----------------
Less dividends and distributions
Distributions (from capital gains) -- (0.05) (0.10) -- --
------- ------- ------------- -------------- ----------------
Total dividends and distributions -- (0.05) (0.10) -- --
------- ------- ------------- -------------- ----------------
Net asset value, end of period $ 5.04 $ 17.67 $ 8.21 $ 6.34 $ 4.31
------- ------- ------------- -------------- ----------------
Total Return(6,7) (71.48)% 115.86% 31.30% 47.13% 50.75%
------- ------- ------------- -------------- ----------------
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $15,269 $61,566 $ 20,094 $ 12,446 $ 2,674
Net expense ratio to average
net assets(3) 1.15% 1.03% 1.49%(4) 1.50% 1.50%(4)
Ratio of net investment loss to
average net assets (0.72)% (0.76)% (1.22)%(4) (1.19)% (1.01)%(4)
Gross expense ratio to average
net assets 1.15% 1.03% 1.94%(4) 2.67% 12.17%(4)
Portfolio turnover rate(6) 80% 38% 31% 35% 33%
</Table>
(1) Commencement of investment operations for Institutional Shares.
(2) All per share data has been adjusted to reflect a 7-for-1 share split,
effective October 17, 2000.
(3) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Advisor.
(4) Annualized.
(5) Amount represents less than $0.01 per share.
(6) Not annualized.
(7) Applicable redemption fees are not included in Total Return calculation.
(8) Per share calculations for the period were based on average shares
outstanding.
Berger Funds - January 29, 2002 Berger Information Technology Fund -
Institutional Shares
FOR MORE INFORMATION:
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. The Fund's annual report
contains a discussion of the market conditions and investment strategies that
affected the Fund's performance over the past year.
You may wish to read the Statement of Additional Information (SAI) for more
information on the Fund and the securities it invests in. The SAI is
incorporated into this prospectus by reference, which means that it is
considered to be part of the prospectus.
You can get free copies of the annual and semi-annual reports and the SAI,
request other information or get answers to your questions about the Fund by
writing or calling the Fund at:
Berger Funds
P.O. Box 219958
Kansas City, MO 64121-9958
(800) 259-2820
bergerfunds.com
Text-only versions of Fund documents can be viewed online or downloaded from the
EDGAR database on the SEC's Web site at sec.gov.
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, D.C. For information on the operation of the Public Reference Room,
call (202) 942-8090. Copies of documents may also be obtained, after paying a
duplicating fee, by sending your request to the following e-mail address:
publicinfo@sec.gov, or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-6009.
INVESTMENT COMPANY ACT FILE NUMBER:
Berger Investment Portfolio Trust 811-8046
(Berger Information Technology Fund - Institutional Shares) TECHIPROS
BERGER FUNDS
SUPPLEMENT DATED SEPTEMBER 3, 2002
On September 3, 2002, Stilwell Financial Inc. ("Stilwell"), the parent company
of Berger Financial Group LLC ("Berger"), announced its intention to consolidate
all of its investment advisory operations under Janus Capital Management LLC
("Janus"). As the transaction is presently contemplated, Berger, the investment
adviser to the Berger Funds, will be consolidated into Janus and Berger will
cease to exist.
It is anticipated that portfolio management of the following Berger Funds, which
are advised by subadvisers to Berger, will not be affected:
Berger Small Cap Value Fund
Berger Mid Cap Value Fund
Berger Large Cap Value Fund
Berger Small Cap Value Fund II
It is presently anticipated that a change in portfolio management of the
following Berger Funds will occur:
Berger Growth Fund
Berger Large Cap Growth Fund
Berger Mid Cap Growth Fund
Berger Small Company Growth Fund
Berger Balanced Fund
Berger International Fund
Berger International CORE Fund
International Equity Fund
Berger Information Technology Fund
The Trustees of the Berger Funds, not Janus or Stilwell, will be responsible for
selecting a new adviser for these funds. The Trustees have begun considering the
alternatives. Berger will continue to provide investment advisory and
administrative services to the Berger Funds until the completion of the
transaction. It is anticipated that the consolidation of Stilwell will be
completed in the first quarter of 2003.
January 29, 2002
BERGER FUNDS
PROSPECTUS
[BERGER FUNDS LOGO]
BERGER INTERNATIONAL FUND
The Securities and Exchange Commission has not approved or disapproved any
shares offered in this prospectus or determined whether this prospectus is
accurate or complete. Anyone who tells you otherwise is committing a crime. Like
all mutual funds, an investment in the Fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency. There is no
guarantee that the Fund will meet its investment goal, and although you have the
potential to make money, you could also lose money in the Fund.
BERGER FUNDS is a registered servicemark of Berger Financial Group LLC; BERGER
INTERNATIONAL FUND is a servicemark of Berger Financial Group LLC; THE BERGER
MOUNTAIN LOGO is a registered trademark of Berger Financial Group LLC; other
marks referred to herein are the trademarks, servicemarks, registered trademarks
or registered servicemarks of the respective owners thereof.
3
Table of Contents
BERGER FUNDS(R) are a no-load family of mutual funds. A mutual fund pools money
from shareholders and invests in a portfolio of securities. This prospectus
offers shares of the Berger International Fund, which are available to the
general public.
<Table>
Berger International Fund(SM) ............................................... 4
The Fund's Goal and Principal Investment Strategies ......................... 4
Principal Risks ............................................................. 4
The Fund's Past Performance ................................................. 5
Fund Expenses ............................................................... 6
Investment Techniques, Securities and Associated Risks ...................... 7
Risk and Investment Table ................................................... 8
Risk and Investment Glossary ................................................ 9
How to Contact Us ........................................................... 13
To Open an Account or Purchase Shares ....................................... 15
Exchanging Shares ........................................................... 18
Selling (Redeeming) Shares .................................................. 20
Signature Guarantees/Special Documentation .................................. 21
Information About Your Account .............................................. 22
Excessive Trading ........................................................... 22
Online and Telephone Considerations ......................................... 22
Your Share Price ............................................................ 22
Privacy Notice .............................................................. 24
Distributions and Taxes ..................................................... 26
Tax-Sheltered Retirement Plans .............................................. 27
Organization of the Fund .................................................... 28
Investment Managers ......................................................... 28
12b-1 Arrangements .......................................................... 29
Special Fund Structure ...................................................... 29
Financial Highlights for the Fund ........................................... 30
</Table>
Berger Funds - January 29, 2002 Berger International Fund
4
Berger
International Fund Ticker Symbol BBINX
The Fund's Goal and Principal Investment Strategies
The Fund aims for long-term capital appreciation. In pursuing that goal, the
Fund primarily invests in common stocks of well-established foreign companies.
The Fund invests all of its assets in the Berger International Portfolio
(Portfolio), which has the same goals and policies as the Fund.
The Portfolio's investment manager first identifies economic and business themes
that it believes provide a favorable framework for selecting stocks. Using
fundamental analysis, the investment manager then selects individual companies
best positioned to take advantage of opportunities presented by these themes.
The Portfolio's investment manager generally looks for companies with:
o Securities that are fundamentally undervalued relative to their long-term
prospective earnings growth rates, their historic valuation levels and their
competitors
o Business operations predominantly in well-regulated and more stable foreign
markets
o Substantial size and liquidity, strong balance sheets, proven management and
diversified earnings.
The Portfolio invests primarily in common stocks with 65% of its total assets in
securities of companies located in at least five different countries outside the
United States. In certain unusual circumstances, the Fund may be unable to
remain invested in securities of companies at the stated level. Recently, the
Portfolio has been weighted toward the United Kingdom, Europe and selectively in
Japan and the Far East. However, it may also invest in other foreign countries,
including developing countries. A majority of the Portfolio's assets are
invested in mid-sized to large capitalization companies. The Portfolio's
investment manager will generally sell a security when it no longer meets the
manager's investment criteria or when it has met the manager's expectations for
appreciation.
See "Organization of the Fund--Special Fund Structure" later in this prospectus
for more information on the Fund's investment in the Portfolio.
Principal Risks
You may be interested in the Fund if you are comfortable with the risks of
international investing and intend to make a long-term investment commitment.
Like all managed funds, there is a risk that the investment manager's strategy
for managing the Fund may not achieve the desired results. In addition, the
price of common stock moves up and down in response to corporate earnings and
developments, economic and market conditions and unanticipated events. As a
result, the price of the Fund's investments may go down, and you could lose
money on your investment. There are additional risks with investing in foreign
countries, especially in developing countries--specifically, economic, market,
currency, liquidity, information, political and transaction risks. As a result
of these additional risks, the Fund may be more volatile than a domestic stock
fund. In addition, foreign stocks may not move in concert with the U.S. markets.
The Fund's investments are often focused in a small number of business sectors,
which may pose greater market and liquidity risks. In addition, the Fund may
invest in certain
Berger Funds - January 29, 2002 Berger International Fund
5
Berger International Fund
securities with unique risks, such as forward foreign currency contracts, which
may present hedging, credit, correlation, opportunity and leverage risks.
See "Investment Techniques, Securities and Associated Risks" later in this
prospectus for more information on principal risks and other risks.
The Fund's Past Performance
The information below shows the Fund's performance through December 31, 2001.1
These returns include reinvestment of all dividends and capital gains
distributions and reflect Fund expenses. As with all mutual funds, past
performance does not guarantee future results.
Year-by-year returns show you how the Fund's performance has varied by
illustrating the differences for each full calendar year for the past ten
years.(1)
YEAR-BY-YEAR TOTAL RETURN AS OF DECEMBER 31(1)
<Table>
1992 10.21%
1993 36.38%
1994 -7.80%
1995 18.78%
1996 18.51%
1997 2.90%
1998 14.92%
1999 30.90%
2000 -10.36%
2001 -22.19%
BEST QUARTER: 12/31/99 20.54%
WORST QUARTER: 9/30/98 -16.79%
</Table>
Average annual total return is a measure of the Fund's performance over time.
The Fund's average annual return is compared with the Morgan Stanley Capital
International Europe, Australasia and the Far East Index (EAFE Index), an
unmanaged index, with dividends reinvested, which represents major overseas
stock markets. While the Fund does not seek to match the returns of the EAFE
Index, this index is a good indicator of foreign stock markets. You may not
invest in the EAFE Index, and unlike the Fund, it does not incur fees or
charges.
AVERAGE ANNUAL RETURNS AS OF DECEMBER 31, 2001(1)
<Table>
<Caption>
Life of the Fund
1 Year 5 Years 10 Years (July 31, 1989)
------ ------- -------- ----------------
The Fund -22.19% 1.54% 7.73% 8.59%
EAFE Index -21.21% 1.17% 4.76% 2.97%
</Table>
(1) Predecessor Performance: Performance figures covering periods prior to
October 11, 1996, include the performance of a pool of assets advised by the
Portfolio's investment manager for periods before the Portfolio began
operations. This performance has been adjusted to reflect the increased expenses
expected in operating the Fund, net of fee waivers. The asset pool was not
registered with the SEC and was not subject to the investment restrictions
imposed on mutual funds. If the pool had been registered, its performance might
have been adversely affected.
Berger Funds - January 29, 2002 Berger International Fund
6
Berger
International Fund
Fund Expenses
As a shareholder in the Fund, you do not pay any sales loads, but you do
indirectly bear Annual Fund Operating Expenses, which vary from year to year.
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(1)
(deducted directly from the Fund) %
- --------------------------------- ----
Management fee .85
Distribution (12b-1) fee .25
Other expenses .35
----
Total Annual Fund Operating Expenses 1.45
====
</Table>
(1) Annual fund operating expenses consist of the Fund's expenses plus the
Fund's share of the expenses of the Portfolio.
Understanding Expenses
Annual Fund operating expenses are paid by the Fund. As a result, they reduce
the Fund's return. Fund expenses include the Fund's share of the Portfolio's
expenses, an administrative fee and registration fees.
Example Costs
The following example helps you compare the cost of investing in the Fund with
the cost of investing in other mutual funds by showing what your costs may be
over time. It uses the same assumptions that other funds use in their
prospectuses:
o $10,000 INITIAL INVESTMENT
o 5% total return for each year
o Fund operating expenses remain the same for each period
o Redemption after the end of each period
o Reinvestment of all dividends and distributions
Your actual costs may be higher or lower, so this example should be used for
comparison only. Based on these assumptions, your costs at the end of each
period would be:
<Table>
<Caption>
YEARS $
- ----- -----
One 148
Three 459
Five 792
Ten 1,735
</Table>
Berger Funds - January 29, 2002 Berger International Fund
7
Berger International Fund
Investment Techniques,
Securities and
Associated Risks
BEFORE YOU INVEST...
in the Fund, make sure you understand the risks involved. All investments
involve risk. Generally, the greater the risk, the greater the potential for
return. The reverse is also generally true--the lower the risk, the lower the
potential for return.
Like all mutual funds, an investment in the Fund is not a bank deposit and is
not insured or guaranteed by the FDIC or any other government agency. The Fund
is not a complete investment program but may serve to diversify other types of
investments in your portfolio. There is no guarantee that the Fund will meet its
investment goal, and although you have the potential to make money, you could
also lose money by investing in the Fund.
The table on the following page will help you further understand the risks the
Fund takes by investing in certain securities and the investment techniques used
by the Fund. A glossary follows. You may get more detailed information about the
risks of investing in the Fund in the Statement of Additional Information (SAI),
including a discussion of debt security ratings in Appendix A to the SAI.
KEY TO TABLE
Follow down the columns under the name of the Fund. The boxes will tell you:
Y Yes, the security or technique is permitted by the Fund and is
emphasized by the Fund.
-----------------------------------------------------------------------
< Yes, the security or technique is permitted by the Fund.
-----------------------------------------------------------------------
F The restriction is fundamental to the Fund. (Fundamental restrictions
cannot be changed without a shareholder vote.)
-----------------------------------------------------------------------
25 Use of a security or technique is permitted, but subject to a
restriction of up to 25% of total assets.
-----------------------------------------------------------------------
33.3 Use of a security or technique is permitted, but subject to a
restriction of up to 33 1/3% of total assets.
-----------------------------------------------------------------------
[][][] Use of a security or technique is permitted, but subject to a
restriction of up to 15% of net assets.
-----------------------------------------------------------------------
Berger Funds - January 29, 2002 Berger International Fund
8
Investment Techniques,
Securities and Associated
Risks (continued)
RISK AND INVESTMENT TABLE
<Table>
<Caption>
Berger
International
Fund
-------------
Diversification F
- -------------------------------------------------------------------------
Small and mid-sized company securities <
Market, liquidity and information risk
- -------------------------------------------------------------------------
Sector focus <
Market and liquidity risk
- -------------------------------------------------------------------------
Foreign securities Y
Market, currency, transaction, liquidity,
information, economic and political risk
- -------------------------------------------------------------------------
Convertible securities(1) <
Market, interest rate, prepayment and
credit risk
- -------------------------------------------------------------------------
Investment grade bonds (nonconvertible) <
Interest rate, market, call and credit risk
- -------------------------------------------------------------------------
Companies with limited operating histories <
Market, liquidity and information risk
- -------------------------------------------------------------------------
Illiquid and restricted securities [][][]
Market, liquidity and transaction risk
- -------------------------------------------------------------------------
Initial Public Offerings (IPOs) <
Market, liquidity and information risk
- -------------------------------------------------------------------------
Special situations <
Market and information risk
- -------------------------------------------------------------------------
Temporary defensive measures <
Opportunity risk
- -------------------------------------------------------------------------
Lending portfolio securities 33.3
Credit risk
- -------------------------------------------------------------------------
Borrowing 25F
Leverage risk
- -------------------------------------------------------------------------
Hedging Strategies
- -------------------------------------------------------------------------
Forward foreign currency contracts(2) Y
Hedging, credit, correlation and leverage risk
- -------------------------------------------------------------------------
</Table>
NOTES TO TABLE
(1) The Fund has no minimum quality standard for convertible securities,
although it will not invest in defaulted securities. It also will not
invest 20% or more of its assets in convertible securities rated below
investment grade or in unrated convertible securities that the
sub-adviser considers to be below investment grade.
(2) The Fund may use forwards only for hedging. The Fund's aggregate
obligations under these contracts may not exceed the total market value
of the assets being hedged, such as some or all of the value of the
Fund's securities denominated in a particular foreign currency.
Berger Funds - January 29, 2002 Berger International Fund
9
Berger International Fund
Risk and Investment
Glossary
BORROWING refers to a loan of money from a bank or other financial institution
undertaken by a Fund for temporary or emergency reasons only.
CALL RISK is the possibility that an issuer may redeem or "call" a fixed-income
security before maturity at a price below its current market price. An increased
likelihood of a call may reduce the security's price.
COMMON STOCK is a share of ownership (equity) interest in a company.
COMPANIES WITH LIMITED OPERATING HISTORIES are securities issued by companies
that have been in continuous operation for less than three years. Sometimes
called "unseasoned" issuers.
CONVERTIBLE SECURITIES are debt or equity securities that may be converted on
specified terms into stock of the issuer.
CORRELATION RISK occurs when the Fund "hedges" ~ uses one investment to offset
the Fund's position in another. If the two investments do not behave in relation
to each other the way the Fund's manager expects them to, then unexpected
results may occur.
CREDIT RISK means that the issuer of a security or the counterparty to an
investment contract may default, be downgraded or become unable to pay its
obligations when due.
CURRENCY RISK happens when the Fund buys or sells a security denominated in
foreign currency. Foreign currencies "float" in value against the U.S. dollar.
Adverse changes in foreign currency values can cause investment losses when the
Fund's investments are converted to U.S. dollars.
DIVERSIFICATION means a diversified fund may not, with respect to at least 75%
of its assets, invest more than 5% of its assets in the securities of one
company. A nondiversified fund may be more volatile than a diversified fund
because it invests more of its assets in a smaller number of companies and the
gains or losses on a single stock will therefore have a greater impact on the
Fund's share price. The Fund is a diversified fund.
ECONOMIC RISK is the risk associated with the fact that foreign economies are
often less diverse than the U.S. economy. This lack of diversity may lead to
greater volatility and could negatively effect foreign investment values. In
addition, it is often difficult for domestic investors to understand all the
economic factors that influence foreign markets, thus making it harder to
evaluate the Funds' holdings.
FOREIGN SECURITIES are issued by companies located outside the United States.
The Fund considers a company to be located outside the United States if the
principal securities trading market for its equity securities is located outside
the U.S. or it is organized under the laws of, and has a principal office in, a
country other than the U.S.
Berger Funds - January 29, 2002 Berger International Fund
10
Investment Techniques,
Securities and Associated
Risks (continued)
FORWARD FOREIGN CURRENCY CONTRACTS are privately negotiated contracts committing
the holder to purchase or sell a specified quantity of a foreign currency on a
predetermined future date at a predetermined price.
HEDGING RISK comes into play when the Fund uses a security whose value is based
on an underlying security or index to "offset" the Fund's position in another
security or currency. The objective of hedging is to offset potential losses in
one security with gains in the hedge. However, a hedge can eliminate or reduce
gains as well as offset losses. (Also see "Correlation risk.")
ILLIQUID AND RESTRICTED SECURITIES are securities that, by rules of their issue
or by their nature, cannot be sold readily. These do not include liquid Rule
144A securities.
INFORMATION RISK means that information about a security or issuer might not be
available, complete, accurate or comparable.
INITIAL PUBLIC OFFERING (IPO) is the sale of a company's securities to the
public for the first time. IPO companies can be small and have limited operating
histories. The price of IPO securities can be highly unstable because of
prevailing market psychology and the small number of shares available. In
addition, the quality and number of IPOs available for purchase may diminish in
the future, and their contribution to Fund performance may be less significant
as the Fund grows in size.
INTEREST RATE RISK is the risk that changes in interest rates will adversely
affect the value of an investor's securities. When interest rates rise, the
value of fixed-income securities will generally fall. Conversely, a drop in
interest rates will generally cause an increase in the value of fixed-income
securities. Longer-term securities are subject to greater interest rate risk.
INVESTMENT-GRADE BONDS are rated BBB (Standard & Poor's) or Baa (Moody's) or
above. Bonds rated below investment grade are subject to greater credit risk
than investment-grade bonds.
LENDING PORTFOLIO SECURITIES to qualified financial institutions is undertaken
in order to earn income. The Fund lends securities only on a fully
collateralized basis.
LEVERAGE RISK occurs in some securities or techniques that tend to magnify the
effect of small changes in an index or a market. This magnified change can
result in a loss that exceeds the amount that was invested in the contract or
security.
LIQUIDITY RISK occurs when investments cannot be sold readily. The Fund may have
to accept a less-than-desirable price to complete the sale of an illiquid
security or may not be able to sell it at all.
MARKET CAPITALIZATION is the total current market value of a company's
outstanding common stock.
Berger Funds - January 29, 2002 Berger International Fund
11
Berger International Fund
MARKET RISK exists in all mutual funds and means the risk that the prices of
securities in a market, a sector, or an industry will fluctuate and that such
movements might reduce an investment's value.
OPPORTUNITY RISK means missing out on an investment opportunity because the
assets necessary to take advantage of it are committed to less advantageous
investments or strategies.
POLITICAL RISK comes into play with investments, particularly foreign
investments, that may be adversely affected by nationalization, taxation, war,
government instability or other economic or political actions or factors.
PREPAYMENT RISK is the risk that, as interest rates fall, borrowers are more
likely to refinance their debts. As a result, the principal on certain
fixed-income securities may be paid earlier than expected, which could cause
investment losses and cause prepaid amounts to have to be reinvested at a
relatively lower interest rate.
SECTOR FOCUS occurs when a significant portion of the Fund's assets are invested
in a relatively small number of related industries. These related industries, or
sectors, are narrowly defined segments of the economy, i.e. utilities,
technology, healthcare services, telecommunications, etc. There may be
additional risks associated with Funds whose investments are focused in a small
number of sectors. For example, competition among technology companies may
result in increasingly aggressive pricing of their products and services, which
may affect the profitability of companies in the Fund's portfolio. In addition,
because of the rapid pace of technological development, products or services
developed by companies in the Fund's portfolio may become rapidly obsolete or
have relatively short product cycles. As a result, the Fund's returns may be
considerably more volatile than the returns of a Fund that does not invest in
similarly related companies. The Fund will not concentrate more than 25% of its
total assets in any one industry. Sector focus may increase both market and
liquidity risk.
SMALL AND MID-SIZED COMPANY SECURITIES are securities issued by small or
mid-sized companies, as measured by their market capitalization. The market
capitalization range targeted by the Fund appears under the heading "The Fund's
Goal and Principal Investment Strategies." In general, the smaller the company,
the greater its risks.
SPECIAL SITUATIONS are companies about to undergo a structural, financial or
management change that may significantly affect the value of their securities.
TEMPORARY DEFENSIVE MEASURES Although the Fund reserves the right to take
temporary defensive measures, it is the intention of the Fund to remain fully
invested at all times. In response to adverse market, economic, political, or
other conditions, the Fund's investment manager may believe taking temporary
defensive measures is warranted. When this happens, the Fund may increase its
investment in government securities and other short-term securities that are
inconsistent with the Fund's principal
Berger Funds - January 29, 2002 Berger International Fund
12
Investment Techniques,
Securities and Associated
Risks (continued)
investment strategies. In addition, certain unusual circumstances may force the
Fund to temporarily depart from the investment requirement implied by its name.
TRANSACTION RISK means that the Fund may be delayed or unable to settle a
transaction or that commissions and settlement expenses may be higher than
usual. In the case of foreign securities, use of a foreign securities depository
to maintain Fund assets may increase this risk. However, custodial risks of
using the depository may be minimized through analysis and continuous monitoring
by the Funds' primary custodian.
Berger Funds - January 29, 2002 Berger International Fund
13
Berger International Fund
How to Contact Us
ONLINE
You can access bergerfunds.com to obtain information about Berger Funds and to
perform maintenance and transactions on your account including:
o Opening new accounts
o Purchasing, exchanging and selling shares
o Reviewing Fund information and performance
o Changing your address
o Viewing electronic financial reports, prospectuses and statements
o Downloading applications and account servicing forms
QUICK ACCESS
You can obtain Fund prices and purchase, exchange, and sell shares using our
automated phone system (voice activated or touch tone).
o 1-800-551-5849, Option 1.
BERGER INVESTOR SERVICE REPRESENTATIVES
Our Representatives can assist you with any questions and requests you have
regarding your Berger Funds or CAT Portfolio accounts.
o 1-800-551-5849
Berger Funds - January 29, 2002 Berger International Fund
14
How to Contact Us
(continued)
BY MAIL
Send new account applications and written correspondence to:
Berger Funds
P.O. Box 219958
Kansas City, MO 64121-9958
Send overnight, certified or registered mail to:
Berger Funds
330 West 9th Street, 1st Floor
Kansas City, MO 64105
Send purchases for existing accounts to:
Berger Funds
P.O. Box 219529
Kansas City, MO 64121-9529
IN PERSON
If you are in the Denver area, please visit our Investor Center.
Cherry Creek Shopping Center
3000 E. 1st Avenue, 1st Level
Denver, Colorado 80206
Berger Funds - January 29, 2002 Berger International Fund
15
Berger International Fund
To Open an Account or
Purchase Shares
<Table>
<Caption>
Minimum Initial Investments*
- ----------------------------
Regular investment $2,500
Low Minimum Investment Plan $ 50
IRA $ 500
</Table>
<Table>
<Caption>
Minimum Subsequent Investments*
- -------------------------------
Regular investment $ 50
Regular systematic investment $ 50
Low Minimum Investment Plan $ 50
(required monthly systematic investments)
</Table>
*These minimums must be met in each individual Fund account in which you invest.
BY ONLINE ACCESS
o You may open most types of accounts online at bergerfunds.com.
o Investors who establish electronic transfer privileges may make subsequent
investments online. Berger Funds will automatically debit your designated
bank account for payment.
BY MAIL
o If you are opening a new account, complete and sign the appropriate
application and make your check payable to Berger Funds for the amount you
want to invest. Send the application and check in the envelope provided.
o To add to an existing account, use the Invest by Mail slip attached to your
statement. If you do not have an Invest by Mail slip, note your fund and
account number on your check and mail to the appropriate address.
Berger Funds - January 29, 2002 Berger International Fund
16
To Open an Account or
Purchase Shares
(continued)
BY TELEPHONE
o Quick Access
Investors who establish electronic transfer privileges may make additional
purchases through our automated phone system.
o Investor Service Representative
To add to an existing account, you may place an order for additional shares
by calling an Investor Service Representative.
You may pay for your shares by overnight delivery of a check, by wire, or if
you have electronic transfer privileges, through an automatic debit to your
bank account.
Payments must be received within three business days. Orders not paid for on
time will be canceled, and shares may be redeemed from your account to
compensate for any decline in the value of the shares canceled.
BY SYSTEMATIC INVESTMENT PLAN
o To automatically purchase more shares on a regular basis for a regular
minimum or Low Minimum Investment Plan account, fill out the Systematic
Investment Plan section of the application. Berger Funds will automatically
debit your designated bank account for payment. If no date is specified on
your application, investments will be made on the 20th of each month.
o The Low Minimum Investment Plan is designed for investors who would like to
begin a regular investment program but prefer a dollar cost averaging
approach rather than a higher lump sum initial investment. Systematic monthly
investments must be made until the value of each fund account opened under
the Plan meets the required minimum (refer to the "Account Minimums" section
of this Prospectus).
o You may also buy additional shares using Payroll Deduction if your employer
can initiate this type of transaction. You may have all or a portion of your
paycheck invested directly into your account.
Berger Funds - January 29, 2002 Berger International Fund
17
Berger International Fund
Important notes about purchasing shares:
o The Fund is only available to U.S. citizens or residents.
o You should read and understand the Fund's current prospectus before
investing.
o Your check must be made payable to Berger Funds and must be made in U.S.
dollars drawn on U.S. banks.
o Cash, credit cards, third party checks, credit card convenience checks, money
orders, travelers checks or checks drawn on foreign banks will not be
accepted.
o You may also pay for additional shares by wiring money from your bank account
to your Fund account. For current wire instructions, visit bergerfunds.com,
call Quick Access or call an Investor Service Representative.
o If your check or electronic funds transfer does not clear for any reason,
your purchase will be canceled.
o If your purchase is canceled for any reason, you will be responsible for any
losses or fees imposed by your bank and may be responsible for losses that
may be incurred as a result of any decline in the value of the canceled
purchase.
o We may make additional attempts to debit your bank account for any failed
online, telephone or systematic purchases. You are liable for any potential
costs associated with these additional attempts.
Berger Funds - January 29, 2002 Berger International Fund
18
Exchanging Shares
BY ONLINE ACCESS
o Investors are automatically eligible to exchange shares online at
bergerfunds.com.
BY MAIL
o To exchange all or part of your shares, send a written request indicating the
name of the Fund(s) you are selling from, the name of the Fund(s) you are
purchasing into, your account number, the dollar amount or the number of
shares you are selling and a daytime telephone number to the appropriate
address.
o Your request must be signed by each registered shareholder, with the
signature(s) appearing exactly as they do on your account registration.
BY TELEPHONE
o To exchange all or a portion of your shares into any other available Berger
Fund or Cash Account Trust Portfolio (CAT Portfolio), call Quick Access or an
Investor Service Representative.
BY SYSTEMATIC EXCHANGE PLAN
o Shares may be exchanged automatically ($50 minimum) between funds monthly,
quarterly, semi-annually or annually. You can select the frequency and day of
the month for the exchanges to occur. If no date is specified on your
request, exchanges will be made on the 20th of each month.
o If the balance in the Fund account you are exchanging from falls below the
normal Systematic Exchange Plan amount, all remaining shares will be
exchanged and the program will be discontinued.
Important notes about exchanging shares:
Shares of the funds described in this prospectus may be exchanged for shares of
any other Berger Fund or for money market shares in the Cash Account Trust
Portfolios (the CAT Portfolios). There are three CAT Portfolios: the Money
Market Portfolio, the Government Securities Portfolio and the Tax-Exempt
Portfolio.
The exchange privilege with the CAT Portfolios does not constitute an offering
or recommendation of the shares of these portfolios by the Berger Funds or
Berger Financial Group LLC. Berger Financial Group LLC is compensated for
administrative services it performs with respect to accounts in the CAT
Portfolios.
Berger Funds - January 29, 2002 Berger International Fund
19
Berger International Fund
When exchanging shares:
o Each account must be registered identically ~ have the same ownership and
addresses.
o Each Berger Fund or CAT Portfolio must be legally eligible for sale in your
state of residence.
o Generally, you may exchange out of each of the Berger Funds up to four times
per calendar year (systematic exchanges excluded). At this time, there is no
limit on the number of exchanges permitted out of the CAT Portfolios.
o You are responsible for obtaining and reading the current prospectus for the
Fund or CAT Portfolio into which you are exchanging.
o An exchange out of a Berger Fund results in the sale of that Fund's shares
and the purchase of another, normally resulting in a taxable event for you.
o Exchanges into any new Fund or CAT Portfolio must meet the Fund's or
Portfolio's initial and subsequent investment minimums, or be equal to the
total value of the account.
Berger Funds - January 29, 2002 Berger International Fund
20
Selling (Redeeming)
Shares
BY ONLINE ACCESS
o Investors with non-retirement accounts are automatically eligible to sell
shares at bergerfunds.com.
BY MAIL
o To sell all or part of your shares, send a written request indicating the
name of the Fund(s), your account number, the dollar amount or the number of
shares you are selling and a daytime telephone number to the appropriate
address.
o Your request must be signed by each registered shareholder, with the
signature(s) appearing exactly as they do on your account registration.
o Include any necessary Signature Guarantees. Refer to the "Signature
Guarantees/ Special Documentation" section of this Prospectus.
BY TELEPHONE
o Investors with non-retirement accounts are automatically eligible to sell
shares by telephone. To sell all or a portion of your shares, call Quick
Access or an Investor Service Representative.
BY SYSTEMATIC WITHDRAWAL PLAN
o Shares may be redeemed automatically ($50 minimum) monthly, quarterly,
semi-annually or annually.
o A systematic withdrawal plan may be established if you own shares in the Fund
worth at least $5,000.
Important notes about redeeming shares:
o Generally, payment for your redeemed shares will be sent to you within seven
days after receipt of your redemption request in good order. Payment may be
made by check, wire, or electronic funds transfer.
o You will be charged $10 if you request a wire transfer. There is no charge
for an electronic funds transfer. Your bank may charge an additional fee to
receive the wire transfer. A wire transfer will be sent the next bank
business day after receipt of your order, and an electronic funds transfer
will be sent the second bank business day after receipt of your order.
o Please see the Signature Guarantees/Special Documentation section for
signature guarantee requirements.
o Proceeds from the redemption of shares purchased by check or electronic funds
transfer may be delayed until full payment for the shares has been received
and cleared, which may take up to 15 days from the purchase date.
Berger Funds - January 29, 2002 Berger International Fund
21
Berger International Fund
o Interest will not be paid for amounts represented by uncashed distribution or
redemption checks.
Signature Guarantees/Special Documentation
The Fund uses Signature Guarantees to protect you and the Fund from possible
fraudulent requests for redeemed shares. Your request must be in writing and
accompanied by a Signature Guarantee if:
o Your redemption request exceeds $100,000.
o You request that your redemption be made payable to anyone other than the
registered owner(s).
o You request that payment of your redemption be sent to a bank that is not
already on file for redemption privileges.
o You want to change the bank on file for redemption privileges.
o You request that payment of your redemption be mailed to an address that has
been changed within 15 days of your redemption request or to an address other
than the one of record.
o You declined telephone or online options on your new account application and
wish to add them at a later time.
o You wish to add or remove owners on your account.
Berger Funds reserves the right to require Signature Guarantees under certain
other circumstances.
You can obtain a Signature Guarantee from most broker-dealers, national or state
banks, credit unions, federal savings and loan associations or other eligible
institutions. You cannot obtain a Signature Guarantee from a notary public.
Make sure the Signature Guarantee appears together with the signature(s) of all
registered owner(s) of the redeemed shares on the written redemption request.
Additional documents are required for redemptions by corporations, executors,
administrators, trustees and guardians.
Berger Funds - January 29, 2002 Berger International Fund
22
Information About
Your Account
EXCESSIVE TRADING
The Fund does not permit excessive, short-term or other abusive trading
practices due to the potential negative impact upon portfolio management
strategies and overall Fund performance. The Fund reserves the right to reject
any purchase or exchange order and to revoke the exchange privilege from any
investor that, in the Fund's opinion, engages in trading that may be disruptive
to the Fund, or who has a history of excessive trading. Accounts under common
ownership or control may be considered together when evaluating the trading
history.
ONLINE AND TELEPHONE CONSIDERATIONS
Generally, all new accounts are automatically granted online and telephone
transaction privileges unless explicitly declined in writing, either on the
account application or by written notice. Bergerfunds.com and Quick Access may
restrict account access and transaction capabilities for certain types of
accounts. Please contact a representative for more information. You may give up
some level of security by choosing to buy or sell shares by telephone or online,
rather than by mail. The Fund uses procedures designed to give reasonable
assurance that telephone and online instructions are genuine, including
recording the transactions, testing the identity of the shareholder placing the
order and sending prompt written confirmation of transactions to the shareholder
of record. You should promptly review all confirmation statements for accuracy.
The Fund and its service providers are not liable for acting upon instructions
communicated by telephone or online that they believe to be genuine if these
procedures are followed.
In times of extreme economic conditions, market conditions, or other events, we
may experience unusually high call volumes, making it difficult to reach a
Berger Funds representative. Please consider using our transaction functionality
on bergerfunds.com or Quick Access, or submit requests in writing.
YOUR SHARE PRICE
The price at which you buy, sell or exchange Fund shares is the share price or
net asset value (NAV). The share price for the Fund is determined by adding the
value of the Fund's investments, cash and other assets, deducting liabilities,
and then dividing that value by the total number of the Fund's shares
outstanding.
The Fund's share price is calculated at the close of the regular trading session
of the New York Stock Exchange (normally 4:00 p.m. Eastern time) each day that
the Exchange is open. Share prices are not calculated on the days that the
Exchange is closed.
For a purchase, redemption or exchange of Fund shares, your price is the share
price next calculated after your request is received in good order and accepted
by the Fund, its authorized agent or designee. To receive a specific day's
price, your request must be received before the close of the New York Stock
Exchange on that day.
Berger Funds - January 29, 2002 Berger International Fund
23
Berger International Fund
When the Fund calculates its share price, it values the securities it holds at
market value. Sometimes market quotes for some securities are not available or
are not representative of market value. Examples would be when events occur that
materially affect the value of a security at a time when the security is not
trading or when the securities are illiquid. In that case, securities may be
valued in good faith, at fair value using consistently applied procedures
decided on by the trustees or directors. Money market instruments maturing
within 60 days are valued at amortized cost, which approximates market value.
Assets and liabilities expressed in foreign currencies are converted into U.S.
dollars at the prevailing market rates quoted by one or more banks or dealers
shortly before the close of the Exchange.
The Portfolio's securities may trade on days that the Exchange is closed and the
Fund's daily share price is not calculated. As a result, the Fund's daily share
price may be affected, and you will not be able to purchase or redeem shares.
CONFIRMATION OF YOUR PURCHASES AND REDEMPTIONS
You will receive transaction confirmation statements reflecting the share price,
dollar amount and number of shares associated with your transactions. Fractional
shares will be calculated to three decimal places. Reinvestment of fund
distributions, Systematic Investment Plan purchases and Systematic Withdrawal
Plan redemptions are only confirmed on quarterly statements. You may sign up to
receive your statements electronically at bergerfunds.com.
SHAREHOLDER REPORTS
To reduce expenses, the Fund may mail only one copy of notices, financial
reports, prospectuses and proxy statements to investors who share an address,
even if the accounts are registered under different names. To automatically
receive your own copy or, if at any time you want to request separate copies for
individual account holders, you may do so by calling an Investor Service
Representative. Your request to receive additional copies will take effect
within 30 days. The Fund will continue to send only one copy of these documents
unless you withdraw your consent.
SHARE CERTIFICATES
To assist in minimizing administrative costs, share certificates are no longer
issued. Records of share ownership are maintained by the Fund's transfer agent
in book entry form. If you are selling shares previously issued in certificate
form, you need to include the unsigned certificate along with your redemption or
exchange request, and send it to Berger Funds by registered mail. If you have
lost your certificate, please call an Investor Service Representative.
PURCHASES THROUGH BROKER-DEALERS
You may buy Fund shares through certain broker-dealers or other financial
organizations, but these organizations may charge you a fee or may have
different minimums for initial or subsequent investments that are not applicable
if you buy shares directly from the Fund.
Berger Funds - January 29, 2002 Berger International Fund
24
Information About
Your Account (continued)
THIRD-PARTY ADMINISTRATORS
Certain brokerage firms and other companies may provide administrative services
(such as sub-transfer agency, record-keeping or shareholder communications
services) to investors purchasing shares of the Fund through those companies.
The Fund's adviser or the Fund (if approved by its directors or trustees) may
pay fees to these companies for their services. These companies may also be
appointed as agents for or authorized by the Fund to accept on their behalf
purchase and redemption requests that are received in good order. Subject to
Fund approval, certain of these companies may be authorized to designate other
entities to accept purchase and redemption orders on behalf of the Fund.
PRIVACY NOTICE
To service your account, the Fund may collect personal information from you.
Personal information includes information you provide when opening an account or
when requesting investment literature, such as your name and address. Personal
information also includes your account balance and transaction information.
The Fund does not share, distribute or sell this information to any outside
company or individual without permission. Your personal information is used only
to service or maintain your account, including providing you with information on
Berger Funds' products and services. We will not disclose your personal
information to third parties, other than to service your account as permitted by
law, nor sell your personal information to third parties. Nor do we provide your
personal information to third parties for their marketing purposes. We may
disclose information as required by the Securities and Exchange Commission and
other federal and state regulatory agencies.
The Fund recognizes the importance of protecting your personal and financial
information entrusted to us. Thus, we restrict access to your personal and
financial data to those authorized to service your account. These personnel,
like all personnel, are subject to a strict employment policy regarding
confidentiality. To further ensure your privacy, our web site uses 128-bit
internet security encryption protocol. As an added measure, we do not include
personal or account information in nonsecure e-mails that we send you via the
internet. Berger Funds privacy policy may be changed or modified at any time.
RIGHTS RESERVED BY THE FUND
Berger Funds and their agents reserve certain rights including the following:
(1) to waive or reduce investment minimums and fees; (2) to increase investment
minimums following notice; (3) to refuse any purchase or exchange order; (4) to
terminate of modify the exchange privilege at any time; (5) to not cancel a
transaction once it has been submitted; (6) to discontinue offering shares of a
Fund; (7) to close any account if it is believed the shareholder is engaging in
activities which may be detrimental to the Fund; (8) to reject any trade not in
good order; (9) to freeze any account and
Berger Funds - January 29, 2002 Berger International Fund
25
Berger International Fund
suspend account services when notice has been received of a dispute between
the registered or beneficial account owners, or there is reason to believe a
fraudulent transaction may occur, or if ordered to do so by a governmental
agency; (10) to act on instructions believed to be genuine; and (11) to suspend
temporarily shareholder services and telephone transactions, in case of an
emergency.
REDEMPTIONS IN-KIND
The Fund intends to redeem its shares only for cash, although in order to
protect the interest of remaining shareholders, it retains the right to redeem
its shares in-kind under unusual circumstances. In-kind payment means payment
will be made to you in portfolio securities rather than cash. If this occurs,
you will incur transaction costs if you sell the securities for cash. You may
have difficulty selling the securities and recovering the amount of your
redemption if the securities are illiquid.
ACCOUNT MINIMUMS
The Fund may charge a $10 annual fee to all accounts (except IRA and UGMA/UTMA
accounts) with balances that are under the account minimums as follows:
o Regular investment accounts with a balance of less than $2,000 that are not
making systematic monthly investments.
o Low Minimum Investment Plan accounts established before October 1, 2001 with
a balance of less than $2,000 that are not making systematic monthly
investments.
o Low Minimum Investment Plan accounts established on or after October 1, 2001
with a balance of less than $2,500 that are not making systematic monthly
investments.
The annual fee is normally assessed in December and is designed to help offset
the proportionately higher costs of maintaining accounts with lower balances.
This fee will apply to accounts that have been over the stated minimum at some
point in time only if the balance has dropped below this amount because shares
were redeemed, not because the share value declined.
Shares in accounts that do not meet the minimum balance requirements applicable
to them as described may also be subject to involuntary redemption by the Fund.
REDEMPTIONS BY THE FUND OF CERTAIN ACCOUNTS
To reduce its expenses, the Fund may involuntarily redeem the shares in your
account if your balance drops below $2,000--but only if it drops below this
amount because you have redeemed shares, not because the share value has
declined. You will be given at least 60 days' notice before the Fund undertakes
any involuntary redemption. During that time, you may buy more shares to bring
your account to or above the minimum.
Berger Funds - January 29, 2002 Berger International Fund
26
Information About
Your Account (continued)
Distributions and Taxes
DISTRIBUTIONS OF INCOME AND GAINS
Unless you tell us that you want to receive your distributions in cash, they
will be reinvested automatically in Fund shares. The Fund generally makes two
kinds of distributions:
o Capital gains from the sale of portfolio securities. The Fund will distribute
any net realized capital gains annually, normally in December.
o Net investment income from interest or dividends received on securities held
by the Portfolio. The Fund will distribute its investment income annually,
normally in December.
The Fund reserves the right to reinvest into your account undeliverable or
uncashed dividend or distribution checks that remain outstanding for six
months,or distributions of less than $10. The dividend or distribution amount
will be reinvested in shares of the applicable Fund at the NAV next computed
after the check is canceled.
BUYING A DISTRIBUTION
Unless you have a tax-deferred account, purchasing shares in an account shortly
before a distribution occurs is called "buying a dividend." Income taxes must be
paid in taxable accounts on any distributions, regardless of whether the
distribution was reinvested or received in cash. This tax liability is incurred
whether the actual value of your account increased, decreased or remained the
same after your share purchase.
Throughout the period covered by a distribution, funds may build up taxable
gains on securities sold at a profit. Any shareholders of record on the "record"
date receive the applicable distributions, even if they did not own the shares
when the actual gains occurred.
In other words, "buying a dividend" results in you incurring the full tax
liability for the entire distribution period, even though you may not have
participated in the gains realized by the portfolio.
YOUR TAXES
You generally will owe tax on amounts distributed to you by the Fund in any
non-retirement account whether you reinvest them in additional shares or receive
them in cash.
Distributions of gains from the sale of assets held by the Fund for more than
one year generally are taxable to you at the applicable long-term capital gains
rate, regardless of how long you have owned your Fund shares. Distributions from
other sources generally are taxed as ordinary income.
Berger Funds - January 29, 2002 Berger International Fund
27
Berger International Fund
Distributions made by the Fund to you will normally be capital gains. A portion
of those gains may be net short-term capital gains, which are taxed as ordinary
income. The Fund generally will not distribute net investment income, although
any net investment income that is generated as a by-product of managing its
portfolio will be distributed to you.
If you redeem Fund shares that have appreciated in value, you will have a
taxable gain upon redemption. Exchanges are treated as a redemption and purchase
for tax purposes. Therefore, you will also have a taxable gain if you exchange
shares that have appreciated in value.
ADDITIONAL TAX INFORMATION
You should consult your own tax adviser about your particular situation. For
more information about other tax matters, including backup withholding for
certain taxpayers and other tax aspects of redemptions, see the SAI.
TAX-SHELTERED RETIREMENT PLANS
The Fund offers several tax-qualified retirement plans for individuals,
businesses and nonprofit organizations. For information about establishing an
IRA, Roth IRA, profit sharing or money purchase pension plan, 403(b) Custodial
Account, SEP-IRA, SIMPLE IRA, Coverdell Education Savings Account (formerly the
Education IRA account) or other retirement plans, please call or write to Berger
Funds. Trustees for existing 401(k) or other plans interested in using Fund
shares as an investment or investment alternative in their plans are invited to
call the Fund at (800) 259-2820.
Berger Funds - January 29, 2002 Berger International Fund
28
Organization of the Fund
Investment managers
The following companies provide investment management and administrative
services to the Fund.
Berger Financial Group LLC (BFG) (formerly Berger LLC) (210 University Blvd.,
Suite 800, Denver, CO 80206) serves as investment adviser, sub-adviser or
administrator to mutual funds and institutional investors. BFG has been in the
investment advisory business since 1974. As investment adviser, BFG oversees,
evaluates and monitors the investment advisory services provided by Bank of
Ireland Asset Management (U.S.) Limited as sub-adviser. For the most recent
fiscal year, the Fund's Portfolio paid the adviser a fee of 0.85% of net assets.
BFG also provides administrative services to the Fund.
Bank of Ireland Asset Management (U.S.) Limited (BIAM), (75 Holly Hill Lane,
Greenwich, CT 06830 [representative office]; 26 Fitzwilliam Place, Dublin 2,
Ireland [main office]) serves as investment adviser or sub-adviser to pension
and profit-sharing plans and other institutional investors and mutual funds. As
sub-adviser, BIAM provides day-to-day management of the investment operations of
the Berger International Portfolio.
BIAM, using a team approach, has been the investment manager for the Portfolio
since its inception in 1996. BIAM is the sub-adviser to the Portfolio and is
part of Bank of Ireland's asset management group, established in 1966. Most of
the team of investment professionals have been with the group for at least ten
years.
PORTFOLIO TURNOVER
Portfolio changes are made whenever the Fund's investment manager believes that
the Fund's goal could be better achieved by investment in another security,
regardless of portfolio turnover. At times, portfolio turnover for the Fund may
exceed 100% per year. A turnover rate of 100% means the securities owned by the
Fund were replaced once during the year. Higher turnover rates may result in
higher brokerage costs to the Fund and in higher net taxable gains for you as an
investor. The Fund's portfolio turnover rate can be found under the heading
"Financial Highlights for the Fund."
Berger Funds - January 29, 2002 Berger International Fund
29
Berger International Fund
12b-1 Arrangements
The Fund is a "no-load" fund, meaning that you pay no sales load or commissions
when you buy or sell Fund shares. However, the Fund has adopted a 12b-1 plan
permitting it to pay a fee in connection with distribution of those shares.
Berger Financial Group LLC is entitled to be paid a fee under the plan of 0.25%
of the Fund's average daily net assets. Because this fee is paid on an ongoing
basis, this may result in the cost of your investment increasing and over time
may cost you more than other types of sales charges. The fee may be used for
such things as marketing and promotion, compensation to dealers and others who
provide distribution and administrative services, and shareholder support
services (such as routine requests for information).
Special Fund Structure
The Fund is organized as a "feeder" fund in a "master/feeder" structure. This
means that the Fund's assets are all invested in a larger "master" portfolio of
securities, the Berger International Portfolio, which has investment goals and
policies identical to those of the Fund. The other feeders investing in the
Portfolio are the International Equity Fund and the Berger International CORE
Fund. The International Equity Fund has a minimum balance requirement of
$1,000,000 and the Berger International CORE Fund has a minimum balance
requirement of $250,000. Each Fund has its own expenses so that share price,
performance and distributions will differ among feeders. For more information on
these feeders, please call (800) 259-2820.
The fund may withdraw its investment in the Portfolio at any time, if the
trustees determine that it is in the best interests of the Fund to do so. In
that event, the Fund might transfer to another master fund or hire its own
investment adviser. A withdrawal could result in the Fund receiving an in-kind
distribution of portfolio securities from the Portfolio. In that case, the Fund
could incur brokerage, tax or other charges if it converted the securities to
cash. In addition, an in-kind distribution could adversely affect the liquidity
of the Fund.
For more information on the master/feeder fund structure, see the SAI.
Berger Funds - January 29, 2002 Berger International Fund
30
Financial Highlights
for the Fund
The financial highlights will help you understand the Fund's financial
performance for the periods shown. Certain information reflects financial
results for a single Fund share. Total return shows you how much your investment
in the Fund increased or decreased during each period, assuming you reinvested
all dividends and distributions. PricewaterhouseCoopers LLP, independent
accountants, audited this information. Their report is included in the Fund's
annual report, which is available without charge upon request.
Berger International Fund
For a Share Outstanding Throughout the Periods
<Table>
<Caption>
PERIOD FROM
OCTOBER 11, 1996(1)
YEARS ENDED SEPTEMBER 30, TO SEPTEMBER 30,
2001 2000(7) 1999 1998 1997
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period $ 13.69 $ 12.51 $ 10.06 $ 11.46 $ 10.00
---------- ---------- ---------- ---------- ----------
From investment operations
Net investment income (loss) 0.38 (0.00)(8) (0.07) 0.50 0.05
Net realized and unrealized gains (losses)
on securities and foreign currency
transactions allocated from Portfolio (4.05) 1.18 3.01 (1.46) 1.41
---------- ---------- ---------- ---------- ----------
Total from investment operations (3.67) 1.18 2.94 (0.96) 1.46
---------- ---------- ---------- ---------- ----------
Less dividends and distributions
Dividends (from net investment income) -- -- (0.47) (0.06) --
Distributions (from capital gains) (0.11) -- (0.02) (0.38) --
Distributions (in excess of capital gains) (0.77) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.88) -- (0.49) (0.44) --
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 9.14 $ 13.69 $ 12.51 $ 10.06 $ 11.46
---------- ---------- ---------- ---------- ----------
Total Return(3) (28.43)% 9.43% 29.64% (8.46)% 14.60%
---------- ---------- ---------- ---------- ----------
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $ 26,773 $ 38,425 $ 23,014 $ 16,515 $ 18,673
Net expense ratio to average net assets(4),(5) 1.45% 1.71% 1.76% 1.80% 1.90%(2)
Ratio of net investment income to
average net assets 1.67% (0.00)% (0.01)% 2.20% 0.61%(2)
Gross expense ratio to average net assets 51.45% 1.71% 1.77% 1.83% 1.99%(2)
Portfolio turnover rate(3),(6) 41% 31% 16% 17% 17%
</Table>
(1) Commencement of investment operations.
(2) Annualized.
(3) Not annualized.
(4) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Portfolio's Advisor.
(5) Reflects the Fund's expenses plus the Fund's pro rata share of the
Portfolio's expenses.
(6) Represents the portfolio turnover rate of the Portfolio. All of the
investable assets of the Fund are invested in the Portfolio.
(7) Per share calculations for the period were based on average shares
outstanding.
(8) Amount represents less than $0.01 per share.
Berger Funds - January 29, 2002 Berger International Fund
31
Financial Highlights
The following table is based on the historical financial statements of the pool
of assets that was, in a practical sense, the predecessor to the Portfolio in
which the Fund is invested. The total return, expense ratios and per share data
on the table have been adjusted to reflect any increase in Fund operating
expenses that was expected to occur when the pool's assets were transferred to
the Portfolio over the pool's actual operating expenses for each period shown.
The table covers the period from the beginning of the pool through October 11,
1996 when the pool's assets were transferred to the Portfolio. The pool was not
registered with the SEC and was not subject to the investment restrictions
imposed on mutual funds. If the pool had been registered, the pool's financial
results might have been adversely affected.
International Equity Pool
Adjusted Selected Data (Unaudited)
For a Share Outstanding Throughout the Periods Presented
<Table>
<Caption>
PERIOD FROM
JANUARY 1, 1996 YEAR ENDED DECEMBER 31,
TO OCTOBER 11, ----------------------------------------------------------------------------
1996(2) 1995 1994 1993 1992 1991 1990
--------------- ---------- ---------- ---------- ---------- ---------- ----------
Per Share Data:(3)
Net asset value, beginning
of period $ 8.94 $ 7.52 $ 8.16 $ 5.98 $ 5.43 $ 4.80 $ 5.00
---------- ---------- ---------- ---------- ---------- ---------- ----------
From investment operations
Net investment income (loss) 0.11 0.12 0.06 0.10 0.08 0.08 0.06
Net realized and unrealized
gain (loss) on investments 0.95 1.30 (0.70) 2.08 0.47 0.55 (0.26)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations 1.06 1.42 (0.64) 2.18 0.55 0.63 (0.20)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 10.00 $ 8.94 $ 7.52 $ 8.16 $ 5.98 $ 5.43 $ 4.80
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Return(3) 11.91% 18.78% (7.80)% 36.38% 10.21% 13.18% (4.11)%
---------- ---------- ---------- ---------- ---------- ---------- ----------
Ratios Supplemental Data:
Net assets, end of period
(in thousands) $ 4,482 $ 5,662 $ 6,215 $ 5,495 $ 3,016 $ 2,364 $ 1,201
Net expense ratio to average
net assets(3),(4) 1.78%(5) 1.78% 1.78% 1.78% 1.78% 1.78% 1.78%
Ratio of net income (loss)
to average net assets(3) 1.11%(5) 1.03% 0.42% 0.92% 0.78% 1.26% 0.79%
Gross expense ratio to average
net assets(3) 1.83%(5) 1.83% 1.83% 1.83% 1.83% 1.83% 1.83%
Portfolio turnover rate 30% 34% 62% 41% 36% 27% 31%
</Table>
<Table>
<Caption>
PERIOD FROM
JULY 31, 1989(1)
TO DECEMBER 31,
1989
----------------
Per Share Data:(3)
Net asset value, beginning
of period $ 4.11
----------
From investment operations
Net investment income (loss) 0.02
Net realized and unrealized
gain (loss) on investments 0.87
----------
Total from investment operations 0.89
----------
Net asset value, end of period $ 5.00
----------
Total Return(3) 21.80%
----------
Ratios Supplemental Data:
Net assets, end of period
(in thousands) $ 916
Net expense ratio to average
net assets(3),(4) 1.78%(5)
Ratio of net income (loss)
to average net assets(3) (0.47)%(5)
Gross expense ratio to average
net assets(3) 1.83%(5)
Portfolio turnover rate 413%
</Table>
(1) Commencement of operations of the pool.
(2) Commencement of operations of the Portfolio in which the Fund is invested.
(3) Adjusted to reflect any increase in expenses expected in operating the
Fund, including the Fund's pro rata share of the Portfolio's expenses.
Additionally, total return is not annualized for periods of less than one
full year.
(4) Net expenses represent gross expenses less fees that would have been waived
by the Adviser of the Portfolio if the fee waiver in effect for the
Portfolio had been in effect for the pool.
(5) Annualized.
Berger Funds - January 29, 2002 Berger International Fund
FOR MORE INFORMATION:
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. The Fund's annual report
contains a discussion of the market conditions and investment strategies that
affected the Fund's performance over the past year.
You may wish to read the Statement of Additional Information (SAI) for more
information on the Fund and the securities it invests in. The SAI is
incorporated into this prospectus by reference, which means that it is
considered to be part of the prospectus.
You can get free copies of the annual and semi-annual reports and the SAI,
request other information or get answers to your questions about the Fund by
writing or calling the Fund at:
Berger Funds
P.O.Box 219958
Kansas City, MO 64121-9958
(800) 259-2820
bergerfunds.com
Text-only versions of Fund documents can be viewed online or downloaded from the
EDGAR database on the SEC's Web site at sec.gov.
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, D.C.For information on the operation of the Public Reference Room,
call (202) 942-8090. Copies of documents may also be obtained, after paying a
duplicating fee, by sending your request to the following e-mail address:
publicinfo@sec.gov, or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-6009.
INVESTMENT COMPANY ACT FILE NUMBER:
Berger Worldwide Funds Trust 811-07669
(Berger International Fund)
INTLPROS
STATEMENT OF ADDITIONAL INFORMATION
JANUS INVESTMENT FUND
100 FILLMORE STREET
DENVER, COLORADO 80206-4928
1-800-525-3713
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the Proxy Statement/Prospectus dated
___________, 2003 for the Special Meetings of Shareholders of Berger Growth
Fund, Berger Large Cap Growth Fund, Berger Mid Cap Growth Fund, Berger Small
Company Growth Fund, Berger Balanced Fund, Berger Information Technology Fund
and Berger International Fund to be held on March 7, 2003. Copies of the Proxy
Statement/Prospectus may be obtained at no charge by writing to the Janus Funds,
P.O. Box 173375, Denver, Colorado 80217-3375, or by calling toll-free
1-800-525-3713. Unless otherwise indicated, capitalized terms used herein and
not otherwise defined have the same meanings as are given to them in the Proxy
Statement/Prospectus.
Further information about the Janus Funds is contained in and
incorporated by reference to the Janus Funds' Statements of Additional
Information ("SAIs") dated February 25, 2002, as amended and/or supplemented,
insofar as they relate to the Janus Funds participating in the Reorganizations.
No other parts of the SAIs are incorporated by reference herein. The audited
financial statements and related independent accountant's report for the Janus
Funds contained in the Annual Report for the fiscal year ended October 31,
2002, are hereby incorporated herein by reference insofar as they relate to the
Janus Funds participating in the Reorganizations. No other parts of the Annual
Report are incorporated by reference herein.
The unaudited pro forma financial statements, attached hereto, are
intended to present the financial condition and related results of operations of
the Janus Olympus Fund and Janus Venture Fund as if the Reorganizations
involving those Funds had been consummated on October 31, 2002.
Further information about the Berger Funds is contained in and
incorporated by reference to the Berger Funds' Statements of Additional
Information dated January 29, 2002, insofar as they relate to the Berger Funds
participating in the Reorganizations. The audited financial statements and
related independent accountant's report for the Berger Funds contained in the
Annual Report for the fiscal year ended September 30, 2002, are incorporated
herein by reference insofar as they relate to the Berger Funds participating in
the Reorganizations.
The date of this Statement of Additional Information is __________,
2003.
S-1
SCHEDULE OF INVESTMENTS (Unaudited)
As of October 31, 2002
<Table>
<Caption>
SHARES
BERGER JANUS
GROWTH FUND OLYMPUS FUND COMBINED
Common Stock - 91.3%
Aerospace and Defense - 1.6%
Airlines - 1.7% -- 526,220 526,220
Applications Software - 1.6% -- 2,956,460 2,956,460
72,719 -- 72,719
423,955 298,570 722,525
Automotive - Medium and Heavy
Duty Trucks - 0.1%
47,759 -- 47,759
Broadcast Services and
Programming - 1.1%
-- 755,200 755,200
Building -
Mobile/Manufactured/RV - 0.1%
60,386 -- 60,386
Building -
Residential/Commercial - 0.1%
9,025 -- 9,025
Cable Television - 1.1%
-- 1,274,575 1,274,575
Casino Hotels - 1.3%
62,176 -- 62,176
-- 1,025,175 1,025,175
Casino Services - 0.2%
52,568 -- 52,568
Chemicals - Specialty - 0.1%
68,324 -- 68,324
Collectibles - 0.1%
96,835 -- 96,835
Commercial Banks - 0.5%
61,917 -- 61,917
82,369 -- 82,369
104,653 -- 104,653
63,590 -- 63,590
92,749 -- 92,749
Commercial Services - 1.1%
-- 200,760 200,760
-- 465,565 465,565
Commercial Services - Finance - 0.1%
19,647 -- 19,647
59,750 -- 59,750
Computer Services - 0.4%
151,047 -- 151,047
-- 344,960 344,960
Computers - 0.4%
329,738 -- 329,738
Computers - Integrated Systems - 0.1%
137,816 -- 137,816
Consulting Services - 0.3%
91,361 -- 91,361
139,615 -- 139,615
Consumer Products - Miscellaneous - 0.1%
102,149 -- 102,149
Containers - Paper and Plastic - 1.8%
-- 2,336,410 2,336,410
Cosmetics and Toiletries - 5.3%
-- 1,113,350 1,113,350
-- 744,940 744,940
</Table>
<Table>
<Caption>
MARKET VALUE
BERGER JANUS
GROWTH FUND OLYMPUS FUND COMBINED
General Dynamics Corp. -- 41,639,789 41,639,789
Southwest Airlines Co. -- 43,164,316 43,164,316
Intuit, Inc.* 3,775,570 3,775,570
Microsoft Corp.* 22,668,874 15,964,538 38,633,412
Oshkosh Truck Corp. 2,719,875 -- 2,719,875
Clear Channel Communications, Inc.* -- 27,980,160 27,980,160
Winnebago Industries, Inc. 2,737,297 -- 2,737,297
NVR, Inc.* 3,059,475 -- 3,059,475
Comcast Corp. - Special Class A* -- 29,327,971 29,327,971
Harrah's Entertainment, Inc.* 2,611,392 2,611,392
MGM Mirage, Inc.* 31,882,942 31,882,942
International Game Technology* 3,953,639 -- 3,953,639
Cabot Microelectronics Corp.* 3,101,226 -- 3,101,226
Action Performance Companies, Inc.* 1,998,674 -- 1,998,674
Commerce Bancorp, Inc. 2,842,609 -- 2,842,609
East West Bancorp, Inc. 2,841,731 -- 2,841,731
Pacific Capital Bankcorp. 2,807,840 -- 2,807,840
UCBH Holdings, Inc. 2,663,785 -- 2,663,785
United Bankshares, Inc. 2,802,875 -- 2,802,875
Iron Mountain, Inc.* -- 5,663,440 5,663,440
Weight Watchers International, Inc.* -- 22,044,503 22,044,503
H&R Block, Inc. 871,934 -- 871,934
Deluxe Corp. 2,761,645 -- 2,761,645
Sungard Data Systems, Inc.* 3,348,712 -- 3,348,712
BISYS -- 6,174,784 6,174,784
Dell Computer Corp.* 9,433,804 -- 9,433,804
Intergraph Corp.* 2,535,814 -- 2,535,814
The Corporate Executive Board Co.* 3,032,272 -- 3,032,272
FTI Consulting, Inc.* 5,807,984 -- 5,807,984
Jarden Corp.* 2,444,426 -- 2,444,426
Pactiv Corp.* -- 46,354,374 46,354,374
Avon Products, Inc. -- 53,986,342 53,986,342
Colgate-Palmolive Co. -- 40,956,801 40,956,801
</Table>
S-2
SCHEDULE OF INVESTMENTS (Unaudited)
As of October 31, 2002
<Table>
<Caption>
SHARES
BERGER JANUS
GROWTH FUND OLYMPUS FUND COMBINED
-- 421,750 421,750
-- 357,250 357,250
Data Processing and Management -- 1.3% 105,031 1,000,883 1,105,914
Diagnostic Kits -- 0.1% 93,253 -- 93,253
Diversified Financial Services -- 1.6% -- 1,113,930 1,113,930
Diversified Operations -- 3.1% 51,446 210,700 262,146
711,162 1,105,190 1,816,352
70,888 -- 70,888
E-Commerce/Services -- 0.1% 57,851 -- 57,851
Electronic Components -- Miscellaneous -- 0.1% 99,681 -- 99,681
Electronic Components -- Semiconductors -- 1.3% 839,072 -- 839,072
-- 1,272,790 1,272,790
Electronic Measuring Instruments -- 0.2% 64,529 -- 64,529
126,785 -- 126,785
Entertainment Software -- 1.4% 84,840 425,500 510,340
159,081 -- 159,081
Fiduciary Banks -- 1.2% -- 692,105 692,105
-- 383,195 383,195
Filtration/Separation Products -- 0.1% 93,500 -- 93,500
Finance -- Consumer Loans -- 0.9% -- 236,570 236,570
Finance -- Credit Card -- 0% 20,629 -- 20,629
Finance -- Investment Bankers/Brokers -- 1.3% -- 480,390 480,390
Finance -- Mortgage Loan Banker -- 2.2% 178,695 671,150 849,845
Financial Guarantee Insurance -- 1.4% -- 884,330 884,330
Food -- Retail -- 2.2% 61,536 1,165,598 1,227,134
</Table>
<Table>
<Caption>
MARKET VALUE
BERGER JANUS
GROWTH FUND OLYMPUS FUND COMBINED
Estee Lauder Companies, Inc. -- Class A -- 12,281,360 12,281,360
Proctor & Gamble Co. -- 31,598,762 31,598,762
Fiserv, Inc.* 3,281,168 31,267,585 34,548,753
Biosite, Inc.* 2,693,147 -- 2,693,147
Citigroup -- 41,159,713 41,159,713
3M Co. 6,530,555 26,746,258 33,276,813
General Electric Co. 17,956,841 27,906,048 45,862,889
Roper Industries, Inc. 2,736,277 -- 2,736,277
eBay, Inc.* 3,658,497 -- 3,658,497
Gentex Corp.* 2,938,596 -- 2,938,596
Intel Corp. 14,515,946 -- 14,515,946
Texas Instruments, Inc. -- 20,186,449 20,186,449
Flir Systems, Inc.* 3,054,158 -- 3,054,158
Itron, Inc.* 2,775,324 -- 2,775,324
Electronic Arts, Inc.* 5,524,781 27,708,560 33,233,341
Take-Two Interactive Software, Inc.* 4,101,108 -- 4,101,108
Bank of New York Company, Inc. -- 17,994,730 17,994,730
Northern Trust Corp. -- 13,342,850 13,342,850
Clarcor, Inc. 2,890,085 -- 2,890,085
SLM Corp. -- 24,305,202 24,305,202
Capital One Financial Corp. 628,566 -- 628,566
Goldman Sachs Group, Inc. -- 34,395,924 34,395,924
Fannie Mae 11,947,548 44,873,089 56,820,637
MGIC Investment Corp. -- 37,106,487 37,106,487
Whole Foods Market, Inc.* 2,870,901 54,379,809 57,250,710
</Table>
S-3
SCHEDULE OF INVESTMENTS (Unaudited)
As of October 31, 2002
<Table>
<Caption> Shares
Janus Olympus
Berger Growth Fund Fund Combined
Food - Wholesale/Distribution - 1.2%
88,633 - 88,633
- 876,900 876,900
Hazardous Waste Disposal - 0.6%
81,457 356,815 438,272
Health Care Cost Containment - 1.4%
169,510 - 169,510
- 1,155,486 1,155,486
Home Furnishings - 0.1%
113,733 - 113,733
Hotels and Motels - 2.1%
- 591,850 591,850
- 636,270 636,270
- 819,550 819,550
Human Resources - 1.1%
- 867,475 867,475
Insurance Brokers - 0.2%
83,533 - 83,533
58,243 - 58,243
Leisure & Recreation Products - 0.1%
134,999 - 134,999
Life and Health Insurance - 1.4%
105,534 1,048,650 1,154,184
Machine - Tools & Related Products - 0.1%
101,524 - 101,524
Machinery - Farm - 0.1%
108,687 - 108,687
Medical - Biomedical and Genetic - 2.7%
- 1,017,215 1,017,215
- 689,070 689,070
Medical - Drugs - 5.8%
44,260 349,255 393,516
615,790 1,618,850 2,234,640
204,624 - 204,624
- 475,185 475,185
Medical - Generic Drugs - 0.1%
45,499 - 45,499
Medical - HMO - 1.4%
78,653 262,090 340,743
74,577 - 74,577
Medical - Hospitals - 1.3%
150,163 - 150,163
101,388 802,142 903,630
Medical - Outpatient/Home Care - 0.3%
88,989 - 88,989
208,077 - 208,077
Medical - Wholesale Drug Distribution - 0.1%
43,027 - 43,027
Medical Instruments - 3.1%
87,708 - 87,708
- 425,715 425,715
- 1,421,870 1,421,870
Medical Labs & Testing Services - 0.1%
118,600 - 118,600
Performance Food Group Co.* 3,296,261 - 3,296,261
Sysco Corp. - 27,780,192 27,780,192
Stericycle, Inc.* 2,712,518 11,881,940 14,594,458
Caremark Rx, Inc.* 3,000,327 - 3,000,327
McKesson Corp. - 34,445,008 34,445,008
-
La-Z-Boy, Inc. 2,706,845 - 2,706,845
-
Fairmont Hotels and Resorts, Inc. (New York Shares) - 14,535,836 14,535,836
Four Seasons Hotels, Inc. - 20,901,469 20,901,469
Starwood Hotels & Resorts Worldwide, Inc. - 19,095,515 19,095,515
-
Manpower, Inc. - 29,580,897 29,580,897
-
Brown & Brown, Inc. 2,539,403 - 2,539,403
Hilb, Rogal & Hamilton Co. 2,387,963.00 - 2,387,963
-
Multimedia Games, Inc* 2,996,977.80 - 2,996,978
-
AFLAC, Inc. 3,212,455 31,920,906 35,133,361
-
Lincoln Electric Holdings, Inc. 2,389,875 - 2,389,875
-
Agco Corp.* 2,760,650 - 2,760,650
-
Amgen, Inc.* - 47,361,530 47,361,530
Genentech, Inc. * - 23,490,396 23,490,396
-
Forest Laboratories, Inc* 4,337,037 34,223,497 38,660,534
Pfizer, Inc. 19,563,648 51,430,865 70,994,513
Priority Healthcare Corp. - Class B* 4,970,317 - 4,970,317
Teva Pharmaceutical Industries, Ltd. (ADR) - 36,793,575 36,793,575
-
Barr Laboratories, Inc.* 2,676,706 - 2,676,706
-
UnitedHealth Group, Inc. 7,153,490.35 23,837,085 30,990,675
Wellpoint Health Networks, Inc.* 5,608,936.17 - 5,608,936
-
HCA, Inc. 6,530,588.87 - 6,530,589
Tenet Healthcare Corp.* 2,914,905.00 23,061,582 26,976,487
-
Amsurg Corp.* 2,479,234 - 2,479,234
Apria Healthcare Group, Inc.* 5,074,998 - 5,074,998
-
AmerisourceBergen Corp. 3,061,371 - 3,061,371
-
St. Jude Medical, Inc.* 3,123,282 - 3,123,282
Guidant Corp.* - 12,588,393 12,588,393
Medtronic, Inc. 63,699,776 63,699,776
-
Covance, Inc.* 2,642,408 - 2,642,408
</Table>
S-4
SCHEDULE OF INVESTMENTS (Unaudited)
As of October 31, 2002
<Table>
<Caption>
SHARES
Berger Growth Janus Olympus
Fund Fund Combined
Medical Products - 2.3%
50,001 -- 50,001
327,260 -- 327,260
82,200 -- 82,200
85,121 764,880 850,001
Medical Sterilization Products - 0.3%
-- 335,435 335,435
Motorcycle and Motor Scooter Manufacturing - 2.7%
84,395 1,261,865 1,346,260
Multimedia - 1.6%
-- 2,054,100 2,054,100
-- 252,655 252,655
Networking Products - 0.4%
963,117 -- 963,117
Non-hazardous Waste Disposal - 0.1%
70,144 -- 70,144
Oil Companies - Exploration and Production - 10%
-- 577,180 577,180
Oil Companies - Integrated - 2.5%
-- 1,308,616 1,308,616
-- 378,695 378,695
Optical Supplies - 1.6%
-- 993,180 993,180
Pharmacy Service - 0.1%
58,713 -- 58,713
Physical Practice Management - 0.1%
74,122 -- 74,122
Publishing - Newspapers - 1.5%
-- 803,440 803,440
Recreational Vehicles - 0.1%
36,165 -- 36,165
Reinsurance - 1.1%
-- 383 383
REITS - Outlet Centers - 0.1%
74,884 -- 74,884
Research & Development - 0.1%
113,052 -- 113,052
Retail - Apparel/Shoe - 0.2%
71,377 -- 71,377
116,766 -- 116,766
Retail - Bedding - 0.3%
95,402 -- 95,402
136,610 -- 136,610
Retail - Building Products - 0.4%
164,049 -- 164,049
143,579 -- 143,579
Retail - Discount - 1.8%
-- 636,610 636,610
40,198 -- 40,198
96,794 -- 96,794
374,253 -- 374,253
Retail - Drug Store - 1.8%
-- 1,362,720 1,362,720
Retail - Hair Salons - 0.2%
173,804 -- 173,804
Retail - Office Supplies - 0.1%
</Table>
<Table>
<Caption>
MARKET VALUE
Berger Growth Janus Olympus
Fund Fund Combined
--
The Cooper Companies, Inc. 2,650,053 -- 2,650,053
Johnson & Johnson 19,226,525 -- 19,226,525
Mentor Corp. 3,115,380.00 -- 3,115,380
Zimmer Holdings, Inc. * 3,508,687.62 31,528,354 35,037,042
--
STERIS Corp.* -- 8,889,091 8,889,091
--
Harley-Davidson, Inc. 4,413,859 635,995,540 70,409,399
--
AOL Time Warner, Inc.* -- 30,297,975 30,297,975
Viacom, Inc. - Class B* -- 11,270,940 11,270,940
--
Cisco Systems, Inc.* 10,767,648 -- 10,767,648
--
Waste Connections, Inc.* 2,565,868 -- 2,565,868
--
Anadarko Petroleum Corp. -- 25,707,597 25,707,597
--
EnCana Corp. -- 37,992,563 37,992,563
TotalFina Elf S.A. (ADR) -- 25,758,834 25,758,834
--
Alcon, Inc* -- 40,740,244 40,740,244
--
Express Scripts, Inc. - Class A* 3,181,070 -- 3,181,070
--
Pediatrix Medical Group, Inc.* 2,964,880.00 -- 2,964,880
--
New York Times Co. - Class A -- 38,894,530 38,894,530
--
Thor Industries, Inc. 1,209,719.25 -- 1,209,719
--
Berkshire Hathaway, Inc. - Class A* -- 28,414,770 28,414,770
--
Chelsea Property Group, Inc. 2,437,474.20 -- 2,437,474
--
Pharmaceutical Products Development, Inc.* 3,097,624.80 -- 3,097,625
--
Ross Stores, Inc. 2,987,127.45 -- 2,987,127
Urban Outfitters, Inc.* 2,804,719.32 -- 2,804,719
--
Bed Bath & Beyond, Inc.* 3,382,954.92 -- 3,382,955
Linens 'n Things, Inc.* 3,211,701.10 -- 3,211,701
--
Home Depot, Inc. 4,737,735.12 -- 4,737,735
Lowe's Companies, Inc. 5,991,511.67 -- 5,991,552
--
Costco Wholesale Corp.* -- 21,600,177 21,600,177
Fred's, Inc. 1,097,043.62 -- 1,097,044
Target Corp. 2,915,435.28 -- 2,915,435
Wal-Mart Stores, Inc. 20,041,248.15 -- 20,041,248
--
Walgreen Co. -- 45,991,800 45,991,800
--
Regis Corp. 5,099,409.36 -- 5,099,409
--
</Table>
S-5
SCHEDULE OF INVESTMENTS (Unaudited)
As of October 31, 2002
<Table>
<Caption>
SHARES
BERGER GROWTH JANUS OLYMPUS
FUND FUND COMBINED
228,081 -- 228,081
Retail - Regional Department Store - 0.1%
30,731 -- 30,731
Retail - Restaurants - 0.5%
111,106 -- 111,106
84,297 -- 84,297
106,403 -- 106,403
152,878 -- 152,878
Retail - Video Rental - 0.5%
-- 425,90 425,790
142,279 -- 142,279
Savings & Loan/Thrifts - Eastern U.S. - 0.3%
94,511 -- 94,511
299,354 -- 299,354
Schools - 0.5%
16,070 -- 16,070
105,966 -- 105,966
69,786 -- 69,786
139,551 -- 139,551
50,789 -- 50,789
Semiconductor Components/Integrated Circuits - 2.3%
-- 1,841,940 1,841,940
Semiconductor Equipment - 1.4%
-- 2,376,110 2,376,110
Telecommunication Equipment - 0.2%
322,640 -- 322,640
Therapeutics - 0.1%
95,029 -- 95,029
Tobacco - 0.2%
139,730 -- 139,730
Transportation - Services - 2.3%
-- 922,720 922,720
-- 531,670 531,670
Transport - Truck - 0.1%
48,164 -- 48,164
Travel Services - 0.7%
-- 665,045 665,045
Web Portals/Internet Service Providers - 0.7%
11,928 -- 11,928
-- 1,270,885 1,270,885
--
MARKET VALUE
Staples, Inc.* 3,517,009 -- 3,517,009
--
Kohls Corp. 1,796,227 -- 1,796,227
--
California Pizza Kitchen, Inc.* 2,946,642 -- 2,946,642
P.F. Chang's China Bistro, Inc.* 2,908,247 -- 2,908,247
Sonic Corp.* 2,475,998 -- 2,475,998
Starbucks Corp.* 3,644,612 -- 3,644,612
--
Blockbuster, Inc. - Class A# -- 10,206,186 10,206,186
Movie Gallery, Inc. 2,588,055 -- 2,588,055
--
New York Community Bancorp., Inc. 2,744,599 -- 2,744,599
Staten Islands BanCorp., Inc. 5,532,062 -- 5,532,062
--
Apollo Group, Inc. - Class A* 666,905 -- 666,905
Career Education Corp.* 4,250,296 -- 4,250,296
Corinthian Colleges, Inc.* 2,650,472 -- 2,650,472
ITT Educational Services, Inc.* 3,049,189 -- 3,049,189
Strayer Education, Inc. 2,699,435 -- 2,699,435
--
Maxim Integrated Products, Inc.* -- 58,647,370 58,647,370
--
Applied Materials, Inc.* -- 35,712,933 35,712,933
--
UTStarcom, Inc.* 5,510,691 -- 5,510,691
--
Gilead Sciences, Inc.* 3,301,307 -- 3,301,307
--
Philip Morris Cos., Inc. 5,693,998 -- 5,693,998
--
C.H. Robinson Worldwide, Inc. -- 27,284,830 27,284,830
United Parcel Service, Inc. - Class B -- 31,905,517 31,905,517
--
Landstar System, Inc.* 2,347,513 -- 2,347,513
--
USA Interactive* -- 16,818,988 16,818,988
--
Overture Services, Inc.* 328,378 -- 328,378
Yahoo!, Inc.* -- 18,961,604 18,961,604
--
</Table>
S-6
SCHEDULE OF INVESTMENTS (Unaudited)
As of October 31, 2002
<Table>
<Caption>
SHARES MARKET VALUE
BERGER JANUS OLYMPUS BERGER
GROWTH FUND FUND COMBINED GROWTH FUND
- --------------------------------------------------------------------------------------------------------------------
Total Common Stock (cost $455,373,294 $1,945,588,340 $2,400,961,634 ) $477,124,497
- --------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 0.5%
-- 16,650,000 16,650,000 CSC Holdings, Inc.,
7.625%, senior notes due
4/1/11 (cost $13,458,754)
(cost $ -- $ 13,458,754 $ 13,458,754 )
- --------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -
4.6%
20,761,000 20,761,000 State Street, 1.75%, 11/1/02 20,761,000
(cost $20,761,000)
97,600,000 97,600,000 Salomon Smith Barney --
Holdings, Inc., 1.925%,
11/1/02 (cost $97,600,000)
Total Repurchase
Agreements (cost $ 20,761,000 $ 97,600,000 $ 118,361,000 )
- --------------------------------------------------------------------------------------------------------------------
TIME DEPOSIT - 3.2%
83,900,000 83,900,000 ABN Amro Bank N.V., --
1.85%, 11/1/02 (cost
$83,900,000)
(cost $ -- $ 83,900,000 $ 83,900,00 )
- --------------------------------------------------------------------------------------------------------------------
Total Investments (total
cost $476,134,294 $2,140,547,094 $2,616,681,388 )-99.6% $467,885,497
- --------------------------------------------------------------------------------------------------------------------
Cash, Receivables and
Other Assets, Net of
Liabilities -0.4% $ (1,639,160)
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS - 100% $466,246,337
- --------------------------------------------------------------------------------------------------------------------
<Caption>
MARKET VALUE
JANUS OLYMPUS
FUND COMBINED
- -------------------------
Total Common Stock (cost $1,929,651,091 $2,376,755,588
- -------------------------
CORPORATE BONDS - 0.5%
13,611,375 13,611,375
(cost
- -------------------------
REPURCHASE AGREEMENTS -
4.6%
20,761,000
97,600,000 97,600,000
Total Repurchase
Agreements (cost --
- -------------------------
TIME DEPOSIT - 3.2%
83,900,000 83,900,000
(cost
- -------------------------
Total Investments (total
cost $2,124,762,466 $2,592,647,963
- -------------------------
Cash, Receivables and
Other Assets, Net of
Liabilities $ 11,404,518 $ 9,765,358
- -------------------------
NET ASSETS - 100% $2,136,166,984 $2,602,413,321
- -------------------------
</Table>
S-7
SCHEDULE OF INVESTMENTS (Unaudited)
AS OF OCTOBER 31, 2002
<Table>
<Caption>
SHARES
----------------------------------------
BERGER
SMALL COMPANY JANUS
GROWTH FUND VENTURE FUND COMBINED
------------- ------------ ---------
Common Stock -- 96.9%
Advertising Sales -- 0.8% -- 248,645 248,645
Advertising Services -- 1.9% -- 702,580 702,580
Aerospace/Defense Equipment -- 0.1% 19,750 -- 19,750
Airlines -- 0.7% -- 621,816 621,816
Apparel Manufacturers -- 1.2% 100,314 526,890 627,204
69,943 -- 69,943
Applications Software -- 0.7% 18,053 -- 18,053
71,223 -- 71,223
161,926 -- 161,926
136,808 -- 136,808
439,014 -- 439,014
Automotive/Truck -- Original Equipment -- 0.1% 15,360 -- 15,360
Automotive -- Medium and Heavy Duty Trucks -- 0.2% 29,540 -- 29,540
Batteries/Battery System -- 0.2% 61,041 -- 61,041
Broadcast Services and Programming -- 0.8% -- 930,190 930,190
Building -- Mobile Home and Manufactured Housing -- 0.9% 43,755 182,460 226,215
Building -- Residential/Commercial -- 0.3% 49,259 -- 49,259
29,996 -- 29,996
Building and Construction -- Miscellaneous -- 0% 25,557 -- 25,557
Building and Construction Products -- Miscellaneous -- 0.3% 65,943 -- 65,943
42,357 -- 42,357
Chemicals -- Diversified -- 0.1% 57,845 -- 57,845
Chemicals -- Specialty -- 0.6% 53,469 -- 53,469
-- 502,625 502,625
Circuit Boards -- 0.3% -- 1,983,015 1,983,015
Collectibles -- 0.8% 18,871 -- 18,871
-- 621,568 621,568
Commercial Banks -- 1.5% 37,197 -- 37,197
61,600 -- 61,600
112,936 -- 112,936
98,330 -- 98,330
76,130 -- 76,130
18,831 -- 18,831
60,420 -- 60,420
75,494 -- 75,494
Commercial Services -- 0.3% 51,635 -- 51,635
60,024 -- 60,024
Commercial Services -- Finance -- 0.7% -- 1,437,695 1,437,695
42,780 -- 42,780
Communications Software -- 0.1% 21,704 -- 21,704
Computer Aided Design -- 0%
</Table>
<Table>
<Caption>
MARKET VALUE
-----------------------------------------
BERGER
SMALL COMPANY JANUS
GROWTH FUND VENTURE FUND COMBINED
------------- ------------ ----------
Lamar Advertising Co.* 8,439,011 8,439,011
Getty Images, Inc.* 20,135,943 20,135,943
DRS Technologies, Inc.* 654,515 654,515
WestJet Airlines, Ltd.* 7,785,212 7,785,212
Gymboree Corp.* 1,841,765 9,673,700 11,515,465
Quiksilver, Inc.* 1,679,331 -- 1,679,331
Barra, Inc.* 647,922 647,922
Epiq Systems, Inc.* 1,188,712 1,188,712
Pinnacle Systems, Inc.* 1,925,300 1,925,300
Progress Software Corp.* 1,707,364 1,707,364
Red Hat, Inc.* 1,971,173 1,971,173
Superior Industries International, Inc. 652,339 652,339
OshKosh Truck Corp. 1,682,303 1,682,303
Wilson Great Batch Tech* 1,707,317 1,707,317
Gray Television, Inc.*,# 8,232,182 8,232,182
Winnebago Industries, Inc.* 1,983,414 8,270,912 10,254,326
Hovnanian Enterprises, Inc. -- Class A* 1,862,975 1,862,975
Meritage Corp.* 1,199,840 1,199,840
Instituform Technologies, Inc.* 406,612 406,612
Simpson Manufacturing Co., Inc.* 2,327,788 2,327,788
Trex, Inc.* 1,207,175 1,207,175
Georgia Gulf Corp. 1,258,129 1,258,129
Cabot Microelectronics Corp.* 2,426,958 2,426,958
Methanex Corp.* 4,302,470 4,302,470
TTM Technologies, Inc.* 3,628,917 3,628,917
Action Performance Cos, Inc. 389,497 389,497
Racing Champions Corp.* 8,080,384 8,080,384
Chittenden Corp. 1,017,710 1,017,710
East West Bancorp 2,125,200 2,125,200
First Bancorp 2,826,788 2,826,788
Pacific Capital Bancorp. 2,638,194 2,638,194
R & G Financial Corp. 1,818,746 1,818,746
Southwestern Bacorporation* 531,976 531,976
UCBH Holdings, Inc. 2,530,994 2,530,994
United Bankshares, Inc. 2,281,429 2,281,429
Arbitron, Inc.* 1,763,335 1,763,335
Prepaid Legal Services, Inc.* 1,294,117 1,294,117
Euronet Worldwide, Inc.*,# 6,972,821 6,972,821
PRG Shultz International, Inc.* 399,223 399,223
Inter Tel, Inc. 586,659 586,659
</Table>
S-8
SCHEDULE OF INVESTMENTS (Unaudited)
AS OF OCTOBER 31, 2002
<Table>
23,400 -- 23,400
Computer Services - 2.0%
79,555 -- 79,555
34,404 -- 34,404
25,150 -- 25,150
75,095 -- 75,095
56,281 -- 56,281
-- 653,135 653,135
Computers - Integrated Systems - 0.5%
30,217 -- 30,217
112,526 -- 112,526
61,642 -- 61,642
20,050 -- 20,050
Computers - Voice Recognition - 1.3%
118,620 944,968 1,083,588
Consulting Services - 3.3%
99,378 530,350 629,728
76,985 275,515 349,500
Consumer Products - Miscellaneous - 0.9%
24,000 -- 24,000
50,151 242,785 292,936
52,267 -- 52,267
Cosmetics and Toiletries - 0.1%
27,856 -- 27,856
Data Processing and Management - 1.2%
146,131 -- 146,131
37,167 -- 37,167
-- 694,655 694,655
Diagnostic Kits - 2.7%
46,538 934,520 981,058
32,396 -- 32,396
Distribution/Wholesale - 0.2%
56,322 -- 56,322
Diversified Operations - 0.5%
15,790 -- 15,790
94,520 -- 94,520
78,820 -- 78,820
Drug Delivery Systems - 0.2%
143,160 -- 143,160
E-Commerce/Products - 0.3%
-- 571,775 571,775
E-Marketing/Information - 0.1%
153,250 -- 153,250
Educational Software - 0.8%
80,063 -- 80,063
-- 1,814,316 1,814,316
Electric Products - Miscellaneous - 0.1%
40,000 -- 40,000
Electric - Integrated - 0.2%
69,487 -- 69,487
Electronic Components - Semiconductors - 0.5%
-- 1,013,965 1,013,965
100,430 -- 100,430
87,528 -- 87,528
Electronic Measuring Instruments - 0.4%
51,369 -- 51,369
76,844 -- 76,844
Electronic Security Devices - 0.2%
60,450 -- 60,450
Electronics - Military - 0%
10,173 -- 10,173
Energy - Alternate Sources - 0.2%
126,350 -- 126,350
Entertainment Software - 0.3%
121,982 -- 121,982
Filtration/Separation Products - 0.4%
82,690 -- 82,690
61,325 -- 61,325
Food - Baking - 0.1%
60,138 -- 60,138
Ansys, Inc.* 458,640 458,640
Caci International, Inc* 3,254,595 3,254,595
Cognizant Technology Solutions* 2,276,513 2,276,513
Factset Resh System, Inc.* 687,853 687,853
Fidelity National Information Solutions* 1,437,318 1,437,318
PEC Solutions, Inc.* 1,950,137 1,950,137
Tier Technologies, Inc.-Class B* 12,442,222 12,442,222
Echelon Corp.* 382,245.05 382,245
Intergraph Corp.* 2,070,478.40 2,070,478
Kronos, Inc.* 2,212,331.38 2,212,331
Micro Systems, Inc.* 416,238.00 416,238
TALX Corp.*,# 1,589,508 12,662,571 14,252,079
Corporate Executive Board Co.* 3,298,356 17,602,317 20,900,672
FTI Consulting, Inc.* 3,202,576 11,336,624 14,539,200
Fossil, Inc.* 470,640 470,640
Jarden Corp.* 1,200,113 5,809,845 7,009,958
WD 40 Co. 1,500,063 1,500,063
Chattem, Inc.* 1,168,281 1,168,281
Documentum, Inc.* 2,134,974 2,134,974
Filenet Corp.* 403,262 403,262
InterCept, Inc.* 10,982,496 10,982,496
Biosite, Inc.*,# 1,344,017 26,988,938 28,332,955
Idexx Labs, Inc.* 1,117,662 1,117,662
SCP Pool Corp.* 1,605,177 1,605,177
Carlisle Cos, Inc. 588,493 588,493
Mathews International Corp. 2,207,042 2,207,042
Roper Industries 3,042,452 3,042,452
Noven Pharmaceuticals, Inc.* 1,833,880 1,883,880
GSI Commerce, Inc* 2,807,415 2,807,415
Digital Riv,Inc.* 1,599,930 1,599,930
Renaissance Learning, Inc.* 1,559,627 1,559,627
SmartForce PLC(ADR)* 7,275,407 7,275,407
Ametek Aerospace Products, Inc. 1,411,600 1,411,600
Otter Tail Corp. 1,949,805 1,949,805
ChipPAC, Inc.-Class A* 2,688,021 2,688,021
Rambus, Inc.* 560,399 560,399
Silicon Laboratories, Inc.* 1,863,471 1,863,471
Flir Systems, Inc.* 2,431,295 2,431,295
Itron, Inc.* 1,682,115 1,682,115
Invision Technologies, Inc.* 2,140,535 2,140,535
Engineered Support Systems, Inc. 497,765 497,765
Headwaters, Inc.* 2,166,903 2,166,903
Take Two Interactive Software* 3,144,696 3,144,696
Clarcor, Inc. 2,555,948 2,555,948
Cuno, Inc.* 1,905,981 1,905,981
Interstate Bakeries Corp. 1,498,038 1,498,038
</Table>
S-9
SCHEDULE OF INVESTMENTS (Unaudited)
AS OF OCTOBER 31, 2002
<Table>
Food - Confectionary - 0.2%
52,575 -- 52,575
Foods - Miscellaneous/Diversified - 0.4%
44,791 -- 44,791
101,564 -- 101,564
55,591 -- 55,591
Gas - Distribution - 0.2%
42,825 -- 42,825
Hazardous Waste Disposal - 0.2%
69,167 -- 69,167
Home Furnishings - 0.2%
35,106 -- 35,106
Hotels and Motels - 2.0%
-- 520,903 520,903
-- 95,090 95,090
-- 468,290 468,290
Human Resources - 4.9%
-- 987,805 987,805
-- 1,414,490 1,414,490
-- 1,732,025 1,732,025
-- 621,660 621,660
-- 453,885 453,885
Identification Systems/Devices - 0.2%
129,557 -- 129,557
Industrial Gases - 0.2%
162,780 -- 162,780
Instruments - Controls - 1.1%
-- 406,880 406,880
Instruments - Scientific - 0.2%
90,216 -- 90,216
33,536 -- 33,536
Insurance Brokers - 1.6%
-- 507,800 507,800
60,082 -- 60,082
Internet Applications Software - 0.2%
115,756 -- 115,756
Internet Content - Entertainment - 0.1%
148,321 -- 148,321
Internet Infrastructure Equipment - 0.2%
113,789 -- 113,789
Internet Infrastructure Software - 0.1%
-- 425,000 425,000
Internet Security - 0.2%
120,282 -- 120,282
Lasers - Systems and Components - 0.5%
-- 215,125 212,125
Leisure - Gaming/Equipment - 0%
13,410 -- 13,410
Machine - Tools & Related Products - 0.2%
91,818 -- 91,818
Machinery - General Industrial - 0.4%
86,566 -- 86,566
55,000 -- 55,000
18,670 -- 18,670
Machinery - Pumps - 0.9%
-- 795,345 795,345
Medical - Drugs - 1.5%
-- 262,225 262,225
125,444 494,055 619,499
Medical - Generic Drugs - 1.2%
-- 255,025 255,0225
204,300 -- 204,300
21,782 -- 21,782
-- 102,820 102,820
Medical - Generics - 0.8%
76,577 -- 76,577
65,400 -- 65,400
171,571 -- 171,571
Medical - HMO - 1.5%
-- 511,675 511,675
J.M. Smucker Co. 1,924,771 1,924,771
American Italian Pasta Co. - Class A* 1,543,050 1,543,050
Chiquita Brands International, Inc.* 1,243,143 1,243,143
Sensient Technologies Corp. 1,353,641 1,353,641
UGI Corp. 1,653,424 1,653,424
Stericycle, Inc.* 2,303,261 1,303,261
American Woodmark Corp. 1,855,001 1,855,001
Fairmont Hotels and Resorts, Inc.* 12,644,246 12,644,246
Four Seasons Hotels, Inc.* 3,123,707 3,123,707
Orient-Express Hotel, Ltd. - Class A* 6,134,599 6,134,599
AMN Healthcare Services, Inc.* 14,283,660 14,283,660
Cross Country, Inc.* 17,426,517 17,426,517
Exuit, Inc.* 4,936,271 4,936,271
Medical Staffing Network Holdings, Inc.* 8,292,944 8,292,944
Resources Connection, Inc.* 7,770,511 7,770,511
Paxar Corp.* 1,868,212 1,868,212
AirGas, Inc.* 2,484,023 2,484,023
Meltier-Toledo International, Inc.* 12,186,056 12,186,056
FEI Co.* 1,447,967 1,447,967
Varian, Inc.* 966,294 966,294
Brown & Brown, Inc.* 15,437,120 15,437,120
Hilb, Rogal & Hamilton Co. 2,463,362 2,463,362
Webex Communications, Inc* 1,815,054 1,815,054
Alloy, Inc.* 1,428,183 1,428,183
Avocent Corp.* 2,275,780 2,275,780
Plumtree Software, Inc*,*** 928,625 928,625
(acquisition date 5/19/00, cost of $$4,003,003)
Internet Security Systems, Inc.* 2,220,406 2,220,406
Cymer, Inc.* 5,328,580 5,328,580
Multimedia Games, Inc.* 297,702 297,702
Lincoln Electronics Holdings, Inc. 2,161,396 2,161,396
Albany International Corp. - Class A 1,834,334 1,834,334
Idex Corp. 1,652,200 1,652,200
Manitowac Co., Inc. 440,425 440,425
Flowserve Corp.* 9,321,443 9,321,443
Ligand Pharmaceuticals, Inc. - Class B* 1,725,441 1,725,441
Priority Healthcare Corp. - Class B* 3,047,035 12,000,596 15,047,631
Eon labs, Inc. 5,745,713 5,745,713
Perrigo Co.* 2,574,180 2,574,180
Pharmaceutical Resources, Inc.* 512,930 512,930
Taro Pharmaceutical Industries, Ltd. 3,572,995 3,572,995
--
Bio-Rad Laboratories, Inc.* 3,262,946 3,262,946
Cambrex Corp.* 1,820,736 1,820,736
Enzon, Inc. 3,328,477 3,328,477
--
Centene Corp.*, # 15,570,270 15,570,270
</Table>
S-10
SCHEDULE OF INVESTMENTS (Unaudited)
AS OF OCTOBER 31, 2002
<Table>
28,763 -- 28,763
Medical - Hospitals - 4.0%
-- 250,965 250,965
-- 611,291 611,291
62,275 998,812 1,061,087
-- 729,285 729,285
Medical - Outpatient and Home Medical Care - 1.7%
84,470 -- 84,470
143,651 509,265 652,916
Medical Information Systems - 0%
27,426 -- 27,426
Medical Instruments - 0.9%
38,940 -- 38,940
-- 737,375 737,375
51,777 -- 51,777
36,128 -- 36,128
Medical Labs and Testing Services - 0.5%
117,695 -- 117,695
10,215 -- 10,215
-- 150,910 150,910
Medical Products - 1.2%
35,792 -- 35,792
76,480 -- 76,480
70,540 -- 70,540
-- 378,465 378,465
Metal - Diversified - 0.1%
345,559 -- 345,559
Multilevel Direct Selling - 0.1%
93,952 -- 93,952
Multi-Line Insurance - 0.7%
-- 321,245 321,245
Networking Products - 0.2%
17,607 -- 17,607
245,195 -- 245,195
Non-Hazardous Waste Disposal - 0.2%
55,169 -- 55,169
Office Supplies & Forms - 0.1%
78,580 -- 78,580
Oil - Field Services - 0.8%
116,180 -- 116,180
-- 493,875 493,875
69,900 -- 69,900
Oil and Gas Drilling - 0.6%
50,154 -- 50,154
-- 171,785 171,785
Oil Companies - Exploration and Production - 0.3%
47,842 -- 47,842
62,562 -- 62,562
Oil Field Machinery and Equipment - 0.6%
71,381 -- 71,381
-- 254,545 254,545
Optical Supplies - 0.1%
73,431 -- 73,431
Pharmacy Services - 2.9%
-- 451,765 451,765
-- 1,289,260 1,289,260
49,825 -- 49,825
Physician Practice Management - 0.3%
72,299 -- 72,299
Printing - Commercial - 0.1%
39,734 -- 39,734
Property and Casualty Insurance - 3.2%
-- 460,925 460,925
-- 853,720 853,720
-- 264,967 264,967
Publishing - Books - 0.2%
-- 113,410 113,410
Radio - 3.9%
-- 977,025 977,025
-- 774,965 774,965
Sierra Health Services, Inc.* 362,126 362,126
--
LifePoint Hospitals, Inc.* 7,867,753 7,867,753
Medcath Corp.* 6,883,137 6,883,137
Province Healthcare Co.* 812,689 13,034,497 13,847,185
United Surgical Partners International, Inc.* 14,483,600 14,483,600
--
Amsurg Corp.* 2,353,334 2,353,334
Apria Healthcare Group, Inc.* 3,503,648 12,420,973 15,924,621
--
NDC Health Corp. 484,069 484,069
--
Advanced Neuromodulation Systems, Inc.* 1,187,281 1,187,281
MedSource Technologies, Inc.* 5,692,535 5,692,535
SurModics, Inc.* 1,771,809 1,771,809
Techne Corp.* 1,192,224 1,192,224
--
Covance, Inc.* 2,622,245 2,622,245
DIANON Systems, Inc.* 408,600 408,600
LabOne, Inc.* 2,630,361 2,630,361
--
Cooper Companies, Inc. 1,896,976 1,896,976
Invacare Corp. 2,416,768 2,416,768
Mentor Corp. 2,673,466 2,673,466
Wright Medical Group, Inc.* 6,513,761 6,513,761
--
Hecia Mining Co.* 1,250,924 1,250,924
--
Nu Skin Enterprises, Inc. 1,079,508 1,079,508
--
HCC Insurance Holdings, Inc.* 7,880,140 7,880,140
--
Black Box Corp.* 744,424 744,424
Foundry Networks, Inc.* 1,733,529 1,733,529
--
Waste Connections, Inc.* 2,018,082 2,018,082
--
John H. Harland Co. 1,504,807 1,504,807
--
Cal Dive International, Inc.* 2,552,475 2,552,475
Key Energy Services, Inc.* 4,410,304 4,410,304
Oceaneering International, Inc.* 1,936,230 1,936,230
--
Atwood Oceanics, Inc.* 1,494,589 1,494,589
Patterson-UTI Energy, Inc.* 4,968,022 4,968,022
--
Evergreen Resources, Inc.* 1,967,741 1,967,741
Patina Oil & Gas Corp. 1,823,682 1,823,682
--
Hydril Co.* 1,930,858 1,930,856
Universal Compression Holdings, Inc.* 4,938,173 4,938,173
--
Ocular Sciences, Inc.* 1,567,752 1,567,752
--
Accredo Health, Inc.* 20,907,684 20,907,684
MIM Corp.*,# 9,231,102 9,231,102
Syncor International Corp.* 1,785,230 1,785,230
--
Pediatrix Medical Group, Inc.* 2,891,960 2,891,960
--
Banta Corp. 1,223,807 1,223,807
--
Arch Capital Group, Ltd.* 12,910,509 12,910,509
PMA Capital Corp.* 11,610,592 11,610,592
W. R. Berkley Corp.* 9,843,524 9,843,524
--
Information Holdings, Inc.* 1,712,491 1,712,491
--
Cumulus Media, Inc. - Class A* 16,746,209 16,746,209
Radio One, Inc. - Class D* 12,926,416 12,926,416
</Table>
S-11
SCHEDULE OF INVESTMENTS (Unaudited)
AS OF OCTOBER 31, 2002
<Table>
-- 781,800 781,800
Recreational Vehicles -- 0.7% -- 103,830 103,830
46,870 -- 46,870
Reinsurance -- 1.4% -- 480,155 480,155
Real Estate Investment Trust -- Diversified -- 0.2% 102,714 -- 102,714
Real Estate Investment Trust -- Office Property -- 0.2% 55,620 -- 55,620
Real Estate Investment Trust -- Outlet Centers -- 0.2% 59,435 -- 59,435
Real Estate Investment Trust -- Regional Malls -- 0.2% 68,435 -- 68,435
Real Estate Investment Trust -- Shopping Centers -- 0.2% 101,360 -- 101,360
Real Estate Investment Trust -- Storage -- 0.2% 73,100 -- 73,100
Research & Development -- 0% 25,026 -- 25,026
Resorts and Theme Parks -- 0.3% -- 750,585 750,585
Respiratory Products -- 0.6% 86,047 -- 86,047
103,946 -- 103,946
Retail -- Apparel and Shoe -- 2.5% -- 837,690 837,690
-- 259,010 259,010
28,268 -- 28,268
96,162 440,885 539,047
28,944 -- 28,944
51,117 -- 51,117
Retail -- Arts and Crafts -- 0.6% 63,976 316,400 380,376
Retail -- Bedding -- 0.7% 41,391 301,420 342,811
Retail -- Computer Equipment -- 0.7% 54,303 -- 54,303
-- 815,055 815,055
Retail -- Discount -- 0.2% 86,530 -- 86,530
Retail -- Gardening Products -- 0.1% 40,897 -- 40,897
Retail -- Hair Salons -- 0.3% 101,990 -- 101,990
Retail -- Home Furnishings -- 0.2% 71,204 -- 71,204
Retail -- Mail Order -- 0.2% 21,893 -- 21,893
69,130 -- 69,130
Retail -- Music Store -- 1.1% -- 620,475 620,475
Retail -- Office Supplies -- 1.4% -- 634,752 634,752
Retail -- Restaurants -- 1.0% 86,850 -- 86,850
76,018 -- 76,018
19,476 -- 19,476
62,039 -- 62,039
69,486 -- 69,486
52,900 -- 52,900
84,503 -- 84,503
Retail -- Sporting Goods -- 1.6% -- 483,705 483,705
-- 516,010 516,010
Retail -- Video Rental -- 2.3% 134,669 598,525 733,194
111,810 482,820 594,630
</Table>
<Table>
Radio One, Inc.* 13,134,240 13,134,240
--
Polaris Industries, Inc.* 6,540,252 6,540,252
Thor Industries, Inc. 1,567,802 1,567,802
--
IPC Holdings, Ltd.* 14,966,431 14,966,431
--
Washington Real Estate Investment Trust 2,473,353 2,473,353
--
Alexandria Real Estate Equities, Inc. 2,336,040 2,336,040
--
Chelsea Property Group, Inc. 1,934,609 1,934,609
--
Macerich Co. 1,946,976 1,946,976
--
Federal Realty Investment Trust 2,670,836 2,670,836
--
Shurgard Storage Centers, Inc. 2,207,620 2,207,620
--
Albany Molecular Research, Inc.* 386,401 386,401
--
Six Flags, Inc.* 3,430,173 3,430,173
--
ResMed, Inc.* 2,905,807 2,905,807
Respironics, Inc.* 3,320,035 3,320,035
--
Aeropostale, Inc.* 10,027,149 10,027,149
Bebe Stores, Inc.* 3,361,950 3,361,950
Christopher & Banks Corp.* 754,755 754,755
Hot Topic, Inc.* 1,914,159 8,597,258 10,511,417
Mothers Work, Inc.* 1,042,583 1,042,583
Urban Outfitters, Inc.* 1,227,830 1,227,830
--
A.C. Moore Arts & Crafts, Inc.* 1,006,982 4,980,136 5,987,118
--
Linens 'N Things, Inc.* 973,102 7,086,384 8,059,487
--
Electronics Boutique Holdings Corp.* 1,368,490 1,368,490
Insight Enterprises, Inc.* 6,227,020 6,227,020
--
Fred's, Inc. 2,361,490 2,361,490
--
Tractor Supply Co.* 1,553,677 1,553,677
--
Regis Corp. 2,992,387 2,992,387
--
Cost Plus, Inc.* 2,057,867 2,057,867
--
J. Jill Group, Inc.* 472,013 472,013
Shaper Image Corp.* 1,449,658 1,449,656
--
Guitar Center, Inc.* 11,602,883 11,602,883
--
School Specialty, Inc.*,# 15,348,303 15,348,303
--
California Pizza Kitchen, Inc.* 2,303,349 2,303,349
Jack in the Box, Inc.* 1,648,830 1,648,830
P.F. Chang's China Bistro, Inc.* 671,922 671,922
Panera Bread Co.* 2,016,268 2,016,268
RARE Hospitality International, Inc.* 1,853,886 1,853,886
Ryan's Family Steak Houses, Inc.* 542,754 542,754
Sonic Corp.* 1,966,385 1,966,385
--
--
--
Dick's Sporting Goods, Inc.* 7,932,762 7,932,762
Gart Sports Co.* 9,608,106 9,608,106
--
Hollywood Entertainment Corp.* 2,647,593 11,767,002 14,414,594
Movie Gallery, Inc.* 2,033,824 8,782,496 10,816,320
</Table>
S-12
SCHEDULE OF INVESTMENTS (Unaudited)
AS OF OCTOBER 31, 2002
<Table>
Savings/Loan/Thrifts - 0.6%
81,271 -- 81,271
193,443 -- 193,443
43,925 -- 43,925
Schools - 0.6%
69,372 -- 69,372
102,701 -- 102,701
34,612 -- 34,612
Security Services - 1.2%
97,560 582,130 679,690
Semiconductor/Components/Integrated Circuits - 0.6%
114,929 -- 114,929
-- 298,150 298,150
Software Tools - 0.1%
73,284 -- 73,284
Television - 0.9%
-- 483,125 483,125
Therapeutics - 0.8%
71,461 -- 71,461
139,616 64,385 204,001
Transportation - Air Freight - 0.6%
-- 212,300 212,300
Transportation - Services - 2.0%
-- 1,144,380 1,144,380
-- 367,850 367,850
Transportation - Trucking - 0.5%
70,036 -- 70,036
112,308 -- 112,308
37,190 -- 37,190
Vitamins and Nutritional Products - 0.1%
49,153 -- 49,153
Web Portals/Internet Service Providers - 0.7%
67,210 195,300 262,510
Wireless Equipment - 0.2%
176,270 -- 176,270
------------ ------------ ---------------
Total Common Stock (cost $276,954,019 $811,950,925 $ 1,088,904,944)
------------ ------------ ---------------
Preferred Stock - 0%
Computer - Peripheral Equipment - 0% 665,000 -- 665,000
Telecommunications - Equipment - 0% 664,462 -- 664,462
Total Preferred Stock (cost $ 3,657,500 $ -- $ 3,657,500)
Repurchase Agreement - 2.0%
(cost $ 21,690,000 $ -- $ 21,690,000
Time Deposits - 1.1%
4,700,000 4,700,000
7,600,000 7,600,000
------------ ------------ ---------------
Time Deposits (cost $ -- $ 12,300,000 $ 12,300,000
------------ ------------ ---------------
Total Investment (total cost $302,301,519 $824,250,925 $ 1,126,552,444 -100.0%
------------ ------------ ---------------
Liabilities, net of Cash, Receivables and Other Assets -0%
------------ ------------ ---------------
Net Assets - 100%
------------ ------------ ---------------
</Table>
<Table>
Dime Community Bancshares 1,706,691 1,706,691
Staten Island Bancorp, Inc. 3,574,827 3,474,827
WSFS Financial Corp. 1,250,545 1,250,545
Corinthian Colleges, Inc.* 2,634,749 2,634,749
ITT Educational Services, Inc.* 2,244,017 2,244,017
Strayer Education, Inc. 1,839,628 1,839,628
Kroll, Inc.* 1,900,469 11,339,892 13,240,361
Exar Corp.* 1,448,105 1,448,105
Marvel Technology Group, Ltd.* 4,833,011 4,833,011
Borland Software Corp.* 984,204 954,204
LIN TV Corp. - Class A* 9,966,869 9,966,869
Neurocrine Biosciences, Inc.* 3,208,599 3,208,599
Scios, Inc.* 4,029,318 1,858,151 5,887,469
CNF, Inc.* 6,833,937 6,833,937
Pacer International, Inc.* 13,503,684 13,503,684
UTI Worldwide, Inc.* 8,578,262 8,578,262
Heartland Express, Inc.* 1,374,807 1,374,807
Knight Transportation, Inc.* 2,216,960 2,216,960
Landstar System, Inc.* 1,812,641 1,812,641
NBTY, Inc.* 764,329 764,329
Overture Services, Inc.* 1,850,291 5,376,609 7,226,900
InterDigital Communications Corp.* 2,291,510 2,291,510
-------------- ------------ ---------------
$ 308,085,463 $745,841,445 $1,053,926,908
-------------- ------------ ---------------
Candescent Technologies Corp. - Series E*; 6,650 -- 6,650
***(acquisition cost $3,657,500;
acquisition date 5/1/91)
Cidera, Inc. - Series D*; -- -- --
***(acquisition cost $0;
acquisition date 9/1/00)
State Street Bank Repo, 1.75%, 11/1/02 $ 6,650 $ -- $ 6,650
$ 21,690,000 $ -- $ 21,690,000
ABN Amro Bank N.V., 1.85%, 11/1/02 4,700,000 4,700,000
UBS Financial, Inc., 1.875%, 11/1/02 7,600,000 7,600,000
-------------- ------------ ---------------
$ -- $ 12,300,000 $ 12,300,000
-------------- ------------ ---------------
$ 329,782,113 $758,141,445 $1,087,923,558
-------------- ------------ ---------------
$ 1,446,219 $ (1,818,676) $ (372,457)
-------------- ------------ ---------------
$ 331,228,332 $756,322,769 $1,087,551,101
-------------- ------------ ---------------
</Table>
S-13
Summary of Investments by Country, October 31, 2002
<Table>
<Caption>
MARKET VALUE % OF INVESTMENT SECURITIES
--------------------------------------------------------- --------------------------
COUNTRY BERGER GROWTH FUND JANUS OLYMPUS FUND COMBINED COMBINED
- -------------- ------------------ ------------------ -------------- --------
Canada $ -- $ 73,429,868 $ 73,429,868 2.8%
France -- 25,758,834 25,758,834 1.0%
Israel -- 36,793,575 36,793,575 1.4%
Switzerland -- 40,740,244 40,740,244 1.6%
United States 467,885,497 1,948,039,945 2,415,925,442 93.2%
-------------- -------------- -------------- -----
$ 467,885,497 $2,124,762,466 $2,592,647,963 100.0%
</Table>
* Includes Short-Term Securities (92.2% excluding Short-Term Securities)
<Table>
<Caption>
MARKET VALUE % OF INVESTMENT SECURITIES
---------------------------------------------------------- --------------------------
BERGER SMALL COMPANY
COUNTRY GROWTH FUND JANUS VENTURE FUND COMBINED COMBINED
- -------------- -------------------- ------------------ -------------- --------
Bermuda -- $ 38,844,551 $ 38,844,551 3.6%
Canada -- 27,855,634 27,855,634 2.6%
Israel -- 3,572,995 3,572,995 0.3%
Puerto Rico $ 1,818,746 -- 1,818,746 0.2%
Switzerland -- 12,186,056 12,186,056 1.1%
United Kingdom -- 8,578,262 8,578,26 0.8%
United States 327,963,367 667,103,947 995,067,314 91.4%
-------------- -------------- -------------- -----
$ 329,782,113 $ 758,141,445 $1,087,923,558 100.0%
</Table>
* Includes Short-Term Securities (96.9% excluding Short-Term Securities)
S-17
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
<Table>
<Caption>
Janus Berger
As of October 31, 2002 Olympus Growth
(all numbers in thousand except net asset value per share) Fund Fund Adjustment Proforma
- --------------------------------------------------------------------------------------------------------------------------------
Assets:
Investments at cost $ 2,140,547 $ 476,134 $ 2,616,681
Investments at value $ 2,124,762 $ 467,885 $ 2,592,647
Cash 1,281 1 1,282
Receivables:
Investments sold 22,766 -- 22,766
Fund Shares sold 800 60 860
Dividends 945 110 1,055
Interest 110 1 111
Other assets 6 66 72
TOTAL ASSETS 2,150,670 468,123 2,618,793
Liabilities:
Payables
Investments purchased 10,461 -- 10,461
Fund shares repurchased 1,370 851 2,221
Advisory fees 1,160 293 1,453
Transfer agent fees and expenses 781 501 1,282
Accrued expenses 731 232 963
TOTAL LIABILITIES 14,503 1,877 16,380
NET ASSETS $ 2,136,167 $ 466,246 $ 2,602,413
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 4,215,993 $ 1,118,822 $ 5,334,815
Accumulated net investment income/loss) -- (823) (823)
Accumulated net realized gain/(loss) from investments (2,064,041) (643,504) (2,707,545)
Unrealized appreciation/(depreciation) of investments
and foreign currency translations (15,785) (8,249) (24,034)
$ 2,136,167 $ 466,246 $ 2,602,413
Shares Outstanding, $0.01 Par Value
(unlimited shares authorized) 103,706 89,509 (66,876)(A) 126,339
Net Asset Value Per Share $ 20.60 $ 5.21 $ 20.60
</Table>
(A) Reflects new shares issued. (Calculation: Net Assets / NAV per share)
S-18
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
<Table>
<Caption>
Janus Berger Small
As of October 31, 2002 Venture Company Growth
(all numbers in thousands except net asset value per share) Fund Fund Adjustment Proforma
- --------------------------------------------------------------------------------------------------------------------------------
Assets:
Investments at cost $ 824,251 $ 302,302 $ 1,126,553
Investments at value $ 758,141 $ 329,782 $ 1,087,923
Cash 2,657 1 2,658
Receivables:
Investments sold 1,935 1,928 3,863
Fund shares sold 41 182 223
Dividends 29 77 106
Interest 1 1 2
Other assets 19 92,898 92,917
Forward currency contracts 68 -- 68
TOTAL ASSETS 762,891 424,869 1,187,760
Liabilities:
Payables
Investments purchased 5,674 92,873 98,547
Fund shares repurchased 200 5 205
Advisory fees 406 232 638
Transfer agent fees and expenses 139 321 460
Accrued expenses 149 210 359
TOTAL LIABILITIES 6,568 93,641 100,209
NET ASSETS $ 756,323 $ 331,228 $ 1,087,551
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 1,102,968 $ 985,809 $ 2,088,777
Accumulated net investment income/loss) -- (424) (424)
Accumulated net realized gain/(loss) from investments (280,603) (681,637) (962,240)
Unrealized appreciation/(depreciation) of investments
and foreign currency translations (66,042) 27,480 (38,562)
$ 756,323 $ 331,228 $ 1,087,551
Shares Outstanding, $0.01 Par Value
(unlimited shares authorized) 23,940 (188,678)(A) 34,425
Net Asset Value Per Share $ 31.59 $ 31.59
Total Net Assets - Class A
Shares Outstanding, $0.01 Par Value
(unlimited shares authorized) $ 330,896
Net Asset Value Per Share 198,967
Total Net Assets - Class B $ 1.66
Shares Outstanding, $0.01 Par Value $ 332
(unlimited shares authorized) 196
Net Asset Value Per Share $ 169
</Table>
(A) Reflects new shares issued. (Calculation: Net Assets / NAV per share)
S-19
STATEMENTS OF OPERATIONS (Unaudited)
<Table>
<Caption>
Janus Berger
For the year ended October 31, 2002 Olympus Growth
(all numbers in thousands) Fund Fund Adjustment Proforma
- ---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Investment income
Interest $ 7,020 $ 733 $ 7,753
Dividends 15,700 2,723 18,423
Foreign tax withheld (126) (20) (146)
Total Investment Income 22,594 3,436 26,030
Expenses:
Advisory fees 18,735 4,866 (560)(A) 23,041
Transfer agent fees and expenses 6,232 2,495 (743)(A) 7,984
Registration fees 50 51 (40)(B) 61
Printing and Postage expenses 1,584 888 (476)(A) 1,996
Custodian fees 198 61 (21)(A) 238
Audit fees 22 13 (13)(B) 22
Trustees' fees and expenses 23 (2) 2 (B) 23
12b-1 fees -- 1,825 (1,825)(B) --
Other expenses 133 32 (28)(B) 137
Total Expenses 26,977 10,229 (3,704) 33,502
Expense and Fee Offsets (693) (16) -- (709)
Net Expenses 26,284 10,213 (3,704) 32,793
Excess Expense Reimbursement -- (468) -- (468)
Net Expenses After Reimbursement 26,284 9,745 (3,704) 32,325
Net Investment Income/(Loss) (3,690) (6,309) (6,295)
Net Realized and Unrealized Gain/(Loss)
on Investments:
Net realized gain/(loss) from securities
transactions (500,932) (226,431) (727,363)
Net realized gain/(loss) from foreign
currency transactions (1,271) -- (1,271)
Change in net unrealized appreciation or depreciation
of investments and foreign currency translations 94,769 (626,365) (531,596)
Net Realized and Unrealized Gain/(Loss) on Investments (407,434) (852,796) (1,260,230)
Net Increase/(Decrease) in Net Assets Resulting from Operations $ (411,124) $ (859,105) $(1,266,525)
</Table>
(A) Reflects adjustment in expenses due to effects of new contractual rates.
(B) Reflects adjustment in expenses due to elimination of duplicative services.
S-20
STATEMENTS OF OPERATIONS (Unaudited)
For the year ended October 31, 2002
(all numbers in thousands)
<Table>
<Caption>
Janus Berger Small
Venture Company Growth
Fund Fund Adjustment Proforma
Investment income
Interest $ 274 $ 1,088 $ 1,362
Dividends 1,143 888 2,031
Foreign tax withheld (3) -- (3)
- ----------------------------------------------------------------------------------------------
Total Investment Income 1,414 1,976 3,390
- ----------------------------------------------------------------------------------------------
Expenses:
Advisory fees 6,453 4,588 (1,036)(A) 10,005
Transfer agent fees and expenses 1,886 1,841 (765)(A) 2,962
Registration fees -- 115 (115)(B) --
Printing and Postage expenses 255 460 (236)(A) 479
Custodian fees 100 82 (47)(A) 135
Audit fees 19 33 (33)(B) 19
Trustees' fees and expenses 10 46 (46)(B) 10
12b-1 fees -- 1,392 (1,392)(B) --
Other expenses 56 121 (121)(B) 56
- ---------------------------------------------------------------------------------------------
Total Expenses 8,779 8,678 (3,791) 13,666
Expense and Fee Offsets (105) -- -- (105)
Net Expenses 8,674 8,678 (3,791) 13,561
Excess Expense Reimbursement -- (330) -- (330)
Net Expenses After Reimbursement 8,674 8,348 (3,791) 13,231
Net Investment Income/(Loss) (7,260) (6,372) (9,841)
- ---------------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain/(Loss) on Investments:
Net realized gain/(loss) from
securities transactions (22,966) (242,469) (265,435)
Net realized gain/(loss) from
foreign currency transactions 24 -- 24
Change in net unrealized
appreciation or depreciation
of investments and foreign
currency translations (96,155) 82,308 (13,847)
- ---------------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain/(Loss) on Investments (119,097) (160,161) (279,258)
Net Increase/(Decrease) in
Net Assets Resulting from
Operations $(126,357) $(166,533) $(289,099)
</Table>
(A) Reflects adjustment in expenses due to effects of new contractual rates.
(B) Reflects adjustment in expenses due to elimination of duplicative services.
FORWARD CURRENCY CONTRACTS, OPEN AT OCTOBER 31, 2002
<Table>
<Caption>
CURRENCY
SOLD AND
SETTLEMENT
CURRENCY UNITS SOLD DATE CURRENCY VALUE IN $ U.S. UNREALIZED GAIN/(LOSS)
- ------------------------------------- -------------- --------------------------------- -------------------------------
BERGER BERGER BERGER
SMALL SMALL SMALL
COMPANY JANUS COMPANY JANUS COMPANY JANUS
GROWTH VENTURE GROWTH VENTURE GROWTH VENTURE
FUND FUND COMBINED FUND FUND COMBINED FUND FUND COMBINED
------- ------- -------- -------------- --------- ----------- ----------- ------- ------- --------
Canadian
-- 8,700,000 8,700,000 Dollar 1/31/03 $ -- $ 5,539,927 $5,539,927 $ -- $67,550 $67,550
</Table>
"INTRODUCTORY NOTE"
The unaudited pro forma combined financial statements are presented for
the information of the reader and may not necessarily be representative of what
the actual combined financial statements would have been had the reorganization
occurred at October 31, 2002. The unaudited pro forma schedule of investments,
and statement of assets and liabilities reflect the financial position of the
Acquiring Fund and the Selling Fund, (as defined in Note 2 to Pro Forma
Financial Statements) as well as combined, at October 31, 2002. The unaudited
pro forma statement of operations reflects the results of operations of the
Acquiring Fund and the Selling Fund for the year ended October 31, 2002. These
statements have been derived from the Funds' respective books and records
utilized in calculating daily net asset value at the date indicated above for
both the Acquiring and Selling Fund under accounting principles generally
accepted in the United States of America in the investment company industry. The
historical cost of investment securities will be carried forward to the
surviving entity and the results of operations of the Selling Fund for
pre-combination periods will not be restated.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
NOTE 1 - SCHEDULE OF INVESTMENTS:
ADR American Depository Receipt
New York Shares Securities of foreign companies trading on the New York
Stock Exchange
- ----------
* Non-income producing security
** A portion of this security has been segregated by the custodian to cover
margin or segregation requirements on open futures contracts and forward
currency contracts.
*** Security is Restricted and Illiquid.
The Investment Company Act of 1940 defines affiliates as those
companies in which a Fund holds 5% or more of the outstanding voting securities.
Following is a summary of the transactions with each such affiliate for the
period ended October 31, 2002.
S-22
<Table>
<Caption>
COMBINED
PURCHASES SALES REALIZED MARKET
----------------------- ------------------------- GAIN/ DIVIDEND VALUE AT
SHARES COST SHARES COST (LOSS) INCOME 10/31/02
--------- ------------ --------- ------------ ------------ ------------ ------------
JANUS OLYMPUS FUND
Blockbuster Inc. -
Class A ........... 1,732,075 $ 39,273,068 1,306,285 $ 30,314,446 $ 6,326,714 -- $ 10,206,186
JANUS VENTURE FUND
Biosite, Inc. ........ 934,520 $ 23,117,964 -- -- -- -- $ 28,332,958
Centene Corp. ........ 619,030 13,239,008 107,355 $ 2,745,332 $ 370,706 -- 15,570,270
Dynacare, Inc. ....... 1,844,415 20,288,565 1,844,415 20,288,565 20,845,590 -- --
Euronet Worldwide,
Inc ............... 1,403,795 18,125,223 -- -- -- -- 6,972,821
Gray Television,
Inc ............... 930,190 7,674,068 -- -- -- -- 8,232,182
MIM Corp. ............ 1,289,260 19,764,171 -- -- -- -- 9,231,102
School Specialty,
Inc ............... -- -- 286,023 5,477,318 1,521,172 -- 15,348,303
Stellent, Inc. ....... 425,640 7,942,384 1,257,805 39,269,890 (30,215,581) -- --
TALX Corp. ........... 79,713 1,026,396 -- -- -- $ 127,860 14,252,079
$111,177,779 $ 67,781,105 $ (7,478,113) $ 127,860 $ 97,939,712
</Table>
* Table above reflects the Acquiring Fund transaction history for certain
affiliates.
Repurchase Agreements held by a Fund are fully collateralized, and such
collateral is in the possession of the Fund's custodian or subcustodian. The
collateral is evaluated daily to ensure its market value exceeds the current
market value of the repurchase agreements, including accrued interest. In the
event of default on the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
NOTE 2 - REORGANIZATION:
On December 10, 2002, the Board of Trustees of the Janus Investment
Funds and on November 26, 2002 the Board of Directors of Berger Investment
Portfolio Trust, approved an Agreement and Plan of Reorganization.
The reorganization will result in the following funds (Berger Growth
Funds) moving into comparable Janus funds as follows, subject to shareholder
approval:
<Table>
<Caption>
Selling Fund Acquiring Fund
- ------------ --------------
Berger Balanced Fund Janus Balanced Fund
Berger Growth Fund Janus Olympus Fund
Berger Large Cap Growth Fund Janus Growth and Income Fund
Berger Mid Cap Growth Fund Janus Enterprise Fund
Berger Small Company Growth Fund Janus Venture Fund
Berger Information Technology Fund Janus Global Technology Fund
Berger International Fund Janus Overseas Fund
</Table>
Each Acquiring Fund will acquire all of the assets of the each Selling
Fund, subject to the liabilities of such Fund, in exchange for a number of
shares of Acquiring Fund equal in value to the net assets of the Selling Fund.
The Merger will be accounted for as a tax-free merger of investment companies.
S-23
The unaudited pro forma portfolio of investments, and unaudited
statement of assets and liabilities and statement of operations should be read
in conjunction with the historical financial statements of each Fund which are
incorporated by reference in the Statements of Additional Information.
NOTE 3 - SECURITY VALUATION:
Securities are valued at the closing price for securities traded on a
principal exchange (U.S. or foreign) and on the NASDAQ National Market.
Securities traded on over-the-counter markets and listed securities for which no
sales are reported are valued at the latest bid price obtained from one or more
dealers making a market for such securities or by a pricing service approved by
the Fund's Trustees. Short-term securities maturing within 60 days are valued at
amortized cost, which approximates market value. Foreign securities are
converted to U.S. dollars using exchange rates at the close of the New York
Stock Exchange. When market quotations are not readily available, or events or
circumstances that may affect the value of portfolio securities are identified
between the closing of their principle markets and the time the net asset value
(NAV) is determined, securities are valued at their fair value as determined in
good faith under procedures adopted by and under the supervision of the Fund's
Trustees in the possession of the Fund's custodian. The collateral is evaluated
daily to ensure its market value equals or exceeds the current market value of
the corresponding forward currency contracts.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held at the
date of the financial statements. Net unrealized appreciation or depreciation on
investments and foreign currency translation arise from changes in the value of
assets and liabilities, including investments in securities at the date of the
financial statements, resulting from changes in the exchange rates and changes
in market prices of securities held.
NOTE 4 - CAPITAL SHARES:
The unaudited pro forma net asset value per share assumes additional
shares of the Acquiring Fund issued in connection with the proposed acquisition
of the Selling Fund as of October 31, 2002. The number of additional shares
issued was calculated by dividing the value of the assets, net of liabilities,
of the Selling Fund by the net asset value of the Acquiring Fund Share.
NOTE 5 - UNAUDITED PRO FORMA ADJUSTMENTS:
The accompanying unaudited pro forma financial statements reflect
changes in fund shares as if the merger had taken place on October 31, 2002. The
Selling Fund's expenses were adjusted assuming the Acquiring Fund's fee and
expense structure was in effect for the year ended October 31, 2002 and for
estimated reductions due to the elimination of duplicate expenses.
NOTE 6 - MERGER COSTS:
Janus Capital Management LLC ("Janus Capital), the investment adviser
to the Funds, will bear all costs in connection with the reorganization.
NOTE 7 - FEDERAL INCOME TAXES:
It is the policy of the Funds, to comply with the requirements of
Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of their net investment income and
any net realized gains to their shareholders. Therefore, a federal income tax or
excise tax provision is not required. In addition, by distributing during each
calendar year substantially
S-24
all of its net investment income and net realized capital gains, each Fund
intends not to be subject to any federal excise tax.
The Fund intends to offset any net capital gains with any available
capital loss carryforward until each carryforward has been fully utilized or
expires. The amount of capital loss carryforward, which may offset the Selling
Fund's capital gains in any given year, may be limited as a result of previous
reorganizations. In addition, no capital gain distribution shall be made until
the capital loss carryforward has been fully utilized or expires.
S-25
JANUS INVESTMENT FUND
Janus Olympus Fund
Supplement dated August 9, 2002
to Statement of Additional Information dated February 25, 2002
as Supplemented April 3, 2002, May 13, 2002, May 31, 2002 and June 19, 2002
Effective August 12, 2002, Janus Olympus Fund will reopen to new investors. To
invest, please visit janus.com or call a Janus Representative at 1-800-525-3713.
Please see the Janus Olympus Fund's prospectus for complete information,
including charges and expenses. Read it carefully before you invest or send
money.
February 25, 2002
As Supplemented April 3, 2002, May 13, 2002,
May 31, 2002 and June 19, 2002
<Table>
DOMESTIC EQUITY FUNDS GLOBAL/INTERNATIONAL EQUITY FUNDS
Janus Fund Janus Worldwide Fund
Janus Twenty Fund Janus Overseas Fund
Janus Venture Fund Janus Global Life Sciences Fund
Janus Olympus Fund Janus Global Technology Fund
</Table>
JANUS INVESTMENT FUND
Statement of Additional Information
This Statement of Additional Information ("SAI") pertains to the Funds
listed above, each of which is a separate series of Janus Investment
Fund, a Massachusetts business trust.
Although the Funds are closed, current investors may continue to invest
in the Funds and/or open new Fund accounts. Once an account is closed,
additional investments will not be accepted unless you meet one of the
specified criteria. You may be required to demonstrate eligibility to
purchase shares of a Fund before your investment is accepted. See the
"Shareholder's Manual" section of the Funds' Prospectuses for more
details. The Funds may resume sales of their shares to new investors at
some future date, but they have no present intention to do so.
This SAI is not a Prospectus and should be read in conjunction with the
Funds' Prospectuses dated February 25, 2002, and any supplements
thereto, which are incorporated by reference into this SAI and may be
obtained from the Trust on janus.com, by calling 1-800-525-3713, or by
writing the Funds at the address shown on the back cover of this SAI.
This SAI contains additional and more detailed information about the
Funds' operations and activities than the Prospectus. The Annual and
Semiannual Reports, which contain important financial information about
the Funds, are incorporated by reference into this SAI and are also
available, without charge, on janus.com, by calling 1-800-525-3713, or
by writing the Funds at the address shown on the back cover of this SAI.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
Classification, Investment Policies
and Restrictions, and Investment
Strategies and Risks............................ 2
Investment Adviser.............................. 42
Custodian, Transfer Agent
and Certain Affiliations........................ 48
Portfolio Transactions and Brokerage............ 50
Trustees and Officers........................... 57
Purchase of Shares.............................. 68
Net Asset Value Determination................ 68
Reinvestment of Dividends and Distributions.. 69
Redemption of Shares............................ 71
Shareholder Accounts............................ 72
Online and Telephone Transactions............ 72
Systematic Redemptions....................... 72
Tax-Deferred Accounts........................... 73
Income Dividends,
Capital Gains Distributions and Tax Status...... 75
Principal Shareholders.......................... 76
Miscellaneous Information....................... 78
Shares of the Trust.......................... 78
Shareholder Meetings......................... 79
Voting Rights................................ 79
Master/Feeder Option......................... 80
Independent Accountants...................... 80
Registration Statement....................... 80
Performance Information......................... 81
Financial Statements............................ 85
Appendix A...................................... 86
</Table>
1
CLASSIFICATION, INVESTMENT POLICIES AND
RESTRICTIONS, AND INVESTMENT STRATEGIES
AND RISKS
- --------------------------------------------------------------------------------
CLASSIFICATION
Each Fund is a series of the Trust, an open-end, management
investment company. The Investment Company Act of 1940 ("1940
Act") classifies mutual funds as either diversified or
nondiversified. Janus Twenty Fund, Janus Olympus Fund, Janus
Global Life Sciences Fund and Janus Global Technology Fund intend
to operate in a nondiversified manner. Each of these Funds may at
times, however, operate in a diversified manner if market
conditions warrant. The nondiversified Funds will be operated in
a manner consistent with the diversification requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended,
and the regulations thereunder (the "Code"). Janus Fund, Janus
Venture Fund, Janus Worldwide Fund and Janus Overseas Fund are
diversified funds.
INVESTMENT POLICIES AND RESTRICTIONS APPLICABLE TO ALL FUNDS
The Funds are subject to certain fundamental policies and
restrictions that may not be changed without shareholder
approval. Shareholder approval means approval by the lesser of
(i) more than 50% of the outstanding voting securities of the
Trust (or a particular Fund if a matter affects just that Fund),
or (ii) 67% or more of the voting securities present at a meeting
if the holders of more than 50% of the outstanding voting
securities of the Trust (or a particular Fund) are present or
represented by proxy. The following policies are fundamental
policies of the Funds. Each of these policies applies to all of
the Funds, except policies (1) and (2), which apply only to the
Funds specifically listed in that policy.
(1) With respect to 75% of its total assets, Janus Fund, Janus
Venture Fund, Janus Worldwide Fund and Janus Overseas Fund may
not purchase securities of an issuer (other than the U.S.
Government, its agencies, instrumentalities or authorities or
repurchase agreements collateralized by U.S. Government
securities, and other investment companies) if: (a) such purchase
would, at the time, cause more than 5% of the Fund's total assets
taken
2
at market value to be invested in the securities of such issuer;
or (b) such purchase would, at the time, result in more than 10%
of the outstanding voting securities of such issuer being held by
the Fund.
Each Fund may not:
(2) Invest 25% or more of the value of its total assets in any
particular industry (other than U.S. government securities). This
policy does not apply to Janus Global Life Sciences Fund. For the
purposes of this limitation only, industrial development bonds
issued by nongovernmental users shall not be deemed to be
municipal obligations. Industrial development bonds shall be
classified according to the industry of the entity that has the
ultimate responsibility for the payment of principal and interest
on the obligation.
(3) Invest directly in real estate or interests in real estate;
however, the Funds may own debt or equity securities issued by
companies engaged in those businesses.
(4) Purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this
limitation shall not prevent the Funds from purchasing or selling
foreign currencies, options, futures, swaps, forward contracts or
other derivative instruments or from investing in securities or
other instruments backed by physical commodities).
(5) Lend any security or make any other loan if, as a result,
more than 33 1/3% of the Fund's total assets would be lent to
other parties (but this limitation does not apply to investments
in repurchase agreements, commercial paper, debt securities or
loans, including assignments and participation interests).
(6) Act as an underwriter of securities issued by others, except
to the extent that the Fund may be deemed an underwriter in
connection with the disposition of portfolio securities of the
Fund.
(7) Borrow money except that the Funds may borrow money for
temporary or emergency purposes (not for leveraging or invest-
3
ment). Borrowings from banks will not, in any event, exceed one-
third of the value of a Fund's total assets (including the amount
borrowed). This policy shall not prohibit short sales
transactions, or futures, options, swaps or forward transactions.
The Funds may not issue "senior securities" in contravention of
the 1940 Act.
As a fundamental policy, each Fund may, notwithstanding any other
investment policy or limitation (whether or not fundamental),
invest all of its assets in the securities of a single open-end
management investment company with substantially the same
fundamental investment objectives, policies and limitations as
such Fund.
The Trustees have adopted additional investment restrictions for
the Funds. These restrictions are operating policies of the Funds
and may be changed by the Trustees without shareholder approval.
The additional investment restrictions adopted by the Trustees to
date include the following:
(a) A Fund will not (i) enter into any futures contracts and
related options for purposes other than bona fide hedging
transactions within the meaning of Commodity Futures Trading
Commission ("CFTC") regulations if the aggregate initial margin
and premiums required to establish positions in futures contracts
and related options that do not fall within the definition of
bona fide hedging transactions will exceed 5% of the fair market
value of a Fund's net assets, after taking into account
unrealized profits and unrealized losses on any such contracts it
has entered into; and (ii) enter into any futures contracts if
the aggregate amount of such Fund's commitments under outstanding
futures contracts positions would exceed the market value of its
total assets.
(b) The Funds may sell securities short if they own or have the
right to obtain securities equivalent in kind and amount to the
securities sold short without the payment of any additional
consideration therefor, and provided that transactions in
futures, options, swaps and forward contracts are not deemed to
constitute selling securities short. In addition, the Funds may
engage in
4
"naked" short sales, which involve selling a security that a Fund
borrows and does not own. The total market value of all of a
Fund's naked short sale positions will not exceed 8% of its
assets.
(c) The Funds do not currently intend to purchase securities on
margin, except that the Funds may obtain such short-term credits
as are necessary for the clearance of transactions, and provided
that margin payments and other deposits in connection with
transactions in futures, options, swaps and forward contracts
shall not be deemed to constitute purchasing securities on
margin.
(d) A Fund may not mortgage or pledge any securities owned or
held by such Fund in amounts that exceed, in the aggregate, 15%
of that Fund's net asset value, provided that this limitation
does not apply to reverse repurchase agreements, deposits of
assets to margin, guarantee positions in futures, options, swaps
or forward contracts, or the segregation of assets in connection
with such contracts.
(e) The Funds do not currently intend to purchase any security or
enter into a repurchase agreement if, as a result, more than 15%
of their respective net assets would be invested in repurchase
agreements not entitling the holder to payment of principal and
interest within seven days and in securities that are illiquid by
virtue of legal or contractual restrictions on resale or the
absence of a readily available market. The Trustees, or the
Funds' investment adviser acting pursuant to authority delegated
by the Trustees, may determine that a readily available market
exists for securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933 ("Rule 144A Securities"), or any
successor to such rule, Section 4(2) commercial paper and
municipal lease obligations. Accordingly, such securities may not
be subject to the foregoing limitation.
(f) The Funds may not invest in companies for the purpose of
exercising control of management.
Under the terms of an exemptive order received from the
Securities and Exchange Commission ("SEC"), each of the Funds
5
may borrow money from or lend money to other funds that permit
such transactions and for which Janus Capital Management LLC
("Janus Capital") serves as investment adviser. All such
borrowing and lending will be subject to the above limits. A Fund
will borrow money through the program only when the costs are
equal to or lower than the cost of bank loans. Interfund loans
and borrowings normally extend overnight, but can have a maximum
duration of seven days. A Fund will lend through the program only
when the returns are higher than those available from other
short-term instruments (such as repurchase agreements). A Fund
may have to borrow from a bank at a higher interest rate if an
interfund loan is called or not renewed. Any delay in repayment
to a lending Fund could result in a lost investment opportunity
or additional borrowing costs.
For the purposes of these investment restrictions, the
identification of the issuer of a municipal obligation depends on
the terms and conditions of the security. When assets and
revenues of a political subdivision are separate from those of
the government that created the subdivision and the security is
backed only by the assets and revenues of the subdivision, the
subdivision is deemed to be the sole issuer. Similarly, in the
case of an industrial development bond, if the bond is backed
only by assets and revenues of a nongovernmental user, then the
nongovernmental user would be deemed to be the sole issuer. If,
however, in either case, the creating government or some other
entity guarantees the security, the guarantee would be considered
a separate security that would be treated as an issue of the
guaranteeing entity.
For the purposes of each Fund's policies on investing in
particular industries, the Funds will rely primarily on industry
or industry group classifications published by Bloomberg L.P. To
the extent that Bloomberg L.P. industry classifications are so
broad that the primary economic characteristics in a single
industry are materially different, the Funds may further classify
issuers in accordance with industry classifications as published
by the SEC.
6
INVESTMENT POLICIES APPLICABLE TO CERTAIN FUNDS
JANUS GLOBAL LIFE SCIENCES FUND. As a fundamental policy, Janus
Global Life Sciences Fund will normally invest at least 25% of
its total assets, in the aggregate, in the following industry
groups: health care; pharmaceuticals; agriculture;
cosmetics/personal care; and biotechnology.
INVESTMENT STRATEGIES AND RISKS
Cash Position
As discussed in the Prospectuses, a Fund's cash position may
temporarily increase under various circumstances. Securities that
the Funds may invest in as a means of receiving a return on idle
cash include commercial paper, certificates of deposit,
repurchase agreements or other short-term debt obligations. The
Funds may also invest in money market funds, including funds
managed by Janus Capital. (See "Investment Company Securities").
Illiquid Investments
Each Fund may invest up to 15% of its net assets in illiquid
investments (i.e., securities that are not readily marketable).
The Trustees have authorized Janus Capital to make liquidity
determinations with respect to certain securities, including Rule
144A Securities, commercial paper and municipal lease obligations
purchased by the Funds. Under the guidelines established by the
Trustees, Janus Capital will consider the following factors: 1)
the frequency of trades and quoted prices for the obligation; 2)
the number of dealers willing to purchase or sell the security
and the number of other potential purchasers; 3) the willingness
of dealers to undertake to make a market in the security; and 4)
the nature of the security and the nature of marketplace trades,
including the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer. In the
case of commercial paper, Janus Capital will also consider
whether the paper is traded flat or in default as to principal
and interest and any ratings of the paper by a nationally
recognized statistical rating organization
7
("NRSRO"). A foreign security that may be freely traded on or
through the facilities of an offshore exchange or other
established offshore securities market is not deemed to be a
restricted security subject to these procedures.
If illiquid securities exceed 15% of a Fund's net assets after
the time of purchase the Fund will take steps to reduce in an
orderly fashion its holdings of illiquid securities. Because
illiquid securities may not be readily marketable, a portfolio
manager may not be able to dispose of them in a timely manner. As
a result, a Fund may be forced to hold illiquid securities while
their price depreciates. Depreciation in the price of illiquid
securities may cause the net asset value of a Fund to decline.
Each of the Funds may invest up to 5% of its total assets in
venture capital investments, although no more than 0.5% of its
total assets will be invested in any one venture capital company.
Venture capital investments are investments in new and early
stage companies whose securities are not publicly traded. These
investments may present significant opportunities for capital
appreciation but involve a high degree of risk that can result in
substantial losses. The Funds may not be able to sell such
investments when a portfolio manager deems it appropriate to do
so due to restrictions on their sale. In addition, the Funds may
be forced to sell their venture capital investments at less than
fair market value. Where venture capital investments must be
registered prior to their sale, the Funds may be obligated to pay
all or part of the registration expenses. Any of these situations
may result in a decrease in a Fund's NAV.
Securities Lending
Under procedures adopted by the Trustees, the Funds may lend
securities to qualified parties (typically brokers or other
financial institutions) who need to borrow securities in order to
complete certain transactions such as covering short sales,
avoiding failures to deliver securities or completing arbitrage
activities. The Funds may seek to earn additional income through
securities lending.
8
Since there is the risk of delay in recovering a loaned security
or the risk of loss in collateral rights if the borrower fails
financially, securities lending will only be made to parties that
Janus Capital deems creditworthy and in good standing. In
addition, such loans will only be made if Janus Capital believes
the benefit from granting such loans justifies the risk. The
Funds will not have the right to vote on securities while they
are being lent, but it will generally call a loan in anticipation
of any important vote. All loans will be continuously secured by
collateral which consists of cash, U.S. government securities,
letters of credit and such other collateral permitted by the SEC.
Cash collateral may be invested in money market funds advised by
Janus to the extent consistent with exemptive relief obtained
from the SEC.
Foreign Securities
Unless otherwise limited by its specific investment policies,
each Fund may invest without limit in foreign securities either
indirectly (e.g., depositary receipts) or directly in foreign
markets. Investments in foreign securities, including those of
foreign governments, may involve greater risks than investing in
domestic securities, because the Funds' performance may depend on
issues other than the performance of a particular company. These
issues include:
CURRENCY RISK. As long as a Fund holds a foreign security, its
value will be affected by the value of the local currency
relative to the U.S. dollar. When a Fund sells a foreign
denominated security, its value may be worth less in U.S. dollars
even if the security increases in value in its home country. U.S.
dollar denominated securities of foreign issuers may also be
affected by currency risk.
POLITICAL AND ECONOMIC RISK. Foreign investments may be subject
to heightened political and economic risks, particularly in
emerging markets which may have relatively unstable governments,
immature economic structures, national policies restricting
investments by foreigners, different legal systems, and economies
9
based on only a few industries. In some countries, there is the
risk that the government may take over the assets or operations
of a company or that the government may impose taxes or limits on
the removal of a Fund's assets from that country.
REGULATORY RISK. There may be less government supervision of
foreign markets. As a result, foreign issuers may not be subject
to the uniform accounting, auditing and financial reporting
standards and practices applicable to domestic issuers and there
may be less publicly available information about foreign issuers.
MARKET RISK. Foreign securities markets, particularly those of
emerging market countries, may be less liquid and more volatile
than domestic markets. Certain markets may require payment for
securities before delivery and delays may be encountered in
settling securities transactions. In some foreign markets, there
may not be protection against failure by other parties to
complete transactions.
TRANSACTION COSTS. Costs of buying, selling and holding foreign
securities, including brokerage, tax and custody costs, may be
higher than those involved in domestic transactions.
Short Sales
Each Fund may engage in "short sales against the box." This
technique involves selling either a security that a Fund owns, or
a security equivalent in kind and amount to the security sold
short that the Fund has the right to obtain, for delivery at a
specified date in the future. A Fund may enter into a short sale
against the box to hedge against anticipated declines in the
market price of portfolio securities. If the value of the
securities sold short increases prior to the scheduled delivery
date, a Fund loses the opportunity to participate in the gain.
The Funds may also engage in "naked" short sales. In a naked
short sale transaction, a Fund sells a security it does not own
to a purchaser at a specified price. To complete a naked short
sale, a Fund must: (1) borrow the security to deliver it to the
purchaser
10
and (2) buy that same security in the market to return it to the
lender. A Fund may sell securities short only on a fully
collateralized basis, as permitted by SEC interpretations. At the
time of a short sale, a Fund will establish and maintain a
segregated account consisting of liquid assets equal in value to
the purchase price due on the settlement date under the short
sale. The value of the liquid assets will be marked to market
daily. A Fund will engage in naked short sales when its portfolio
manager anticipates that the security's market purchase price
will be less than its borrowing price. Naked short sales involve
the same fundamental risk as short sales against the box, as
described in the previous paragraph. In addition, naked short
sales carry risks of loss if the value of a security sold short
increases prior to the scheduled delivery date and a Fund must
pay more for the security than it has received from the purchaser
in the short sale. The total market value of all of a Fund's
naked short sale positions will not exceed 8% of its assets.
Zero Coupon, Step Coupon and Pay-In-Kind Securities
Each Fund may invest up to 10% of its assets in zero coupon,
pay-in-kind and step coupon securities. Zero coupon bonds are
issued and traded at a discount from their face value. They do
not entitle the holder to any periodic payment of interest prior
to maturity. Step coupon bonds trade at a discount from their
face value and pay coupon interest. The coupon rate is low for an
initial period and then increases to a higher coupon rate
thereafter. The discount from the face amount or par value
depends on the time remaining until cash payments begin,
prevailing interest rates, liquidity of the security and the
perceived credit quality of the issuer. Pay-in-kind bonds
normally give the issuer an option to pay cash at a coupon
payment date or give the holder of the security a similar bond
with the same coupon rate and a face value equal to the amount of
the coupon payment that would have been made. For the purposes of
any Fund's restriction on investing in income-producing
securities, income-producing securities include securities that
make periodic interest payments
11
as well as those that make interest payments on a deferred basis
or pay interest only at maturity (e.g., Treasury bills or zero
coupon bonds).
Current federal income tax law requires holders of zero coupon
and step coupon securities to report the portion of the original
issue discount on such securities that accrues during a given
year as interest income, even though the holders receive no cash
payments of interest during the year. In order to qualify as a
"regulated investment company" under the Code, a Fund must
distribute its investment company taxable income, including the
original issue discount accrued on zero coupon or step coupon
bonds. Because a Fund will not receive cash payments on a current
basis in respect of accrued original-issue discount on zero
coupon bonds or step coupon bonds during the period before
interest payments begin, in some years that Fund may have to
distribute cash obtained from other sources in order to satisfy
the distribution requirements under the Code. A Fund might obtain
such cash from selling other portfolio holdings which might cause
the Fund to incur capital gains or losses on the sale.
Additionally, these actions are likely to reduce the assets to
which Fund expenses could be allocated and to reduce the rate of
return for the Fund. In some circumstances, such sales might be
necessary in order to satisfy cash distribution requirements even
though investment considerations might otherwise make it
undesirable for a Fund to sell the securities at the time.
Generally, the market prices of zero coupon, step coupon and
pay-in-kind securities are more volatile than the prices of
securities that pay interest periodically and in cash and are
likely to respond to changes in interest rates to a greater
degree than other types of debt securities having similar
maturities and credit quality.
Pass-Through Securities
The Funds may invest in various types of pass-through securities,
such as mortgage-backed securities, asset-backed securities and
12
participation interests. A pass-through security is a share or
certificate of interest in a pool of debt obligations that have
been repackaged by an intermediary, such as a bank or
broker-dealer. The purchaser of a pass-through security receives
an undivided interest in the underlying pool of securities. The
issuers of the underlying securities make interest and principal
payments to the intermediary which are passed through to
purchasers, such as the Funds. The most common type of
pass-through securities are mortgage-backed securities. Ginnie
Mae Certificates are mortgage-backed securities that evidence an
undivided interest in a pool of mortgage loans. Ginnie Mae
Certificates differ from bonds in that principal is paid back
monthly by the borrowers over the term of the loan rather than
returned in a lump sum at maturity. A Fund will generally
purchase "modified pass-through" Ginnie Mae Certificates, which
entitle the holder to receive a share of all interest and
principal payments paid and owned on the mortgage pool, net of
fees paid to the "issuer" and Ginnie Mae, regardless of whether
or not the mortgagor actually makes the payment. Ginnie Mae
Certificates are backed as to the timely payment of principal and
interest by the full faith and credit of the U.S. government.
Freddie Mac issues two types of mortgage pass-through securities:
mortgage participation certificates ("PCs") and guaranteed
mortgage certificates ("GMCs"). PCs resemble Ginnie Mae
Certificates in that each PC represents a pro rata share of all
interest and principal payments made and owned on the underlying
pool. Freddie Mac guarantees timely payments of interest on PCs
and the full return of principal. GMCs also represent a pro rata
interest in a pool of mortgages. However, these instruments pay
interest semiannually and return principal once a year in
guaranteed minimum payments. This type of security is guaranteed
by Freddie Mac as to timely payment of principal and interest but
it is not guaranteed by the full faith and credit of the U.S.
government.
Fannie Mae issues guaranteed mortgage pass-through certificates
("Fannie Mae Certificates"). Fannie Mae Certificates resemble
13
Ginnie Mae Certificates in that each Fannie Mae Certificate
represents a pro rata share of all interest and principal
payments made and owned on the underlying pool. This type of
security is guaranteed by Fannie Mae as to timely payment of
principal and interest but it is not guaranteed by the full faith
and credit of the U.S. government.
Except for GMCs, each of the mortgage-backed securities described
above is characterized by monthly payments to the holder,
reflecting the monthly payments made by the borrowers who
received the underlying mortgage loans. The payments to the
security holders (such as the Funds), like the payments on the
underlying loans, represent both principal and interest. Although
the underlying mortgage loans are for specified periods of time,
such as 20 or 30 years, the borrowers can, and typically do, pay
them off sooner. Thus, the security holders frequently receive
prepayments of principal in addition to the principal that is
part of the regular monthly payments. A portfolio manager will
consider estimated prepayment rates in calculating the average
weighted maturity of a Fund. A borrower is more likely to prepay
a mortgage that bears a relatively high rate of interest. This
means that in times of declining interest rates, higher yielding
mortgage-backed securities held by a Fund might be converted to
cash and that Fund will be forced to accept lower interest rates
when that cash is used to purchase additional securities in the
mortgage-backed securities sector or in other investment sectors.
Additionally, prepayments during such periods will limit a Fund's
ability to participate in as large a market gain as may be
experienced with a comparable security not subject to prepayment.
Asset-backed securities represent interests in pools of consumer
loans and are backed by paper or accounts receivables originated
by banks, credit card companies or other providers of credit.
Generally, the originating bank or credit provider is neither the
obligor nor the guarantor of the security, and interest and
principal payments ultimately depend upon payment of the
underlying loans by individuals. Tax-exempt asset-backed securi-
14
ties include units of beneficial interests in pools of purchase
contracts, financing leases, and sales agreements that may be
created when a municipality enters into an installment purchase
contract or lease with a vendor. Such securities may be secured
by the assets purchased or leased by the municipality; however,
if the municipality stops making payments, there generally will
be no recourse against the vendor. These obligations are likely
to involve unscheduled prepayments of principal.
Investment Company Securities
From time to time, the Funds may invest in securities of other
investment companies, subject to the provisions of Section
12(d)(1) of the 1940 Act. The Funds may invest in securities of
money market funds managed by Janus Capital in excess of the
limitations of Section 12(d)(1) under the terms of an SEC
exemptive order obtained by Janus Capital and the Janus funds.
Depositary Receipts
The Funds may invest in sponsored and unsponsored American
Depositary Receipts ("ADRs"), which are receipts issued by an
American bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer. ADRs, in registered form,
are designed for use in U.S. securities markets. Unsponsored ADRs
may be created without the participation of the foreign issuer.
Holders of these ADRs generally bear all the costs of the ADR
facility, whereas foreign issuers typically bear certain costs in
a sponsored ADR. The bank or trust company depositary of an
unsponsored ADR may be under no obligation to distribute
shareholder communications received from the foreign issuer or to
pass through voting rights. The Funds may also invest in European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs")
and in other similar instruments representing securities of
foreign companies. EDRs and GDRs are securities that are
typically issued by foreign banks or foreign trust companies,
although U.S. banks or U.S. trust companies may issue them. EDRs
and GDRs are structured similar to the arrangements of
15
ADRs. EDRs, in bearer form, are designed for use in European
securities markets.
Depositary Receipts are generally subject to the same sort of
risks as direct investments in a foreign country, such as,
currency risk, political and economic risk, and market risk,
because their values depend on the performance of a foreign
security denominated in its home currency. The risks of foreign
investing are addressed in some detail in the Funds'
prospectuses.
Municipal Obligations
The Funds may invest in municipal obligations issued by states,
territories and possessions of the United States and the District
of Columbia.
The value of municipal obligations can be affected by changes in
their actual or perceived credit quality. The credit quality of
municipal obligations can be affected by among other things the
financial condition of the issuer or guarantor, the issuer's
future borrowing plans and sources of revenue, the economic
feasibility of the revenue bond project or general borrowing
purpose, political or economic developments in the region where
the security is issued, and the liquidity of the security.
Because municipal securities are generally traded
over-the-counter, the liquidity of a particular issue often
depends on the willingness of dealers to make a market in the
security. The liquidity of some municipal obligations may be
enhanced by demand features, which would enable a Fund to demand
payment on short notice from the issuer or a financial
intermediary.
Other Income-Producing Securities
Other types of income producing securities that the Funds may
purchase include, but are not limited to, the following types of
securities:
VARIABLE AND FLOATING RATE OBLIGATIONS. These types of securities
have variable or floating rates of interest and, under certain
limited circumstances, may have varying principal amounts.
16
Variable and floating rate securities pay interest at rates that
are adjusted periodically according to a specified formula,
usually with reference to some interest rate index or market
interest rate (the "underlying index"). The floating rate tends
to decrease the security's price sensitivity to changes in
interest rates.
In order to most effectively use these investments, a portfolio
manager must correctly assess probable movements in interest
rates. This involves different skills than those used to select
most portfolio securities. If the portfolio manager incorrectly
forecasts such movements, a Fund could be adversely affected by
the use of variable or floating rate obligations.
STANDBY COMMITMENTS. These instruments, which are similar to a
put, give a Fund the option to obligate a broker, dealer or bank
to repurchase a security held by that Fund at a specified price.
TENDER OPTION BONDS. Tender option bonds are relatively long-
term bonds that are coupled with the option to tender the
securities to a bank, broker-dealer or other financial
institution at periodic intervals and receive the face value of
the bond. This investment structure is commonly used as a means
of enhancing a security's liquidity.
INVERSE FLOATERS. Inverse floaters are debt instruments whose
interest bears an inverse relationship to the interest rate on
another security. No Fund will invest more than 5% of its assets
in inverse floaters. Similar to variable and floating rate
obligations, effective use of inverse floaters requires skills
different from those needed to select most portfolio securities.
If movements in interest rates are incorrectly anticipated, a
Fund could lose money or its NAV could decline by the use of
inverse floaters.
STRIP BONDS. Strip bonds are debt securities that are stripped of
their interest (usually by a financial intermediary) after the
securities are issued. The market value of these securities
generally fluctuates more in response to changes in interest
rates than interest-paying securities of comparable maturity.
17
The Funds will purchase standby commitments, tender option bonds
and instruments with demand features primarily for the purpose of
increasing the liquidity of their portfolios.
Repurchase and Reverse Repurchase Agreements
In a repurchase agreement, a Fund purchases a security and
simultaneously commits to resell that security to the seller at
an agreed upon price on an agreed upon date within a number of
days (usually not more than seven) from the date of purchase. The
resale price consists of the purchase price plus an agreed upon
incremental amount that is unrelated to the coupon rate or
maturity of the purchased 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 (at
least equal to the amount of the agreed upon resale price and
marked-to-market daily) of the underlying security or
"collateral." A risk associated with repurchase agreements is the
failure of the seller to repurchase the securities as agreed,
which may cause a Fund to suffer a loss if the market value of
such securities declines before they can be liquidated on the
open market. In the event of bankruptcy or insolvency of the
seller, a Fund may encounter delays and incur costs in
liquidating the underlying security. Repurchase agreements that
mature in more than seven days are subject to the 15% limit on
illiquid investments. While it is not possible to eliminate all
risks from these transactions, it is the policy of the Funds to
limit repurchase agreements to those parties whose
creditworthiness has been reviewed and found satisfactory by
Janus Capital.
A Fund may use reverse repurchase agreements to obtain cash to
satisfy unusually heavy redemption requests or for other
temporary or emergency purposes without the necessity of selling
portfolio securities, or to earn additional income on portfolio
securities, such as Treasury bills or notes. In a reverse
repurchase agreement, a Fund sells a portfolio security to
another party, such as a bank or broker-dealer, in return for
cash and agrees to repurchase the instrument at a particular
price and time. While a
18
reverse repurchase agreement is outstanding, a Fund will maintain
cash and appropriate liquid assets in a segregated custodial
account to cover its obligation under the agreement. The Funds
will enter into reverse repurchase agreements only with parties
that Janus Capital deems creditworthy. Using reverse repurchase
agreements to earn additional income involves the risk that the
interest earned on the invested proceeds is less than the expense
of the reverse repurchase agreement transaction. This technique
may also have a leveraging effect on the Fund's portfolio,
although the Fund's intent to segregate assets in the amount of
the reverse repurchase agreement minimizes this effect.
High-Yield/High-Risk Bonds
Within the parameters of its specific investment policies, no
Fund intends to invest 35% or more of its net assets in bonds
that are rated below investment grade (e.g., bonds rated BB or
lower by Standard & Poor's Ratings Services or Ba or lower by
Moody's Investors Service, Inc.). Lower rated bonds involve a
higher degree of credit risk, which is the risk that the issuer
will not make interest or principal payments when due. In the
event of an unanticipated default, a Fund would experience a
reduction in its income, and could expect a decline in the market
value of the bonds so affected.
Any Fund may invest in unrated bonds of foreign and domestic
issuers. Unrated bonds will be included in each Fund's limit on
investments in bonds rated below investment grade unless its
portfolio manager deems such securities to be the equivalent of
investment grade bonds. Unrated bonds, while not necessarily of
lower quality than rated bonds, may not have as broad a market.
Because of the size and perceived demand of the issue, among
other factors, certain municipalities may not incur the costs of
obtaining a rating. A Fund's portfolio manager will analyze the
creditworthiness of the issuer, as well as any financial
institution or other party responsible for payments on the bond,
in determining whether to purchase unrated municipal bonds.
19
Defaulted Securities
A Fund will invest in defaulted securities only when its
portfolio manager believes, based upon his or her analysis of the
financial condition, results of operations and economic outlook
of an issuer, that there is potential for resumption of income
payments and that the securities offer an unusual opportunity for
capital appreciation. Defaulted securities will be included in
each Fund's limit on investments in bonds rated below investment
grade. Notwithstanding the portfolio manager's belief about the
resumption of income, however, the purchase of any security on
which payment of interest or dividends is suspended involves a
high degree of risk. Such risk includes, among other things, the
following:
FINANCIAL AND MARKET RISKS. Investments in securities that are in
default involve a high degree of financial and market risks that
can result in substantial or, at times, even total losses.
Issuers of defaulted securities may have substantial capital
needs and may become involved in bankruptcy or reorganization
proceedings. Among the problems involved in investments in such
issuers is the fact that it may be difficult to obtain
information about the condition of such issuers. The market
prices of such securities also are subject to abrupt and erratic
movements and above average price volatility, and the spread
between the bid and asked prices of such securities may be
greater than normally expected.
DISPOSITION OF PORTFOLIO SECURITIES. Although these Funds
generally will purchase securities for which their portfolio
managers expect an active market to be maintained, defaulted
securities may be less actively traded than other securities and
it may be difficult to dispose of substantial holdings of such
securities at prevailing market prices. The Funds will limit
holdings of any such securities to amounts that the portfolio
managers believe could be readily sold, and holdings of such
securities would, in any event, be limited so as not to limit the
Funds' ability to readily dispose of securities to meet
redemptions.
20
OTHER. Defaulted securities require active monitoring and may, at
times, require participation in bankruptcy or receivership
proceedings on behalf of the Funds.
Futures, Options and Other Derivative Instruments
FUTURES CONTRACTS. The Funds may enter into contracts for the
purchase or sale for future delivery of equity securities, fixed-
income securities, foreign currencies or contracts based on
financial indices, including indices of U.S. government
securities, foreign government securities, equity or fixed-income
securities. U.S. futures contracts are traded on exchanges which
have been designated "contract markets" by the CFTC and must be
executed through a futures commission merchant ("FCM"), or
brokerage firm, which is a member of the relevant contract
market. Through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing
members of the exchange.
The buyer or seller of a futures contract is not required to
deliver or pay for the underlying instrument unless the contract
is held until the delivery date. However, both the buyer and
seller are required to deposit "initial margin" for the benefit
of the FCM when the contract is entered into. Initial margin
deposits are equal to a percentage of the contract's value, as
set by the exchange on which the contract is traded, and may be
maintained in cash or certain other liquid assets by the Funds'
custodian for the benefit of the FCM. Initial margin payments are
similar to good faith deposits or performance bonds. Unlike
margin extended by a securities broker, initial margin payments
do not constitute purchasing securities on margin for purposes of
the Fund's investment limitations. If the value of either party's
position declines, that party will be required to make additional
"variation margin" payments for the benefit of the FCM to settle
the change in value on a daily basis. The party that has a gain
may be entitled to receive all or a portion of this amount. In
the event of the bankruptcy of the FCM that holds margin on
behalf of a Fund, that Fund may be entitled to return of margin
owed to such Fund only in proportion to the amount received by
the
21
FCM's other customers. Janus Capital will attempt to minimize the
risk by careful monitoring of the creditworthiness of the FCMs
with which the Funds do business and by depositing margin
payments in a segregated account with the Funds' custodian.
The Funds intend to comply with guidelines of eligibility for
exclusion from the definition of the term "commodity pool
operator" adopted by the CFTC and the National Futures
Association, which regulate trading in the futures markets. The
Funds will use futures contracts and related options primarily
for bona fide hedging purposes within the meaning of CFTC
regulations. To the extent that the Funds hold positions in
futures contracts and related options that do not fall within the
definition of bona fide hedging transactions, the aggregate
initial margin and premiums required to establish such positions
will not exceed 5% of the fair market value of a Fund's net
assets, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into.
Although a Fund will segregate cash and liquid assets in an
amount sufficient to cover its open futures obligations, the
segregated assets would be available to that Fund immediately
upon closing out the futures position, while settlement of
securities transactions could take several days. However, because
a Fund's cash that may otherwise be invested would be held
uninvested or invested in other liquid assets so long as the
futures position remains open, such Fund's return could be
diminished due to the opportunity losses of foregoing other
potential investments.
A Fund's primary purpose in entering into futures contracts is to
protect that Fund from fluctuations in the value of individual
securities or the securities markets generally, or interest rates
without actually buying or selling the underlying debt or equity
security. For example, if the Fund anticipates an increase in the
price of stocks, and it intends to purchase stocks at a later
time, that Fund could enter into a futures contract to purchase a
stock index as a temporary substitute for stock purchases. If an
increase
22
in the market occurs that influences the stock index as
anticipated, the value of the futures contracts will increase,
thereby serving as a hedge against that Fund not participating in
a market advance. This technique is sometimes known as an
anticipatory hedge. A Fund may also use this technique with
respect to an individual company's stock. To the extent a Fund
enters into futures contracts for this purpose, the segregated
assets maintained to cover such Fund's obligations with respect
to the futures contracts will consist of other liquid assets from
its portfolio in an amount equal to the difference between the
contract price and the aggregate value of the initial and
variation margin payments made by that Fund with respect to the
futures contracts. Conversely, if a Fund holds stocks and seeks
to protect itself from a decrease in stock prices, the Fund might
sell stock index futures contracts, thereby hoping to offset the
potential decline in the value of its portfolio securities by a
corresponding increase in the value of the futures contract
position. Similarly, if a Fund holds an individual company's
stock and expects the price of that stock to decline, the Fund
may sell a futures contract on that stock in hopes of offsetting
the potential decline in the company's stock price. A Fund could
protect against a decline in stock prices by selling portfolio
securities and investing in money market instruments, but the use
of futures contracts enables it to maintain a defensive position
without having to sell portfolio securities.
If a Fund owns bonds and the portfolio manager expects interest
rates to increase, that Fund may take a short position in
interest rate futures contracts. Taking such a position would
have much the same effect as that Fund selling bonds in its
portfolio. If interest rates increase as anticipated, the value
of the bonds would decline, but the value of that Fund's interest
rate futures contract will increase, thereby keeping the net
asset value of that Fund from declining as much as it may have
otherwise. If, on the other hand, a portfolio manager expects
interest rates to decline, that Fund may take a long position in
interest rate futures contracts in anticipation of later closing
out the futures position and purchas-
23
ing the bonds. Although a Fund can accomplish similar results by
buying securities with long maturities and selling securities
with short maturities, given the greater liquidity of the futures
market than the cash market, it may be possible to accomplish the
same result more easily and more quickly by using futures
contracts as an investment tool to reduce risk.
The ordinary spreads between prices in the cash and futures
markets, due to differences in the nature of those markets, are
subject to distortions. First, all participants in the futures
market are subject to initial margin and variation margin
requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal price
relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking
delivery of the instrument underlying a futures contract. To the
extent participants decide to make or take delivery, liquidity in
the futures market could be reduced and prices in the futures
market distorted. Third, from the point of view of speculators,
the margin deposit requirements in the futures market are less
onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures
market may cause temporary price distortions. Due to the
possibility of the foregoing distortions, a correct forecast of
general price trends by a portfolio manager still may not result
in a successful use of futures.
Futures contracts entail risks. Although the Funds believe that
use of such contracts will benefit the Funds, a Fund's overall
performance could be worse than if such Fund had not entered into
futures contracts if the portfolio manager's investment judgement
proves incorrect. For example, if a Fund has hedged against the
effects of a possible decrease in prices of securities held in
its portfolio and prices increase instead, that Fund will lose
part or all of the benefit of the increased value of these
securities because of offsetting losses in its futures positions.
This
24
risk may be magnified for single stock futures transactions, as
the Fund's portfolio manager must predict the direction of the
price of an individual stock, as opposed to securities prices
generally. In addition, if a Fund has insufficient cash, it may
have to sell securities from its portfolio to meet daily
variation margin requirements. Those sales may be, but will not
necessarily be, at increased prices which reflect the rising
market and may occur at a time when the sales are disadvantageous
to such Fund.
The prices of futures contracts depend primarily on the value of
their underlying instruments. Because there are a limited number
of types of futures contracts, it is possible that the
standardized futures contracts available to a Fund will not match
exactly such Fund's current or potential investments. A Fund may
buy and sell futures contracts based on underlying instruments
with different characteristics from the securities in which it
typically invests -- for example, by hedging investments in
portfolio securities with a futures contract based on a broad
index of securities -- which involves a risk that the futures
position will not correlate precisely with the performance of
such Fund's investments.
Futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments
closely correlate with a Fund's investments, such as with a
single stock futures contract. Futures prices are affected by
factors such as current and anticipated short-term interest
rates, changes in volatility of the underlying instruments and
the time remaining until expiration of the contract. Those
factors may affect securities prices differently from futures
prices. Imperfect correlations between a Fund's investments and
its futures positions also may result from differing levels of
demand in the futures markets and the securities markets, from
structural differences in how futures and securities are traded,
and from imposition of daily price fluctuation limits for futures
contracts. A Fund may buy or sell futures contracts with a
greater or lesser value than the securities it wishes to hedge or
is considering purchasing in order to attempt to compensate for
differences in historical volatility between the futures contract
and
25
the securities, although this may not be successful in all cases.
If price changes in a Fund's futures positions are poorly
correlated with its other investments, its futures positions may
fail to produce desired gains or result in losses that are not
offset by the gains in that Fund's other investments.
Because futures contracts are generally settled within a day from
the date they are closed out, compared with a settlement period
of three days for some types of securities, the futures markets
can provide superior liquidity to the securities markets.
Nevertheless, there is no assurance that a liquid secondary
market will exist for any particular futures contract at any
particular time. In addition, futures exchanges may establish
daily price fluctuation limits for futures contracts and may halt
trading if a contract's price moves upward or downward more than
the limit in a given day. On volatile trading days when the price
fluctuation limit is reached, it may be impossible for a Fund to
enter into new positions or close out existing positions. If the
secondary market for a futures contract is not liquid because of
price fluctuation limits or otherwise, a Fund may not be able to
promptly liquidate unfavorable futures positions and potentially
could be required to continue to hold a futures position until
the delivery date, regardless of changes in its value. As a
result, such Fund's access to other assets held to cover its
futures positions also could be impaired.
OPTIONS ON FUTURES CONTRACTS. The Funds may buy and write put and
call options on futures contracts. An option on a future gives a
Fund the right (but not the obligation) to buy or sell a futures
contract at a specified price on or before a specified date. The
purchase of a call option on a futures contract is similar in
some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based
or the price of the underlying instrument, ownership of the
option may or may not be less risky than ownership of the futures
contract or the underlying instrument. As with the purchase of
26
futures contracts, when a Fund is not fully invested it may buy a
call option on a futures contract to hedge against a market
advance.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign
currency which is deliverable under, or of the index comprising,
the futures contract. If the futures' price at the expiration of
the option is below the exercise price, a Fund will retain the
full amount of the option premium which provides a partial hedge
against any decline that may have occurred in that Fund's
portfolio holdings. The writing of a put option on a futures
contract constitutes a partial hedge against increasing prices of
the security or foreign currency which is deliverable under, or
of the index comprising, the futures contract. If the futures'
price at expiration of the option is higher than the exercise
price, a Fund will retain the full amount of the option premium
which provides a partial hedge against any increase in the price
of securities which that Fund is considering buying. If a call or
put option a Fund has written is exercised, such Fund will incur
a loss which will be reduced by the amount of the premium it
received. Depending on the degree of correlation between the
change in the value of its portfolio securities and changes in
the value of the futures positions, a Fund's losses from existing
options on futures may to some extent be reduced or increased by
changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in
some respects to the purchase of protective put options on
portfolio securities. For example, a Fund may buy a put option on
a futures contract to hedge its portfolio against the risk of
falling prices or rising interest rates.
The amount of risk a Fund assumes when it buys an option on a
futures contract is the premium paid for the option plus related
transaction costs. In addition to the correlation risks discussed
above, the purchase of an option also entails the risk that
changes
27
in the value of the underlying futures contract will not be fully
reflected in the value of the options bought.
FORWARD CONTRACTS. A forward contract is an agreement between two
parties in which one party is obligated to deliver a stated
amount of a stated asset at a specified time in the future and
the other party is obligated to pay a specified amount for the
assets at the time of delivery. The Funds may enter into forward
contracts to purchase and sell government securities, equity or
income securities, foreign currencies or other financial
instruments. Forward contracts generally are traded in an
interbank market conducted directly between traders (usually
large commercial banks) and their customers. Unlike futures
contracts, which are standardized contracts, forward contracts
can be specifically drawn to meet the needs of the parties that
enter into them. The parties to a forward contract may agree to
offset or terminate the contract before its maturity, or may hold
the contract to maturity and complete the contemplated exchange.
The following discussion summarizes the Funds' principal uses of
forward foreign currency exchange contracts ("forward currency
contracts"). A Fund may enter into forward currency contracts
with stated contract values of up to the value of that Fund's
assets. A forward currency contract is an obligation to buy or
sell an amount of a specified currency for an agreed price (which
may be in U.S. dollars or a foreign currency). A Fund will
exchange foreign currencies for U.S. dollars and for other
foreign currencies in the normal course of business and may buy
and sell currencies through forward currency contracts in order
to fix a price for securities it has agreed to buy or sell
("transaction hedge"). A Fund also may hedge some or all of its
investments denominated in a foreign currency or exposed to
foreign currency fluctuations against a decline in the value of
that currency relative to the U.S. dollar by entering into
forward currency contracts to sell an amount of that currency (or
a proxy currency whose performance is expected to replicate or
exceed the performance of that currency relative to the U.S.
dollar) approximating the value of
28
some or all of its portfolio securities denominated in that
currency ("position hedge") or by participating in options or
futures contracts with respect to the currency. A Fund also may
enter into a forward currency contract with respect to a currency
where the Fund is considering the purchase or sale of investments
denominated in that currency but has not yet selected the
specific investments ("anticipatory hedge"). In any of these
circumstances a Fund may, alternatively, enter into a forward
currency contract to purchase or sell one foreign currency for a
second currency that is expected to perform more favorably
relative to the U.S. dollar if the portfolio manager believes
there is a reasonable degree of correlation between movements in
the two currencies ("cross-hedge").
These types of hedging minimize the effect of currency
appreciation as well as depreciation, but do not eliminate
fluctuations in the underlying U.S. dollar equivalent value of
the proceeds of or rates of return on a Fund's foreign currency
denominated portfolio securities. The matching of the increase in
value of a forward contract and the decline in the U.S. dollar
equivalent value of the foreign currency denominated asset that
is the subject of the hedge generally will not be precise.
Shifting a Fund's currency exposure from one foreign currency to
another removes that Fund's opportunity to profit from increases
in the value of the original currency and involves a risk of
increased losses to such Fund if its portfolio manager's
projection of future exchange rates is inaccurate. Proxy hedges
and cross-hedges may result in losses if the currency used to
hedge does not perform similarly to the currency in which hedged
securities are denominated. Unforeseen changes in currency prices
may result in poorer overall performance for a Fund than if it
had not entered into such contracts.
The Funds will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated in or whose
value is tied to, the currency underlying the forward contract or
the currency being hedged. To the extent that a Fund is not able
to cover its forward currency positions with underlying portfolio
29
securities, the Funds' custodian will segregate cash or other
liquid assets having a value equal to the aggregate amount of
such Fund's commitments under forward contracts entered into with
respect to position hedges, cross-hedges and anticipatory hedges.
If the value of the securities used to cover a position or the
value of segregated assets declines, a Fund will find alternative
cover or segregate additional cash or liquid assets on a daily
basis so that the value of the covered and segregated assets will
be equal to the amount of such Fund's commitments with respect to
such contracts. As an alternative to segregating assets, a Fund
may buy call options permitting such Fund to buy the amount of
foreign currency being hedged by a forward sale contract or a
Fund may buy put options permitting it to sell the amount of
foreign currency subject to a forward buy contract.
While forward contracts are not currently regulated by the CFTC,
the CFTC may in the future assert authority to regulate forward
contacts. In such event, the Funds' ability to utilize forward
contracts may be restricted. In addition, a Fund may not always
be able to enter into forward contracts at attractive prices and
may be limited in its ability to use these contracts to hedge
Fund assets.
OPTIONS ON FOREIGN CURRENCIES. The Funds may buy and write
options on foreign currencies in a manner similar to that in
which futures or forward contracts on foreign currencies will be
utilized. For example, a decline in the U.S. dollar value of a
foreign currency in which portfolio securities are denominated
will reduce the U.S. dollar value of such securities, even if
their value in the foreign currency remains constant. In order to
protect against such diminutions in the value of portfolio
securities, a Fund may buy put options on the foreign currency.
If the value of the currency declines, such Fund will have the
right to sell such currency for a fixed amount in U.S. dollars,
thereby offsetting, in whole or in part, the adverse effect on
its portfolio.
Conversely, when a rise in the U.S. dollar value of a currency in
which securities to be acquired are denominated is projected,
30
thereby increasing the cost of such securities, a Fund may buy
call options on the foreign currency. The purchase of such
options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to a Fund from purchases
of foreign currency options will be reduced by the amount of the
premium and related transaction costs. In addition, if currency
exchange rates do not move in the direction or to the extent
projected, a Fund could sustain losses on transactions in foreign
currency options that would require such Fund to forego a portion
or all of the benefits of advantageous changes in those rates.
The Funds may also write options on foreign currencies. For
example, to hedge against a potential decline in the U.S. dollar
value of foreign currency denominated securities due to adverse
fluctuations in exchange rates, a Fund could, instead of
purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most
likely not be exercised and the decline in value of portfolio
securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a
potential increase in the U.S. dollar cost of securities to be
acquired, a Fund could write a put option on the relevant
currency which, if rates move in the manner projected, should
expire unexercised and allow that Fund to hedge the increased
cost up to the amount of the premium. As in the case of other
types of options, however, the writing of a foreign currency
option will constitute only a partial hedge up to the amount of
the premium. If exchange rates do not move in the expected
direction, the option may be exercised and a Fund would be
required to buy or sell the underlying currency at a loss which
may not be offset by the amount of the premium. Through the
writing of options on foreign currencies, a Fund also may lose
all or a portion of the benefits which might otherwise have been
obtained from favorable movements in exchange rates.
31
The Funds may write covered call options on foreign currencies. A
call option written on a foreign currency by a Fund is "covered"
if that Fund owns the foreign currency underlying the call or has
an absolute and immediate right to acquire that foreign currency
without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon
conversion or exchange of other foreign currencies held in its
portfolio. A call option is also covered if a Fund has a call on
the same foreign currency in the same principal amount as the
call written if the exercise price of the call held (i) is equal
to or less than the exercise price of the call written or (ii) is
greater than the exercise price of the call written, if the
difference is maintained by such Fund in cash or other liquid
assets in a segregated account with the Funds' custodian.
The Funds also may write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is
for cross-hedging purposes if it is designed to provide a hedge
against a decline due to an adverse change in the exchange rate
in the U.S. dollar value of a security which a Fund owns or has
the right to acquire and which is denominated in the currency
underlying the option. Call options on foreign currencies which
are entered into for cross-hedging purposes are not covered.
However, in such circumstances, a Fund will collateralize the
option by segregating cash or other liquid assets in an amount
not less than the value of the underlying foreign currency in
U.S. dollars marked-to-market daily.
OPTIONS ON SECURITIES. In an effort to increase current income
and to reduce fluctuations in net asset value, the Funds may
write covered put and call options and buy put and call options
on securities that are traded on United States and foreign
securities exchanges and over-the-counter. The Funds may write
and buy options on the same types of securities that the Funds
may purchase directly.
A put option written by a Fund is "covered" if that Fund (i)
segregates cash not available for investment or other liquid
32
assets with a value equal to the exercise price of the put with
the Funds' custodian or (ii) holds a put on the same security and
in the same principal amount as the put written and the exercise
price of the put held is equal to or greater than the exercise
price of the put written. The premium paid by the buyer of an
option will reflect, among other things, the relationship of the
exercise price to the market price and the volatility of the
underlying security, the remaining term of the option, supply and
demand and interest rates.
A call option written by a Fund is "covered" if that Fund owns
the underlying security covered by the call or has an absolute
and immediate right to acquire that security without additional
cash consideration (or for additional cash consideration held in
a segregated account by the Funds' custodian) upon conversion or
exchange of other securities held in its portfolio. A call option
is also deemed to be covered if a Fund holds a call on the same
security and in the same principal amount as the call written and
the exercise price of the call held (i) is equal to or less than
the exercise price of the call written or (ii) is greater than
the exercise price of the call written if the difference is
maintained by that Fund in cash and other liquid assets in a
segregated account with its custodian.
The Funds also may write call options that are not covered for
cross-hedging purposes. A Fund collateralizes its obligation
under a written call option for cross-hedging purposes by
segregating cash or other liquid assets in an amount not less
than the market value of the underlying security,
marked-to-market daily. A Fund would write a call option for
cross-hedging purposes, instead of writing a covered call option,
when the premium to be received from the cross-hedge transaction
would exceed that which would be received from writing a covered
call option and its portfolio manager believes that writing the
option would achieve the desired hedge.
The writer of an option may have no control over when the
underlying securities must be sold, in the case of a call option,
or
33
bought, in the case of a put option, since with regard to certain
options, the writer may be assigned an exercise notice at any
time prior to the termination of the obligation. Whether or not
an option expires unexercised, the writer retains the amount of
the premium. This amount, of course, may, in the case of a
covered call option, be offset by a decline in the market value
of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from
the sale of the underlying security. If a put option is
exercised, the writer must fulfill the obligation to buy the
underlying security at the exercise price, which will usually
exceed the then market value of the underlying security.
The writer of an option that wishes to terminate its obligation
may effect a "closing purchase transaction." This is accomplished
by buying an option of the same series as the option previously
written. The effect of the purchase is that the writer's position
will be canceled by the clearing corporation. However, a writer
may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who
is the holder of an option may liquidate its position by
effecting a "closing sale transaction." This is accomplished by
selling an option of the same series as the option previously
bought. There is no guarantee that either a closing purchase or a
closing sale transaction can be effected.
In the case of a written call option, effecting a closing
transaction will permit a Fund to write another call option on
the underlying security with either a different exercise price or
expiration date or both. In the case of a written put option,
such transaction will permit a Fund to write another put option
to the extent that the exercise price is secured by other liquid
assets. Effecting a closing transaction also will permit a Fund
to use the cash or proceeds from the concurrent sale of any
securities subject to the option for other investments. If a Fund
desires to sell a particular security from its portfolio on which
it has written a call option, such Fund
34
will effect a closing transaction prior to or concurrent with the
sale of the security.
A Fund will realize a profit from a closing transaction if the
price of the purchase transaction is less than the premium
received from writing the option or the price received from a
sale transaction is more than the premium paid to buy the option.
A Fund will realize a loss from a closing transaction if the
price of the purchase transaction is more than the premium
received from writing the option or the price received from a
sale transaction is less than the premium paid to buy the option.
Because increases in the market of a call option generally will
reflect increases in the market price of the underlying security,
any loss resulting from the repurchase of a call option is likely
to be offset in whole or in part by appreciation of the
underlying security owned by a Fund.
An option position may be closed out only where a secondary
market for an option of the same series exists. If a secondary
market does not exist, the Fund may not be able to effect closing
transactions in particular options and the Fund would have to
exercise the options in order to realize any profit. If a Fund is
unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon
exercise. The absence of a liquid secondary market may be due to
the following: (i) insufficient trading interest in certain
options, (ii) restrictions imposed by a national securities
exchange ("Exchange") on which the option is traded on opening or
closing transactions or both, (iii) trading halts, suspensions or
other restrictions imposed with respect to particular classes or
series of options or underlying securities, (iv) unusual or
unforeseen circumstances that interrupt normal operations on an
Exchange, (v) the facilities of an Exchange or of the Options
Clearing Corporation ("OCC") may not at all times be adequate to
handle current trading volume, or (vi) one or more Exchanges
could, for economic or other reasons, decide or be compelled at
some future date to discontinue the trading of options (or a
particular class or
35
series of options), in which event the secondary market on that
Exchange (or in that class or series of options) would cease to
exist, although outstanding options on that Exchange that had
been issued by the OCC as a result of trades on that Exchange
would continue to be exercisable in accordance with their terms.
A Fund may write options in connection with buy-and-write
transactions. In other words, a Fund may buy a security and then
write a call option against that security. The exercise price of
such call will depend upon the expected price movement of the
underlying security. The exercise price of a call option may be
below ("in-the-money"), equal to ("at-the-money") or above ("out-
of-the-money") the current value of the underlying security at
the time the option is written. Buy-and-write transactions using
in-the-money call options may be used when it is expected that
the price of the underlying security will remain flat or decline
moderately during the option period. Buy-and-write transactions
using at-the-money call options may be used when it is expected
that the price of the underlying security will remain fixed or
advance moderately during the option period. Buy-and-write
transactions using out-of-the-money call options may be used when
it is expected that the premiums received from writing the call
option plus the appreciation in the market price of the
underlying security up to the exercise price will be greater than
the appreciation in the price of the underlying security alone.
If the call options are exercised in such transactions, a Fund's
maximum gain will be the premium received by it for writing the
option, adjusted upwards or downwards by the difference between
that Fund's purchase price of the security and the exercise
price. If the options are not exercised and the price of the
underlying security declines, the amount of such decline will be
offset by the amount of premium received.
The writing of covered put options is similar in terms of risk
and return characteristics to buy-and-write transactions. If the
market price of the underlying security rises or otherwise is
above the exercise price, the put option will expire worthless
and a Fund's
36
gain will be limited to the premium received. If the market price
of the underlying security declines or otherwise is below the
exercise price, a Fund may elect to close the position or take
delivery of the security at the exercise price and that Fund's
return will be the premium received from the put options minus
the amount by which the market price of the security is below the
exercise price.
A Fund may buy put options to hedge against a decline in the
value of its portfolio. By using put options in this way, a Fund
will reduce any profit it might otherwise have realized in the
underlying security by the amount of the premium paid for the put
option and by transaction costs.
A Fund may buy call options to hedge against an increase in the
price of securities that it may buy in the future. The premium
paid for the call option plus any transaction costs will reduce
the benefit, if any, realized by such Fund upon exercise of the
option, and, unless the price of the underlying security rises
sufficiently, the option may expire worthless to that Fund.
EURODOLLAR INSTRUMENTS. A Fund may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated
futures contracts or options thereon which are linked to the
London Interbank Offered Rate ("LIBOR"), although foreign
currency-denominated instruments are available from time to time.
Eurodollar futures contracts enable purchasers to obtain a fixed
rate for the lending of funds and sellers to obtain a fixed rate
for borrowings. A Fund might use Eurodollar futures contracts and
options thereon to hedge against changes in LIBOR, to which many
interest rate swaps and fixed-income instruments are linked.
SWAPS AND SWAP-RELATED PRODUCTS. A Fund may enter into interest
rate swaps, caps and floors on either an asset-based or
liability-based basis, depending upon whether it is hedging its
assets or its liabilities, and will usually enter into interest
rate swaps on a net basis (i.e., the two payment streams are
netted out, with a Fund receiving or paying, as the case may be,
only the
37
net amount of the two payments). The net amount of the excess, if
any, of a Fund's obligations over its entitlement with respect to
each interest rate swap will be calculated on a daily basis and
an amount of cash or other liquid assets having an aggregate net
asset value at least equal to the accrued excess will be
maintained in a segregated account by the Funds' custodian. If a
Fund enters into an interest rate swap on other than a net basis,
it would maintain a segregated account in the full amount accrued
on a daily basis of its obligations with respect to the swap. A
Fund will not enter into any interest rate swap, cap or floor
transaction unless the unsecured senior debt or the claims-paying
ability of the other party thereto is rated in one of the three
highest rating categories of at least one NRSRO at the time of
entering into such transaction. Janus Capital will monitor the
creditworthiness of all counterparties on an ongoing basis. If
there is a default by the other party to such a transaction, a
Fund will have contractual remedies pursuant to the agreements
related to the transaction.
The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap
documentation. Janus Capital has determined that, as a result,
the swap market has become relatively liquid. Caps and floors are
more recent innovations for which standardized documentation has
not yet been developed and, accordingly, they are less liquid
than swaps. To the extent a Fund sells (i.e., writes) caps and
floors, it will segregate cash or other liquid assets having an
aggregate net asset value at least equal to the full amount,
accrued on a daily basis, of its obligations with respect to any
caps or floors.
There is no limit on the amount of interest rate swap
transactions that may be entered into by a Fund. These
transactions may in some instances involve the delivery of
securities or other underlying assets by a Fund or its
counterparty to collateralize obligations under the swap. Under
the documentation currently used in those markets, the risk of
loss with respect to interest rate swaps is limited to the net
amount of the payments that a Fund is
38
contractually obligated to make. If the other party to an
interest rate swap that is not collateralized defaults, a Fund
would risk the loss of the net amount of the payments that it
contractually is entitled to receive. A Fund may buy and sell
(i.e., write) caps and floors without limitation, subject to the
segregation requirement described above.
ADDITIONAL RISKS OF OPTIONS ON FOREIGN CURRENCIES, FORWARD
CONTRACTS AND FOREIGN INSTRUMENTS. Unlike transactions entered
into by the Funds in futures contracts, options on foreign
currencies and forward contracts are not traded on contract
markets regulated by the CFTC or (with the exception of certain
foreign currency options) by the SEC. To the contrary, such
instruments are traded through financial institutions acting as
market-makers, although foreign currency options are also traded
on certain Exchanges, such as the Philadelphia Stock Exchange and
the Chicago Board Options Exchange, subject to SEC regulation.
Similarly, options on currencies may be traded over-the-counter.
In an over-the-counter trading environment, many of the
protections afforded to Exchange participants will not be
available. For example, there are no daily price fluctuation
limits, and adverse market movements could therefore continue to
an unlimited extent over a period of time. Although the buyer of
an option cannot lose more than the amount of the premium plus
related transaction costs, this entire amount could be lost.
Moreover, an option writer and a buyer or seller of futures or
forward contracts could lose amounts substantially in excess of
any premium received or initial margin or collateral posted due
to the potential additional margin and collateral requirements
associated with such positions.
Options on foreign currencies traded on Exchanges are within the
jurisdiction of the SEC, as are other securities traded on
Exchanges. As a result, many of the protections provided to
traders on organized Exchanges will be available with respect to
such transactions. In particular, all foreign currency option
positions entered into on an Exchange are cleared and guaranteed
39
by the OCC, thereby reducing the risk of counterparty default.
Further, a liquid secondary market in options traded on an
Exchange may be more readily available than in the over-the-
counter market, potentially permitting a Fund to liquidate open
positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency
options, however, is subject to the risks of the availability of
a liquid secondary market described above, as well as the risks
regarding adverse market movements, margining of options written,
the nature of the foreign currency market, possible intervention
by governmental authorities and the effects of other political
and economic events. In addition, exchange-traded options on
foreign currencies involve certain risks not presented by the
over-the-counter market. For example, exercise and settlement of
such options must be made exclusively through the OCC, which has
established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that
foreign governmental restrictions or taxes would prevent the
orderly settlement of foreign currency option exercises, or would
result in undue burdens on the OCC or its clearing member, impose
special procedures on exercise and settlement, such as technical
changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
In addition, options on U.S. government securities, futures
contracts, options on futures contracts, forward contracts and
options on foreign currencies may be traded on foreign exchanges
and over-the-counter in foreign countries. Such transactions are
subject to the risk of governmental actions affecting trading in
or the prices of foreign currencies or securities. The value of
such positions also could be adversely affected by (i) other
complex foreign political and economic factors, (ii) lesser
availability than in the United States of data on which to make
trading decisions, (iii) delays in a Fund's ability to act upon
economic events
40
occurring in foreign markets during non-business hours in the
United States, (iv) the imposition of different exercise and
settlement terms and procedures and margin requirements than in
the United States, and (v) low trading volume.
41
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
As stated in the Prospectuses, each Fund has an Investment
Advisory Agreement with Janus Capital, 100 Fillmore Street,
Denver, Colorado 80206-4928. Each Advisory Agreement provides
that Janus Capital will furnish continuous advice and
recommendations concerning the Funds' investments, provide office
space for the Funds, and pay the salaries, fees and expenses of
all Fund officers and of those Trustees who are interested
persons of Janus Capital. Janus Capital also may make payments to
selected broker-dealer firms or institutions which perform
recordkeeping or other services with respect to shareholder
accounts. The minimum aggregate size required for eligibility for
such payments, and the factors in selecting the broker-dealer
firms and institutions to which they will be made, are determined
from time to time by Janus Capital. Janus Capital is also
authorized to perform the management and administrative services
necessary for the operation of the Funds.
The Funds pay custodian and transfer agent fees and expenses,
brokerage commissions and dealer spreads and other expenses in
connection with the execution of portfolio transactions, legal
and accounting expenses, interest and taxes, trade or other
investment company organization dues and expenses, registration
fees, expenses of shareholders' meetings and reports to
shareholders, fees and expenses of Trustees who are not
affiliated with Janus Capital, costs of preparing, printing and
mailing the Funds' Prospectuses and SAI to current shareholders
and other costs of complying with applicable laws regulating the
sale of Fund shares. Pursuant to the Advisory Agreements, Janus
Capital furnishes certain other services, including net asset
value determination and fund accounting, recordkeeping, and blue
sky registration and monitoring services, for which the Funds may
reimburse Janus Capital for its costs.
Each of the Funds have agreed to compensate Janus Capital for its
services by the monthly payment of a fee at the annual rate of
42
0.65% of the average daily net assets of each Fund. The following
table summarizes the advisory fees paid by the Funds for the last
three fiscal periods of each Fund. The information below is for
fiscal periods ended October 31. The information presented in the
table below reflects the management fees in effect during each of
the periods shown.
<Table>
<Caption>
2001 2000(1) 1999
Fund Name Advisory Fees Advisory Fees Advisory Fees
- ---------------------------------------------------------------------------------------------
Janus Fund $222,611,251 $293,095,164 $188,515,455
Janus Twenty Fund $131,931,417 $224,254,404 $144,062,829
Janus Venture Fund $ 8,532,931 $ 16,377,929 $ 9,179,171
Janus Olympus Fund $ 30,986,084 $ 49,402,033 $ 15,147,815
Janus Worldwide Fund $181,794,280 $251,412,428 $122,952,544
Janus Overseas Fund $ 45,133,454 $ 64,199,188 $ 30,154,085
Janus Global Life Sciences Fund $ 19,225,549 $ 19,507,344 $ 1,422,165(2)
Janus Global Technology Fund $ 26,064,028 $ 57,844,006 $ 7,158,824(2)
</Table>
(1) Effective January 31, 2000, the management fee paid by each Fund was changed
to 0.65% of the average daily net assets of such Fund.
(2) December 31, 1998 (inception) to October 31, 1999.
Each Fund's Advisory Agreement is dated April 3, 2002 and will
continue in effect until July 1, 2002, and thereafter from year
to year so long as such continuance is approved annually by a
majority of the Funds' Trustees who are not parties to the
Advisory Agreements or interested persons of any such party, and
by either a majority of the outstanding voting shares of each
Fund or the Trustees of the Funds. Each Advisory Agreement (i)
may be terminated without the payment of any penalty by a Fund or
Janus Capital on 60 days' written notice; (ii) terminates
automatically in the event of its assignment; and (iii)
generally, may not be amended without the approval by vote of a
majority of the Trustees of the affected Fund, including the
Trustees who are not interested persons of that Fund or Janus
Capital and, to the extent required by the 1940 Act, the vote of
a majority of the outstanding voting securities of that Fund.
43
Janus Capital is an indirect subsidiary of Stilwell Financial
Inc. ("Stilwell"), a publicly traded holding company with
principal operations in financial asset management businesses.
Stilwell, through its subsidiaries, indirectly owns approximately
92% of Janus Capital, and certain Janus Capital employees
directly own approximately 8%.
In approving the Funds' existing Advisory Agreements, the
Trustees considered various matters relating to the possible
effects on Janus Capital and the Funds of the expiration of Mr.
Bailey's contractual management rights with respect to Janus
Capital, including Stilwell's intentions regarding the
preservation and strengthening of Janus Capital's business and
existing and proposed incentive compensation arrangements for key
Janus Capital employees.
In addition, the Trustees considered a wide range of information
of the type they regularly consider when determining whether to
continue the Funds' Advisory Agreements as in effect from year to
year. The Trustees considered information about, among other
things:
- Janus Capital and its personnel (including particularly those
personnel with responsibilities for providing services to the
Funds), resources and investment process;
- the terms of each Advisory Agreement;
- the scope and quality of the services that Janus Capital has
been providing to the Funds;
- the investment performance of each Fund and of comparable funds
managed by other advisers over various periods;
- the advisory fee rates payable to Janus Capital by the Funds
and by other funds and client accounts managed by Janus
Capital, and payable by comparable funds managed by other
advisers;
44
- the total expense ratio of each Fund and of comparable funds
managed by other advisers;
- compensation payable by the Funds to affiliates of Janus
Capital for other services;
- the profitability to Janus Capital and its affiliates of their
relationships with the Funds; and
- Janus Capital's use of the Funds' portfolio brokerage
transactions to obtain research benefiting the Funds or other
Janus Capital clients at a cost that may be in excess of the
amount other brokers would charge or to reduce certain
out-of-pocket expenses otherwise payable by the Funds.
Janus Capital acts as sub-adviser for a number of private-label
mutual funds and provides separate account advisory services for
institutional accounts. Investment decisions for each account
managed by Janus Capital, including the Funds, are made
independently from those for any other account that is or may in
the future become managed by Janus Capital or its affiliates. If,
however, a number of accounts managed by Janus Capital are
contemporaneously engaged in the purchase or sale of the same
security, the orders may be aggregated and/or the transactions
may be averaged as to price and allocated to each account in
accordance with allocation procedures adopted by Janus Capital.
Partial fills for the accounts of two or more portfolio managers
will be allocated pro rata under procedures adopted by Janus
Capital. In some cases, these allocation procedures may adversely
affect the price paid or received by an account or the size of
the position obtained or liquidated for an account. In others,
however, the accounts' ability to participate in volume
transactions may produce better executions and prices for the
accounts.
With respect to allocations of initial public offerings ("IPOs"),
under IPO allocation procedures adopted by Janus Capital,
accounts will participate in an IPO if the portfolio manager
believes the IPO is an appropriate investment based on the
account's investment restrictions, risk profile, asset
composition,
45
and/or cash levels. These IPO allocation procedures require that
each account be assigned to a pre-defined group ("IPO Group"),
based on objective criteria set forth in the procedures.
Generally, an account may not participate in an IPO unless it is
assigned to an IPO Group that correlates with the pre-offering
market capitalization ("IPO Classification") of the company. If,
however, the portfolio manager intends to build a long-term
position in the company and purchases securities in both the
initial offering and in the immediate aftermarket, then all
participating portfolio managers' clients will receive the same
proportion of IPO shares to aftermarket shares, resulting in a
blended price equal to the average price paid for all IPO and
immediate aftermarket shares. If there is no immediate
aftermarket activity, all shares purchased will be allocated pro
rata to the participating manager's accounts in the IPO Group
corresponding to the IPO Classification, subject to a de minimis
standard. In situations where a portfolio manager wants to take a
small position in a security, an exception to this de minimis
standard may be allowed. These IPO allocation procedures may
result in certain accounts, particularly larger accounts,
receiving fewer IPOs than other accounts, which may impact
performance.
Janus Capital is permitted to adjust its allocation procedures to
eliminate fractional shares or odd lots, and has the discretion
to deviate from its allocation procedures in certain
circumstances. For example, additional securities may be
allocated to a portfolio manager who is instrumental in
originating or developing an investment opportunity or to comply
with a portfolio manager's request to ensure that his or her
accounts receive sufficient securities to satisfy specialized
investment objectives.
Pursuant to an exemptive order granted by the SEC, the Funds and
other funds advised by Janus Capital may also transfer daily
uninvested cash balances into one or more joint trading accounts.
Assets in the joint trading accounts are invested in money market
instruments and the proceeds are allocated to the participating
funds on a pro rata basis.
46
Each account managed by Janus Capital has its own investment
objective and policies and is managed accordingly by a particular
portfolio manager or team of portfolio managers. As a result,
from time to time two or more different managed accounts may
pursue divergent investment strategies with respect to
investments or categories of investments.
The Funds' portfolio managers are not permitted to purchase and
sell securities for their own accounts except under the limited
exceptions contained in the Code of Ethics, which applies to
Directors/Trustees of Janus Capital and the Funds and employees
of, and persons working on a contractual basis for, Janus Capital
and its subsidiaries. The Code of Ethics is on file with and
available from the SEC through the SEC Web site at www.sec.gov.
The Code of Ethics requires investment personnel, inside
Directors/Trustees of Janus Capital and the Funds and certain
other designated employees deemed to have access to current
trading information to pre-clear all transactions in securities
not otherwise exempt under the Code of Ethics. Requests for
trading authorization will be denied when, among other reasons,
the proposed personal transaction would be contrary to the
provisions of the Code of Ethics or would be deemed to adversely
affect any transaction then known to be under consideration for
or to have been effected on behalf of any client account,
including the Funds.
In addition to the pre-clearance requirement described above, the
Code of Ethics subjects such personnel to various trading
restrictions and reporting obligations. All reportable
transactions are required to be reviewed for compliance with the
Code of Ethics. Those persons also may be required under certain
circumstances to forfeit their profits made from personal
trading.
The provisions of the Code of Ethics are administered by and
subject to exceptions authorized by Janus Capital.
47
CUSTODIAN, TRANSFER AGENT AND CERTAIN
AFFILIATIONS
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, P.O. Box 0351, Boston,
Massachusetts 02117-0351 is the custodian of the domestic
securities and cash of the Funds. State Street is the designated
Foreign Custody Manager (as the term is defined in Rule 17f-5
under the 1940 Act) of the Funds' securities and cash held
outside the United States. The Funds' Trustees have delegated to
State Street certain responsibilities for such assets, as
permitted by Rule 17f-5. State Street and the foreign
subcustodians selected by it hold the Funds' assets in
safekeeping and collect and remit the income thereon, subject to
the instructions of each Fund.
Janus Services LLC, P.O. Box 173375, Denver, Colorado 80217-3375,
a wholly-owned subsidiary of Janus Capital, is the Funds'
transfer agent. In addition, Janus Services provides certain
other administrative, recordkeeping and shareholder relations
services to the Funds. For transfer agency and other services,
Janus Services receives a fee calculated at an annual rate of
0.16% of average net assets of each Fund. In addition, the Funds
pay DST Systems, Inc. ("DST"), a subsidiary of Stilwell, license
fees at the annual rate of $3.06 per shareholder account for the
use of DST's shareholder accounting system. The Funds also pay
DST $1.10 per closed shareholder account, as well as postage and
forms costs that a DST affiliate incurred in mailing Fund
shareholder transaction confirmations.
Prior to June 1, 2001, the Funds also paid DST a monthly base fee
for the use of its portfolio and fund accounting system, of $265
to $1,323 per month based on the number of Janus funds using the
system and an asset charge of $1 per million dollars of net
assets (not to exceed $500 per month). Effective June 1, 2001,
State Street Bank and Trust Company acquired the portfolio and
fund accounting system of DST.
The Trustees have authorized the Funds to use an affiliate of DST
as introducing broker for certain Fund portfolio transactions.
Brokerage commissions paid on such transactions may be used as a
means to reduce Fund expenses through credits against the
48
charges of DST and its affiliates. See "Portfolio Transactions
and Brokerage."
Janus Distributors LLC, 100 Fillmore Street, Denver, Colorado
80206-4928, a wholly-owned subsidiary of Janus Capital, is a
distributor of the Funds. Janus Distributors is registered as a
broker-dealer under the Securities Exchange Act of 1934 and is a
member of the National Association of Securities Dealers, Inc.
Janus Distributors acts as the agent of the Funds in connection
with the sale of their shares in all states in which the shares
are registered and in which Janus Distributors is qualified as a
broker-dealer. Under the Distribution Agreement, Janus
Distributors continuously offers the Funds' shares and accepts
orders at net asset value. No sales charges are paid by
investors. Promotional expenses in connection with offers and
sales of shares are paid by Janus Capital.
49
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
Decisions as to the assignment of portfolio business for the
Funds and negotiation of its commission rates are made by Janus
Capital, whose policy is to seek to obtain the "best execution"
of all portfolio transactions (the best net prices under the
circumstances based upon a number of factors including and
subject to the factors discussed below) except to the extent that
Janus Capital may be permitted to pay higher commissions for
research services as described below. The Funds may trade foreign
securities in foreign countries because the best available market
for these securities is often on foreign exchanges. In
transactions on foreign stock exchanges, brokers' commissions are
frequently fixed and are often higher than in the United States,
where commissions are negotiated.
Janus Capital considers a number of factors in seeking best
execution in selecting brokers and dealers and in negotiating
commissions. Those factors include, but are not limited to: Janus
Capital's knowledge of currently available negotiated commission
rates or prices of securities currently available and other
current transaction costs; the nature of the security being
traded; the size and type of the transaction; the nature and
character of the markets for the security to be purchased or
sold; the desired timing of the trade; the activity existing and
expected in the market for the particular security;
confidentiality, including trade anonymity; liquidity; the
quality of the execution, clearance and settlement services;
financial stability of the broker or dealer; and rebates of
commissions by a broker to a Fund or to a third party service
provider to the Fund to pay Fund expenses. In addition, Janus
Capital may consider the value of research products or services
provided by broker-dealers as a factor in selecting brokers and
dealers and in negotiating commissions. In recognition of the
value of the foregoing factors, Janus Capital may place portfolio
transactions with a broker or dealer with whom it has negotiated
a commission that is in excess of the commission another broker
or dealer would have charged for effecting that transaction if
Janus Capital determines in good faith that such amount of
commission
50
was reasonable in relation to the value of the brokerage and
research provided by such broker or dealer viewed in terms of
either that particular transaction or of the overall
responsibilities of Janus Capital. Research may include
furnishing advice, either directly or through publications or
writings, as to the value of securities, the advisability of
purchasing or selling specific securities and the availability of
securities or purchasers or sellers of securities; furnishing
seminars, information, analyses and reports concerning issuers,
industries, securities, trading markets and methods, legislative
developments, changes in accounting practices, economic factors
and trends and portfolio strategy; access to research analysts,
corporate management personnel, industry experts, economists and
government officials; comparative performance evaluation and
technical measurement services and quotation services, and
products and other services (such as third party publications,
reports and analyses, and computer and electronic access,
equipment, software, information and accessories that deliver,
process or otherwise utilize information, including the research
described above) that assist Janus Capital in carrying out its
responsibilities. Research received from brokers or dealers is
supplemental to Janus Capital's own research efforts. Most
brokers and dealers used by Janus Capital provide research and
other services described above. Much of the research provided to
Janus Capital by broker-dealers would otherwise be available to
Janus Capital for a cash payment. In some cases, research is
generated by third parties, but is provided to Janus Capital
through broker-dealers. For example, Janus Capital has
arrangements with broker-dealers to allocate brokerage in
exchange for, among other things, third-party research reports
relating to specific industry fundamentals and trends,
third-party research reports providing analysis of micro and
macro economic trends, and access to databases providing
financial, market, economic and fundamental data. Because Janus
Capital receives research from broker-dealers, Janus Capital may
have an incentive to continue to use those broker-dealers to
effect transactions. Janus Capital may also direct trades to a
broker-dealer with the instruction that the broker-dealer
51
execute the transaction, but direct a portion of the commission
to another broker-dealer that supplies Janus Capital with
research services and/or products.
For the fiscal year ended October 31, 2001, the total brokerage
commissions paid by the Funds to brokers and dealers in
transactions identified for execution primarily on the basis of
research and other services provided to the Funds are summarized
below:
<Table>
<Caption>
Fund Name Commissions Transactions
- ---------------------------------------------------------------------------------------
Janus Fund $1,848,970 $1,046,117,654
Janus Twenty Fund $ 761,226 $ 656,688,582
Janus Venture Fund $ 47,336 $ 29,695,017
Janus Olympus Fund $ 264,366 $ 213,449,852
Janus Worldwide Fund $ 971,657 $ 710,298,512
Janus Overseas Fund $ 88,758 $ 64,366,258
Janus Global Life Sciences Fund $ 139,283 $ 143,068,022
Janus Global Technology Fund $ 5,976 $ 3,703,447
</Table>
Janus Capital may use research products and services in servicing
other accounts in addition to the Funds. Fixed-income related
research products and services may be paid for by commissions
generated by equity trades. If Janus Capital determines that any
research product or service has a mixed use, such that it also
serves functions that do not assist in the investment decision-
making process, Janus Capital may allocate the costs of such
service or product accordingly. Only that portion of the product
or service that Janus Capital determines will assist it in the
investment decision-making process may be paid for in brokerage
commission dollars. Such allocation may create a conflict of
interest for Janus Capital.
Janus Capital does not enter into agreements with any brokers
regarding the placement of securities transactions because of the
research services they provide. It does, however, have an
internal procedure for allocating transactions in a manner
consistent with its execution policy to brokers that it has
identified as providing
52
superior execution and research, research-related products or
services which benefit its advisory clients, including the Funds.
Research products and services incidental to effecting securities
transactions furnished by brokers or dealers may be used in
servicing any or all of Janus Capital's clients and such research
may not necessarily be used by Janus Capital in connection with
the accounts which paid commissions to the broker-dealer
providing such research products and services.
Janus Capital may consider sales of Fund shares by a broker-
dealer or the recommendation of a broker-dealer to its customers
that they purchase Fund shares as a factor in the selection of
broker-dealers to execute Fund portfolio transactions. Janus
Capital may also consider payments made by brokers effecting
transactions for a Fund i) to the Fund or ii) to other persons on
behalf of the Fund for services provided to the Fund for which it
would be obligated to pay. In placing portfolio business with
such broker-dealers, Janus Capital will seek the best execution
of each transaction.
When the Funds purchase or sell a security in the over-the-
counter market, the transaction takes place directly with a
principal market-maker, without the use of a broker, except in
those circumstances where in the opinion of Janus Capital better
prices and executions will be achieved through the use of a
broker.
The Funds' Trustees have authorized Janus Capital to place
transactions with DST Securities, Inc. ("DSTS"), a wholly-owned
broker-dealer subsidiary of DST. Janus Capital may do so if it
reasonably believes that the quality of the transaction and the
associated commission are fair and reasonable and if, overall,
the associated transaction costs, net of any credits described
above under "Custodian, Transfer Agent and Certain Affiliations,"
are lower than the net costs that would otherwise be incurred
through other brokerage firms that provide comparable best
execution.
53
The following table lists the total amount of brokerage
commissions paid by each Fund for the fiscal periods ending on
October 31st of each year:
<Table>
<Caption>
Fund Name 2001 2000 1999
- ----------------------------------------------------------------------------------------
Janus Fund $ 2,370,919 $41,869,391 $24,220,814
Janus Twenty Fund $ 985,784 $ 9,646,140 $ 6,924,862
Janus Venture Fund $ 133,600 $ 1,526,096 $ 1,688,512
Janus Olympus Fund $ 417,419 $ 6,958,829 $ 2,699,806
Janus Worldwide Fund $ 3,741,530 $53,216,732 $34,428,451
Janus Overseas Fund $ 943,739 $15,689,909 $12,656,978
Janus Global Life Sciences Fund $ 353,728 $ 5,115,448 $ 669,916(1)
Janus Global Technology Fund $ 81,755 $ 7,757,183 $ 1,303,894(1)
</Table>
(1) December 31, 1998 (inception) to October 31, 1999.
Included in such brokerage commissions are the following amounts
paid to DSTS, which served to reduce each Fund's out-of-pocket
expenses as follows:
<Table>
<Caption>
Commissions Paid Through
DSTS for the Period Reduction of % of Total % of Total
Fund Name Ended October 31, 2001* Expenses* Commissions+ Transactions
- ------------------------------------------------------------------------------------------------------
Janus Fund $710,427 $532,953 29.96% 28.59%
Janus Twenty Fund $ 85,320 $ 64,006 8.66% 8.78%
Janus Olympus Fund $ 58,569 $ 43,937 14.03% 10.38%
Janus Worldwide Fund $269,237 $201,272 7.20% 8.50%
Janus Global Life Sciences Fund $ 32,330 $ 24,253 9.14% 8.05%
Janus Global Technology Fund $ 19,000 $ 14,254 23.24% 28.51%
</Table>
* The difference between commissions paid through DSTS and expenses reduced
constitute commissions paid to an unaffiliated clearing broker.
+ Differences in the percentage of total commissions versus the percentage of
total transactions is due, in part, to variations among share prices and
number of shares traded, while average price per share commission rates were
substantially the same.
Note: Funds that did not execute trades with DSTS during the stated period are
not included in the table.
54
<Table>
<Caption>
Commission Paid Commission Paid
through DSTS for the through DSTS for the
Period Ended Reduction of Period Ended Reduction of
Fund Name October 31, 2000* Expenses* October 31, 1999* Expenses*
- ----------------------------------------------------------------------------------------------------------
Janus Fund $689,496 $517,122 $460,621 $345,465
Janus Twenty Fund $ 49,817 $ 37,363 $ 58,260 $ 43,695
Janus Venture Fund $ - $ - $ 878 $ 659
Janus Olympus Fund $ 52,620 $ 39,465 $ 6,177 $ 4,633
Janus Worldwide Fund $237,959 $178,469 $197,404 $148,053
Janus Overseas Fund $ 17,828 $ 13,371 $ 5,354 $ 4,015
Janus Global Life Sciences Fund $ 642 $ 481 $ - $ -
Janus Global Technology Fund $ 2,383 $ 1,788 $ - $ -
</Table>
* The difference between commissions paid through DSTS and expenses reduced
constitute commissions paid to an unaffiliated clearing broker.
The Funds may also place trades with E*Trade Securities
("E*Trade"), a registered broker-dealer and a wholly-owned
subsidiary of E*Trade Group, Inc. Janus Capital owns, in the
aggregate, more than 5% of the outstanding securities of E*Trade
Group in various accounts, including the Funds. By virtue of such
ownership, E*Trade Group is considered an affiliate of Janus
Capital for 1940 Act purposes. Because it is a wholly-owned
subsidiary of E*Trade Group, an affiliate of the Funds, E*Trade
is considered an affiliated broker of the Funds. The table below
sets forth the aggregate dollar amount of brokerage commissions
paid by each Fund to E*Trade for the fiscal year ended October
31, 2001. The Funds did not execute any transactions through
E*Trade during their fiscal years ended October 31, 1999 or
October 31, 2000. Funds not listed below did not pay any
commissions to E*Trade.
<Table>
<Caption>
Aggregate Commissions
Fund Name Paid to E*Trade
- -----------------------------------------------------------------------------------
Janus Fund $3,050
Janus Worldwide Fund $1,501
Janus Global Technology Fund $1,945
</Table>
55
For the most recent fiscal year ended October 31, 2001, the table
below shows the percentage of each Fund's aggregate brokerage
commissions paid to E*Trade and the percentage of each Fund's
aggregate dollar amount of transactions involving the payment of
commissions effected through E*Trade. Funds not listed below did
not pay any commissions to E*Trade.
<Table>
<Caption>
Percentage of Aggregate
Percentage of Aggregate Transactions Effected
Fund Name Commissions Paid to E*Trade Through E*Trade
- -----------------------------------------------------------------------------------------------
Janus Fund 0.01% 0.02%
Janus Worldwide Fund 0.003% 0.01%
Janus Global Technology Fund 0.04% 0.11%
</Table>
As of October 31, 2001, certain Funds owned securities of their
regular broker-dealers (or parents), as shown below:
<Table>
<Caption>
Value of
Name of Securities
Fund Name Broker-Dealer Owned
- ------------------------------------------------------------------------------
Janus Fund Charles Schwab Corp. $432,504,694
Janus Fund Goldman Sachs Group, Inc. 254,939,162
Janus Fund Merrill Lynch & Company, Inc. 298,585,195
Janus Twenty Fund Goldman Sachs Group, Inc. 534,952,051
Janus Twenty Fund Merrill Lynch & Company, Inc. 255,881,837
Janus Olympus Fund Goldman Sachs Group, Inc. 123,422,847
Janus Worldwide Fund Goldman Sachs Group, Inc. 136,529,888
</Table>
56
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The following are the Trustees and officers of the Trust,
together with a brief description of their principal occupations
during the last five years. Each Trustee has served in that
capacity since he was originally elected or appointed. In
addition, each Trustee is currently a Trustee of two other
registered investment companies advised by Janus Capital: Janus
Aspen Series and Janus Adviser Series. Collectively, these three
registered investment companies consist of 52 series or funds.
The Trustees do not serve a specified term of office. Each
Trustee will hold office until the termination of the Trust or
his earlier death, resignation, retirement, incapacity, or
removal. The retirement age for Trustees is 72. The Funds'
Nominating and Governance Committee will consider nominees for
the position of Trustee recommended by shareholders. Shareholders
may submit the name of a candidate for consideration by the
Committee by submitting their recommendations to the Trust's
Secretary.
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------
TRUSTEES
- ----------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS IN
FUND OTHER
POSITIONS PRINCIPAL OCCUPATIONS COMPLEX DIRECTORSHIPS
NAME, AGE AND HELD WITH LENGTH OF DURING THE PAST OVERSEEN BY HELD BY
ADDRESS FUND TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ----------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
- ----------------------------------------------------------------------------------------------------------
Thomas H. Bailey* President, 6/69-Present Until July 1, 2002, 52 N/A
100 Fillmore Street Chairman President and Chief
Denver, CO 80206 and Executive Officer of
Age 64 Trustee Janus Capital.
Formerly, President and
Director (1994-2002) of
the Janus Foundation;
Chairman and Director
(1978-2002) of Janus
Capital Corporation;
and Director
(1997-2001) of Janus
Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------
</Table>
* The Funds are treating Mr. Bailey as an "interested person" of the Trust by
virtue of his past positions and continuing relationships with Janus Capital.
57
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------
TRUSTEES
- ----------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS IN
FUND OTHER
POSITIONS PRINCIPAL OCCUPATIONS COMPLEX DIRECTORSHIPS
NAME, AGE AND HELD WITH LENGTH OF DURING THE PAST OVERSEEN BY HELD BY
ADDRESS FUND TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ----------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------
William F. McCalpin Trustee 6/02-Present Executive Vice 52 Founding
100 Fillmore Street President and Chief Director and
Denver, CO 80206 Operating Officer of Board Chair,
Age 45 The Rockefeller Solar
Brothers Fund (a Development
private family Foundation;
foundation). Formerly, Trustee and
Director of Investments Vice
(1991-1998) of The John President,
D. and Catherine T. Asian
MacArthur Foundation (a Cultural
private family Council.
foundation).
- ----------------------------------------------------------------------------------------------------------
John W. McCarter, Jr. Trustee 6/02-Present President and Chief 52 Chairman of
100 Fillmore Street Executive Officer of the Board,
Denver, CO 80206 The Field Museum of Divergence
Age 64 Natural History. LLC; Director
Formerly, Senior Vice of A.M.
President (1987-1997) Castle & Co.,
of Booz-Allen & Harris
Hamilton, Inc. (a Insight
management consulting Funds, W.W.
firm). Grainger,
Inc.; Trustee
of WTTW
(Chicago
public
television
station), the
University of
Chicago and
Chicago
Public
Education
Fund.
- ----------------------------------------------------------------------------------------------------------
Dennis B. Mullen Trustee 2/71-Present Private Investor. 52 N/A
100 Fillmore Street Formerly (1997-1998)
Denver, CO 80206 Chief Financial
Age 58 Officer - Boston Market
Concepts, Boston
Chicken, Inc., Golden,
CO (a restaurant
chain).
- ----------------------------------------------------------------------------------------------------------
</Table>
58
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------
TRUSTEES
- ----------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS IN
FUND OTHER
POSITIONS PRINCIPAL OCCUPATIONS COMPLEX DIRECTORSHIPS
NAME, AGE AND HELD WITH LENGTH OF DURING THE PAST OVERSEEN BY HELD BY
ADDRESS FUND TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- ----------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CNTD.)
- ----------------------------------------------------------------------------------------------------------
James T. Rothe Trustee 1/97-Present Professor of Business, 52 Director of
100 Fillmore Street University of Colorado, Optika, Inc.
Denver, CO 80206 Colorado Springs, CO. and NeoCore
Age 58 Formerly, Distinguished Corp.
Visiting Professor of
Business (2001-2002),
Thunderbird (American
Graduate School of
International
Management), Phoenix,
AZ; and Principal
(1988-1999) of
Phillips-Smith Retail
Group, Colorado
Springs, CO (a venture
capital firm).
- ----------------------------------------------------------------------------------------------------------
William D. Stewart Trustee 6/84-Present Corporate Vice 52 N/A
100 Fillmore Street President and General
Denver, CO 80206 Manager of MKS
Age 57 Instruments - HPS
Products, Boulder, CO
(a manufacturer of
vacuum fittings and
valves).
- ----------------------------------------------------------------------------------------------------------
Martin H. Waldinger Trustee 8/69-Present Consultant 52 N/A
100 Fillmore Street
Denver, CO 80206
Age 63
- ----------------------------------------------------------------------------------------------------------
</Table>
59
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------
OFFICERS
- ---------------------------------------------------------------------------------------------------------
TERM OF OFFICE*
NAME, AGE AND POSITIONS HELD WITH AND LENGTH OF TIME PRINCIPAL OCCUPATIONS DURING THE PAST
ADDRESS FUND SERVED FIVE YEARS
- ---------------------------------------------------------------------------------------------------------
William Bales** Executive Vice 2/97-Present Vice President of Janus Capital.
100 Fillmore Street President and Formerly, Analyst (1993-1997) for
Denver, CO 80206 Portfolio Manager Janus Capital Corporation.
Age 33 Janus Venture Fund
- ---------------------------------------------------------------------------------------------------------
Laurence Chang** Executive Vice 9/99-Present Vice President of Janus Capital.
100 Fillmore Street President and Formerly, Co-Portfolio Manager (1998-
Denver, CO 80206 Co-Portfolio 2000) of Janus Overseas Fund and
Age 36 Manager Analyst (1993-1998) for Janus Capital
Janus Worldwide Corporation.
Fund
- ---------------------------------------------------------------------------------------------------------
Helen Young Hayes**+ Executive Vice 2/93-Present Vice President and Managing Director
100 Fillmore Street President and of Investments of Janus Capital.
Denver, CO 80206 Co-Portfolio Formerly, Director (2000-2002) for
Age 39 Manager Janus Capital Corporation.
Janus Worldwide
Fund and Janus
Overseas Fund
- ---------------------------------------------------------------------------------------------------------
C. Mike Lu** Executive Vice 11/98-Present Vice President of Janus Capital.
100 Fillmore Street President and Formerly, Analyst, (1991-1998) for
Denver, CO 80206 Portfolio Manager Janus Capital Corporation.
Age 32 Janus Global
Technology Fund
- ---------------------------------------------------------------------------------------------------------
Brent A. Lynn** Executive Vice 1/01-Present Vice President of Janus Capital.
100 Fillmore Street President and Formerly, Analyst (1991-2001) for
Denver, CO 80206 Co-Portfolio Janus Capital Corporation.
Age 38 Manager
Janus Overseas Fund
- ---------------------------------------------------------------------------------------------------------
Thomas R. Malley** Executive Vice 11/98-Present Vice President of Janus Capital.
100 Fillmore Street President and Formerly, Analyst (1991- 1998) for
Denver, CO 80206 Portfolio Manager Janus Capital Corporation.
Age 33 Janus Global Life
Sciences Fund
- ---------------------------------------------------------------------------------------------------------
Blaine P. Rollins** Executive Vice 1/00-Present Vice President of Janus Capital.
100 Fillmore Street President and Formerly, Portfolio Manager (1996-
Denver, CO 80206 Portfolio Manager 1999) of Janus Balanced Fund and
Age 35 Janus Fund Janus Equity Income Fund.
- ---------------------------------------------------------------------------------------------------------
</Table>
* Officers are elected annually by the Trustees for a one-year term.
** "Interested person" of the Trust by virtue of positions with Janus Capital.
+ Ms. Young and Ms. Hayes are sisters.
60
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------
OFFICERS
- ---------------------------------------------------------------------------------------------------------
TERM OF OFFICE*
NAME, AGE AND POSITIONS HELD WITH AND LENGTH OF TIME PRINCIPAL OCCUPATIONS DURING THE PAST
ADDRESS FUND SERVED FIVE YEARS
- ---------------------------------------------------------------------------------------------------------
Scott W. Schoelzel** Executive Vice 8/97-Present Vice President of Janus Capital.
100 Fillmore Street President and Formerly, Portfolio Manager (1995-
Denver, CO 80206 Portfolio Manager 1997) of Janus Olympus Fund.
Age 43 Janus Twenty Fund
- ---------------------------------------------------------------------------------------------------------
Claire Young**+ Executive Vice 8/97-Present Vice President of Janus Capital.
100 Fillmore Street President and Formerly, Analyst (1992-1997) for
Denver, CO 80206 Portfolio Manager Janus Capital Corporation.
Age 36 Janus Olympus Fund
- ---------------------------------------------------------------------------------------------------------
Thomas A. Early** Vice President and 3/98-Present Vice President, General Counsel,
100 Fillmore Street General Counsel Secretary and Interim Director of
Denver, CO 80206 Janus Capital; Vice President,
Age 47 General Counsel, Secretary and
Director of Janus Services LLC, Janus
Capital International LLC and Janus
Institutional Services LLC; Vice
President, General Counsel and
Director to Janus International
(Asia) Limited and Janus
International Limited; Vice
President, General Counsel and
Secretary to Janus Distributors LLC
and the Janus Foundation; and
Director for Janus Capital Trust
Manager Limited and Janus World
Funds. Formerly, Director (2001) of
Janus Distributors, Inc.; Vice
President, General Counsel, Secretary
and Director (2000-2002) of Janus
International Holding, Inc.; and
Executive Vice President and General
Counsel/Mutual Funds (1994-1998) of
Prudential Insurance Company.
- ---------------------------------------------------------------------------------------------------------
Bonnie M. Howe** Vice President 12/99-Present Vice President and Assistant General
100 Fillmore Street Counsel to Janus Capital, Janus
Denver, CO 80206 Distributors LLC and Janus Services
Age 36 LLC. Formerly, Assistant Vice
President (1997-1999) and Associate
Counsel (1995-1999) for Janus Capital
Corporation and Assistant Vice
President (1998-2000) for Janus
Service Corporation.
- ---------------------------------------------------------------------------------------------------------
</Table>
* Officers are elected annually by the Trustees for a one-year term.
** "Interested person" of the Trust by virtue of positions with Janus Capital.
+ Ms. Young and Ms. Hayes are sisters.
61
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------
OFFICERS
- ---------------------------------------------------------------------------------------------------------
TERM OF OFFICE*
NAME, AGE AND POSITIONS HELD WITH AND LENGTH OF TIME PRINCIPAL OCCUPATIONS DURING THE PAST
ADDRESS FUND SERVED FIVE YEARS
- ---------------------------------------------------------------------------------------------------------
Kelley Abbott Howes** Vice President and 12/99-Present Vice President and Assistant General
100 Fillmore Street Secretary Counsel of Janus Capital, Janus
Denver, CO 80206 Distributors LLC and Janus Services
Age 36 LLC. Formerly, Assistant Vice
President (1997-1999) of Janus
Capital Corporation; Chief Compliance
Officer, Director and President
(1997-1999) of Janus Distributors
Inc.; and Assistant Vice President
(1998-2000) of Janus Service
Corporation.
- ---------------------------------------------------------------------------------------------------------
David R. Kowalski** Vice President 6/02-Present Vice President and Chief Compliance
100 Fillmore Street Officer of Janus Capital and Janus
Denver, CO 80206 Distributors LLC; and Assistant Vice
Age 45 President of Janus Services LLC.
Formerly, Senior Vice President and
Director (1985-2000) of Mutual Fund
Compliance for Van Kampen Funds.
- ---------------------------------------------------------------------------------------------------------
Glenn P. O'Flaherty** Treasurer and Chief 1/96-Present Vice President of Janus Capital.
100 Fillmore Street Accounting Officer Formerly, Director of Fund Accounting
Denver, CO 80206 (1991-1997) of Janus Capital
Age 43 Corporation.
- ---------------------------------------------------------------------------------------------------------
Loren M. Starr** Vice President and 9/01-Present Vice President of Finance, Treasurer,
100 Fillmore Street Chief Financial Chief Financial Officer and Interim
Denver, CO 80206 Officer Director of Janus Capital; Vice
Age 40 President of Finance, Treasurer and
Chief Financial Officer of Janus
Services LLC and Janus International
Limited; Vice President of Finance,
Treasurer, Chief Financial Officer
and Director of Janus Distributors
LLC, Janus Capital International LLC
and Janus Institutional Services LLC;
and Director of Janus Capital Trust
Manager Limited and Janus World
Funds. Formerly, Vice President of
Finance, Treasurer, Chief Financial
Officer (2001-2002) and Director
(2002) of Janus International
Holding, Inc.; Managing Director,
Treasurer and Head of Corporate
Finance and Reporting (1998-2001) for
Putnam Investments; and Senior Vice
President of Financial Planning and
Analysis (1996-1998) for Lehman
Brothers, Inc.
- ---------------------------------------------------------------------------------------------------------
</Table>
* Officers are elected annually by the Trustees for a one-year term.
** "Interested person" of the Trust by virtue of positions with Janus Capital.
62
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------
OFFICERS
- ---------------------------------------------------------------------------------------------------------
TERM OF OFFICE*
NAME, AGE AND POSITIONS HELD WITH AND LENGTH OF TIME PRINCIPAL OCCUPATIONS DURING THE PAST
ADDRESS FUND SERVED FIVE YEARS
- ---------------------------------------------------------------------------------------------------------
Heidi J. Walter** Vice President 4/00-Present Vice President and Assistant General
100 Fillmore Street Counsel to Janus Capital and Janus
Denver, CO 80206 Services LLC. Formerly, Vice
Age 34 President and Senior Legal Counsel
(1995-1999) for Stein Roe & Farnham,
Inc.
- ---------------------------------------------------------------------------------------------------------
</Table>
* Officers are elected annually by the Trustees for a one-year term.
** "Interested person" of the Trust by virtue of positions with Janus Capital.
63
The Trustees are responsible for major decisions relating to each
Fund's objective, policies and techniques. The Trustees also
supervise the operation of the Funds by their officers and review
the investment decisions of the officers, although they do not
actively participate on a regular basis in making such decisions.
The Board of Trustees has five standing committees that each
perform specialized functions: an Audit Committee, Brokerage
Committee, Money Market Committee, Nominating and Governance
Committee and Pricing Committee. Information about each of these
committees is provided in the following table:
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------
NUMBER OF MEETINGS
MEMBERS (AS OF HELD DURING LAST
FUNCTIONS JUNE 19, 2002) FISCAL YEAR
- --------------------------------------------------------------------------------------------------
AUDIT COMMITTEE Reviews the financial John W. McCarter, Jr. 4
reporting process, the (Chairman)
system of internal Dennis B. Mullen
control, the audit William D. Stewart
process, and the Trusts'
process for monitoring
compliance with investment
restrictions and
applicable laws and the
Trusts' Code of Ethics.
- --------------------------------------------------------------------------------------------------
BROKERAGE COMMITTEE Reviews and makes James T. Rothe 5
recommendations regarding (Chairman)
matters related to the William F. McCalpin
Trusts' use of brokerage Dennis B. Mullen
commissions and placement
of portfolio transactions.
- --------------------------------------------------------------------------------------------------
MONEY MARKET Reviews various matters Martin H. Waldinger 4
COMMITTEE related to the operations (Chairman)
of the Janus Money Market William F. McCalpin
Funds, including James T. Rothe
compliance with each
Trust's Money Market Fund
Procedures.
- --------------------------------------------------------------------------------------------------
</Table>
64
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------
NUMBER OF MEETINGS
MEMBERS (AS OF HELD DURING LAST
FUNCTIONS JUNE 19, 2002) FISCAL YEAR
- --------------------------------------------------------------------------------------------------
NOMINATING AND Identifies and recommends Dennis B. Mullen 3
GOVERNANCE COMMITTEE individuals for Trustee (Chairman)
membership, consults with John W. McCarter, Jr.
Management in planning William D. Stewart
Trustee meetings, and
oversees the
administration of, and
ensures the compliance
with, the Governance
Procedures and Guidelines
adopted by the Trusts.
- --------------------------------------------------------------------------------------------------
PRICING COMMITTEE Determines the fair value William D. Stewart 15
of restricted securities (Chairman)
and other securities for James T. Rothe
which market quotations Martin H. Waldinger
are not readily available,
pursuant to procedures
adopted by the Trustees.
- --------------------------------------------------------------------------------------------------
</Table>
65
The table below gives the dollar range of Shares of each Fund
described in this SAI, as well as the aggregate dollar range of
shares of all funds advised and sponsored by Janus Capital
(collectively, the "Janus Funds"), owned by each Trustee as of
December 31, 2001.
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
AGGREGATE DOLLAR
RANGE OF EQUITY
SECURITIES IN
ALL REGISTERED
INVESTMENT
COMPANIES
OVERSEEN BY
DOLLAR RANGE OF EQUITY TRUSTEE IN
NAME OF TRUSTEE SECURITIES IN THE FUNDS JANUS FUNDS
- --------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
- --------------------------------------------------------------------------------------------
THOMAS H. BAILEY Janus Fund Over $100,000 Over $100,000
Janus Twenty Fund $50,001-$100,000
Janus Venture Fund $50,001-$100,000
Janus Olympus Fund Over $100,000
Janus Overseas Fund $10,001-$50,000
Janus Global Life Sciences Fund Over $100,000
Janus Global Technology Fund Over $100,000
- --------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------------------
WILLIAM F. MCCALPIN* Janus Worldwide Fund Over $100,000 Over $100,000
- --------------------------------------------------------------------------------------------
JOHN W. MCCARTER, JR.* None None
- --------------------------------------------------------------------------------------------
DENNIS B. MULLEN Janus Twenty Fund $10,001-$50,000 Over $100,000
Janus Venture Fund $10,001-$50,000
Janus Olympus Fund Over $100,000
Janus Worldwide Fund $50,001-$100,000
Janus Overseas Fund $50,001-$100,000
Janus Global Life Sciences Fund Over $100,000
Janus Global Technology Fund Over $100,000
- --------------------------------------------------------------------------------------------
JAMES T. ROTHE Janus Fund $10,001-$50,000 Over $100,000
Janus Overseas Fund $10,001-$50,000
Janus Global Life Sciences Fund $10,001-$50,000
Janus Global Technology Fund $10,001-$50,000
- --------------------------------------------------------------------------------------------
WILLIAM D. STEWART Janus Fund $1-$10,000 Over $100,000
Janus Twenty Fund $1-$10,000
Janus Olympus Fund $10,001-$50,000
Janus Worldwide Fund $50,001-$100,000
Janus Global Life Sciences Fund $1-$10,000
Janus Global Technology Fund $1-$10,000
- --------------------------------------------------------------------------------------------
MARTIN H. WALDINGER Janus Fund $10,001-$50,000 Over $100,000
Janus Twenty Fund $10,001-$50,000
Janus Overseas Fund $10,001-$50,000
- --------------------------------------------------------------------------------------------
</Table>
* Trustee since June 2002.
66
As of December 31, 2001, none of the Trustees or their immediate
family members owned shares of Janus Capital, Janus Distributors
LLC, or their control persons.
The following table shows the aggregate compensation earned by
and paid to each Trustee by the Funds described in this SAI and
Janus Funds for the periods indicated. None of the Trustees
receives any pension or retirement benefits from the Funds or the
Janus Funds.
<Table>
<Caption>
Aggregate Compensation Total Compensation
From the Funds for From the Janus Funds for
Fiscal year ended calendar year ended
Name of Person, Position* October 31, 2001 December 31, 2001****
- -------------------------------------------------------------------------------------------------
Thomas H. Bailey, Chairman and Trustee** $0 $0
William D. Stewart, Trustee*** $87,847 $185,000
Dennis B. Mullen, Trustee*** $81,735 $185,000
Martin H. Waldinger, Trustee*** $88,582 $185,000
James T. Rothe, Trustee*** $81,245 $185,000
</Table>
* Mr. McCalpin and Mr. McCarter were elected as Trustees in June 2002.
Therefore, they did not receive any compensation from the Funds described
in this SAI or the Janus Funds during the periods shown in the table.
** Mr. Bailey is being treated as an interested person of the Funds and Janus
Capital and is compensated by Janus Capital.
*** Independent Trustee.
**** As of December 31, 2001, Janus Funds consisted of three registered
investment companies comprised of a total of 51 funds.
67
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Although the Funds are closed, certain investors may continue to
invest in the Funds and/or open new Fund accounts. Once an
account is closed, additional investments will not be accepted
unless you meet one of the specified criteria. You may be
required to demonstrate eligibility to purchase shares of a Fund
before your investment is accepted. Shares of the Funds are sold
at the net asset value per share as determined at the close of
the regular trading session of the New York Stock Exchange (the
"NYSE") next occurring after a purchase order is received and
accepted by a Fund. The Shareholder's Manual section of the
Funds' Prospectuses contains detailed information about the
purchase of shares.
NET ASSET VALUE DETERMINATION
As stated in the Funds' Prospectuses, the net asset value ("NAV")
of Fund shares is determined once each day the NYSE is open, at
the close of its regular trading session (normally 4:00 p.m., New
York time, Monday through Friday). The NAV of Fund shares is not
determined on days the NYSE is closed. The per share NAV of each
Fund is determined by dividing the total value of a Fund's
securities and other assets, less liabilities, by the total
number of shares outstanding. In determining NAV, securities
listed on an Exchange, the Nasdaq National Market and foreign
markets are generally valued at the closing prices on such
markets, or if such price is lacking for the trading period
immediately preceding the time of determination, such securities
are valued at their current bid price. Municipal securities held
by the Funds are traded primarily in the over-the-counter market.
Valuations of such securities are furnished by one or more
pricing services employed by the Funds and approved by the
Trustees and are based upon a computerized matrix system or
appraisals obtained by a pricing service, in each case in
reliance upon information concerning market transactions and
quotations from recognized municipal securities dealers. Other
securities that are traded on the over-the-counter market are
generally valued at their closing bid prices. Foreign securities
and currencies are converted to U.S. dollars using the exchange
rate in effect at the close of the NYSE. Each
68
Fund will determine the market value of individual securities
held by it, by using prices provided by one or more professional
pricing services which may provide market prices to other funds,
or, as needed, by obtaining market quotations from independent
broker-dealers. Short-term securities maturing within 60 days are
valued on an amortized cost basis. Securities for which market
quotations are not readily available are valued at fair value
determined in good faith under procedures established by and
under the supervision of the Trustees (the "Valuation
Procedures").
Trading in securities on European and Far Eastern securities
exchanges and over-the-counter markets is normally completed well
before the close of business on each business day in New York
(i.e., a day on which the NYSE is open). In addition, European or
Far Eastern securities trading generally or in a particular
country or countries may not take place on all business days in
New York. Furthermore, trading takes place in Japanese markets on
certain Saturdays and in various foreign markets on days which
are not business days in New York and on which a Fund's NAV is
not calculated. A Fund calculates its NAV per share, and
therefore effects sales, redemptions and repurchases of its
shares, as of the close of the NYSE once on each day on which the
NYSE is open. Such calculation may not take place
contemporaneously with the determination of the prices of the
foreign portfolio securities used in such calculation. If an
event that is expected to affect the value of a portfolio
security occurs after the close of the exchange or market on
which that security is traded, and before the Fund calculates its
NAV per share, then that security may be valued in good faith
under the Valuation Procedures.
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
If investors do not elect online at janus.com, in writing or by
phone to receive their dividends and distributions in cash, all
income dividends and capital gains distributions, if any, on a
Fund's shares are reinvested automatically in additional shares
of that Fund at the NAV determined on the payment date. Checks
69
for cash dividends and distributions and confirmations of
reinvestments are usually mailed to shareholders within ten days
after the record date. Any election of the manner in which a
shareholder wishes to receive dividends and distributions (which
may be made online at janus.com or by phone) will apply to
dividends and distributions the record dates of which fall on or
after the date that a Fund receives such notice. Changes to
distribution options must be received at least three days prior
to the record date to be effective for such date. Investors
receiving cash distributions and dividends may elect online at
janus.com, in writing or by phone to change back to automatic
reinvestment at any time.
70
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Procedures for selling shares are set forth in the Shareholder's
Manual section of the Funds' Prospectuses. Shares normally will
be sold for cash, although each Fund retains the right to sell
some or all of its shares in kind under unusual circumstances, in
order to protect the interests of remaining shareholders, or to
accommodate a request by a particular shareholder that does not
adversely affect the interest of the remaining shareholders, by
delivery of securities selected from its assets at its
discretion. However, the Funds are governed by Rule 18f-1 under
the 1940 Act, which requires each Fund to sell shares solely in
cash up to the lesser of $250,000 or 1% of the NAV of that Fund
during any 90-day period for any one shareholder. Should
redemptions by any shareholder exceed such limitation, a Fund
will have the option of selling the excess in cash or in kind. If
shares are sold in kind, the redeeming shareholder might incur
brokerage costs in converting the assets to cash. The method of
valuing securities used to make redemptions in kind will be the
same as the method of valuing portfolio securities described
under "Purchase of Shares - Net Asset Value Determination" and
such valuation will be made as of the same time the redemption
price is determined.
The right to require the Funds to sell their shares may be
suspended, or the date of payment may be postponed, whenever (1)
trading on the NYSE is restricted, as determined by the SEC, or
the NYSE is closed except for holidays and weekends, (2) the SEC
permits such suspension and so orders, or (3) an emergency exists
as determined by the SEC so that disposal of securities or
determination of NAV is not reasonably practicable.
71
SHAREHOLDER ACCOUNTS
- --------------------------------------------------------------------------------
Detailed information about the general procedures for shareholder
accounts and specific types of accounts is set forth in the
Funds' Prospectuses and at janus.com. Applications for specific
types of accounts may be obtained by visiting janus.com, calling
a Janus Representative or writing to the Funds at P.O. Box
173375, Denver, Colorado 80217-3375.
ONLINE AND TELEPHONE TRANSACTIONS
As stated in the Prospectuses, shareholders may initiate a number
of transactions at janus.com and by telephone. The Funds, their
transfer agent and their distributor disclaim responsibility for
the authenticity of instructions received at janus.com and by
telephone. Such entities will employ reasonable procedures to
confirm that instructions communicated on janus.com and by
telephone are genuine. Such procedures may include, among others,
requiring personal identification prior to acting upon online and
telephone instructions, providing written confirmation of online
and telephone transactions and tape recording telephone
conversations.
SYSTEMATIC REDEMPTIONS
As stated in the Shareholder's Manual section of the
Prospectuses, if you have a regular account or are eligible for
distributions from a retirement plan, you may establish a
systematic redemption option. The payments will be made from the
proceeds of periodic redemptions of shares in the account at the
NAV. Depending on the size or frequency of the disbursements
requested, and the fluctuation in value of a Fund's portfolio,
redemptions for the purpose of making such disbursements may
reduce or even exhaust the shareholder's account. Either an
investor or a Fund, by written notice to the other, may terminate
the investor's systematic redemption option without penalty at
any time.
Information about requirements to establish a systematic
redemption option may be obtained by visiting janus.com, calling
a Janus Representative or writing the Funds.
72
TAX-DEFERRED ACCOUNTS
- --------------------------------------------------------------------------------
The Funds offer several different types of tax-deferred accounts
that an investor may establish to invest in Fund shares,
depending on rules prescribed by the Code. Traditional and Roth
Individual Retirement Accounts may be used by most individuals
who have taxable compensation. Simplified Employee Pensions and
Defined Contribution Plans (Profit Sharing or Money Purchase
Pension Plans) may be used by most employers, including
corporations, partnerships and small business owners (including
sole proprietors), for the benefit of business owners and their
employees. In addition, the Funds offer a Section 403(b)(7) Plan
for employees of educational organizations and other qualifying
tax-exempt organizations. Investors should consult their tax
adviser or legal counsel before selecting a tax-deferred account.
Contributions under Traditional and Roth IRAs, SEPs, Defined
Contribution Plans and Section 403(b)(7) Plans are subject to
specific contribution limitations. Generally, such contributions
may be invested at the direction of the participant.
Distributions from tax-deferred retirement accounts may be
subject to ordinary income tax and may be subject to an
additional 10% tax if withdrawn prior to age 59 1/2 or used for a
nonqualifying purpose. Additionally, shareholders generally must
start withdrawing retirement plan assets no later than April 1 of
the year after they reach age 70 1/2. Several exceptions to these
general rules may apply and several methods exist to determine
the amount and timing of the minimum annual distribution (if
any). Shareholders should consult with their tax adviser or legal
counsel prior to receiving any distribution from any tax-deferred
account, in order to determine the income tax impact of any such
distribution.
Coverdell Education Savings Accounts (formerly Education IRAs)
allow individuals, subject to certain income limitations, to
contribute up to $2,000 annually on behalf of any child under the
age of 18. Contributions are also allowed on behalf of children
with special needs beyond age 18. Distributions are generally
subject to income tax if not used for qualified education
expenses.
73
To receive additional information about Traditional and Roth
IRAs, SEPs, Defined Contribution Plans, Section 403(b)(7) Plans
and Coverdell Education Savings Accounts along with the necessary
materials to establish an account, please visit www.janus.com,
call a Janus Representative or write to the Funds at P.O. Box
173375, Denver, Colorado 80217-3375. No contribution to a
Traditional or Roth IRA, SEP, Defined Contribution Plan, Section
403(b)(7) Plan or Coverdell Education Savings Account can be made
until the appropriate forms to establish any such plan have been
completed.
74
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS
- --------------------------------------------------------------------------------
It is a policy of the Funds to make distributions of
substantially all of their investment income and any net realized
capital gains. Any capital gains realized during each fiscal year
ended October 31, as defined by the Code, are normally declared
and payable to shareholders in December. The Funds declare and
make annual distributions of income (if any). The Funds intend to
qualify as regulated investment companies by satisfying certain
requirements prescribed by Subchapter M of the Code. Accordingly,
a Fund will invest no more than 25% of its total assets in a
single issuer (other than U.S. government securities).
The Funds may purchase securities of certain foreign corporations
considered to be passive foreign investment companies by the IRS.
In order to avoid taxes and interest that must be paid by the
Funds, the Funds may make various elections permitted by the tax
laws. However, these elections could require that the Funds
recognize taxable income, which in turn must be distributed.
Some foreign securities purchased by the Funds may be subject to
foreign taxes which could reduce the yield on such securities. If
the amount of foreign taxes is significant in a particular year,
the Funds that qualify under Section 853 of the Code may elect to
pass through such taxes to shareholders, who will each decide
whether to deduct such taxes or claim a foreign tax credit. If
such election is not made, foreign taxes paid or accrued will
represent an expense to each Fund which will reduce its
investment company taxable income.
75
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
As of January 31, 2002, the officers and Trustees of the Funds as
a group owned less than 1% of the outstanding shares of each of
the Funds.
As of January 28, 2002, Charles Schwab & Co., Inc. ("Schwab"),
101 Montgomery Street, San Francisco, CA 94104-4122, and National
Financial Services Co. ("National Financial"), P.O. Box 3908,
Church Street Station, New York, NY 10008-3908, owned of record
5% or more of the outstanding shares of the Funds for the
exclusive benefit of their customers, as shown below:
<Table>
<Caption>
Fund Name Held by Schwab
- ----------------------------------------------------------------------------------------
Janus Fund 13.54%
Janus Twenty Fund 11.07%
Janus Venture Fund 9.39%
Janus Olympus Fund 19.35%
Janus Worldwide Fund 21.11%
Janus Overseas Fund 24.38%
Janus Global Life Sciences Fund 19.10%
Janus Global Technology Fund 16.33%
</Table>
<Table>
<Caption>
Fund Name Held by National Financial
- ----------------------------------------------------------------------------------------
Janus Twenty Fund 5.71%
Janus Olympus Fund 10.50%
Janus Worldwide Fund 8.95%
Janus Overseas Fund 10.27%
Janus Global Life Sciences Fund 12.53%
Janus Global Technology Fund 9.08%
</Table>
According to information provided by Schwab and National
Financial, this ownership is by nominee only and does not
represent beneficial ownership of such shares, because they have
no investment discretion or voting power with respect to such
shares.
76
In addition, as of January 28, 2002, more than 5% of the
outstanding shares of the following Funds were owned of record by
the shareholders listed below:
<Table>
<Caption>
Shareholder and Percentage
Fund Address of Record Ownership
- ----------------------------------------------------------------------------------------------
Janus Worldwide Fund FIIOC as Agent for Certain Employee Benefit Plans 11.17%
100 Magellan Way, KW1C
Covington, KY 41015-1987
Janus Twenty Fund Nationwide QPVA 6.64%
c/o IPO CO 67
P.O. Box 182029
Columbus, OH 43218-2029
Janus Overseas Fund FIIOC as Agent for Certain Employee Benefit Plans 8.66%
100 Magellan Way, KW1C
Covington, KY 41015-1987
Janus Overseas Fund American Express Trust 5.18%
FBO American Express Trust Retirement Service Plans
P.O. Box 534
Minneapolis, MN 55440-0534
</Table>
To the knowledge of the Funds, no other shareholder owned 5% or
more of the outstanding Shares of any Fund as of January 28,
2002.
77
MISCELLANEOUS INFORMATION
- --------------------------------------------------------------------------------
Each Fund is a series of the Trust, a Massachusetts business
trust that was created on February 11, 1986. The Trust is an
open-end management investment company registered under the 1940
Act. As of the date of this SAI, the Trust offers 26 separate
series, three of which currently offer three classes of shares.
Janus Capital reserves the right to the name "Janus." In the
event that Janus Capital does not continue to provide investment
advice to the Funds, the Funds must cease to use the name "Janus"
as soon as reasonably practicable.
Under Massachusetts law, shareholders of the Funds could, under
certain circumstances, be held liable for the obligations of
their Fund. However, the Declaration of Trust disclaims
shareholder liability for acts or obligations of the Funds and
requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by
the Funds or the Trustees. The Declaration of Trust also provides
for indemnification from the assets of the Funds for all losses
and expenses of any Fund shareholder held liable for the
obligations of their Fund. Thus, the risk of a shareholder
incurring a financial loss on account of its liability as a
shareholder of one of the Funds is limited to circumstances in
which their Fund would be unable to meet its obligations. The
possibility that these circumstances would occur is remote. The
Trustees intend to conduct the operations of the Funds to avoid,
to the extent possible, liability of shareholders for liabilities
of their Fund.
SHARES OF THE TRUST
The Trust is authorized to issue an unlimited number of shares of
beneficial interest with a par value of one cent per share for
each series of the Trust. Shares of each Fund are fully paid and
nonassessable when issued. All shares of a Fund participate
equally in dividends and other distributions by such Fund, and in
residual assets of that Fund in the event of liquidation. Shares
of each Fund have no preemptive, conversion or subscription
rights. Shares of each Fund may be transferred by endorsement or
stock
78
power as is customary, but a Fund is not bound to recognize any
transfer until it is recorded on its books.
SHAREHOLDER MEETINGS
The Trust does not intend to hold annual or regular shareholder
meetings unless otherwise required by the Declaration of Trust or
the 1940 Act. Special meetings may be called for a specific Fund
or for the Trust as a whole for purposes such as changing
fundamental policies; electing or removing Trustees; making any
changes to the Declaration of Trust that would materially
adversely affect shareholders' rights; determining whether to
bring certain derivative actions; or for any other purpose that
requires a shareholder vote under applicable law or the Trust's
governing documents, or as the Trustee consider necessary or
desirable. The present Trustees were elected at a meeting of
shareholders held on January 31, 2002. Under the Declaration of
Trust, each Trustee will continue in office until the termination
of the Trust or his earlier death, retirement, resignation,
incapacity, or removal. Vacancies will be filled by a majority of
the remaining Trustees, subject to the 1940 Act.
VOTING RIGHTS
As a shareholder, you are entitled to one vote for each dollar of
net asset value of the Fund that you own. Generally all Funds
vote together as a single group, except where a separate vote of
one or more Funds is required by law or where the interests of
one or more Funds are affected differently from other Funds.
Shares of all series of the Trust have noncumulative voting
rights, which means that the holders of more than 50% of the
value of shares of all series of the Trust voting for election of
Trustees can elect 100% of the Trustees if they choose to do so.
In such event, the holders of the remaining value of shares will
not be able to elect any Trustees.
79
MASTER/FEEDER OPTION
The Trust may in the future seek to achieve a Fund's objective by
investing all of that Fund's assets in another investment company
having the same investment objective and substantially the same
investment policies and restrictions as those applicable to that
Fund. Unless otherwise required by law, this policy may be
implemented by the Trustees without shareholder approval.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1670 Broadway, Suite 1000, Denver,
Colorado 80202, independent accountants for the Funds, audit the
Funds' annual financial statements and prepare their tax returns.
REGISTRATION STATEMENT
The Trust has filed with the SEC, Washington, D.C., a
Registration Statement under the Securities Act of 1933, as
amended, with respect to the securities to which this SAI
relates. If further information is desired with respect to the
Funds or such securities, reference is made to the Registration
Statement and the exhibits filed as a part thereof.
80
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Quotations of average annual total return for a Fund will be
expressed in terms of the average annual compounded rate of
return of a hypothetical investment in such Fund over periods of
1, 5, and 10 years (up to the life of the Fund) that would equate
the initial amount invested to the ending value. These rates of
return are quoted using three different measures: (1) average
annual total return before taxes; (2) average annual total return
after taxes on distributions; and (3) average annual total return
after taxes on distribution and redemption. The average annual
total return before taxes is calculated based on the following
formula: P(1+T)(n) = ERV (where P = a hypothetical initial
payment of $1,000, T = the average annual total return, n = the
number of years and ERV = the ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the period).
The average annual total return after taxes on distribution is
calculated based on the following formula: P(1+T)(n) = ATV(D)
(where P = a hypothetical initial payment of $1,000, T = average
annual total return (after taxes on distributions), n = the
number of years and ATV(D) = the ending value of a hypothetical
$1,000 payment made at the beginning of the period). Average
annual total return after taxes on distributions and redemption
is calculated based on the following formula: P(1+T)(n) = ATV(DR)
(where P = a hypothetical initial payment of $1,000, T = the
average annual total return (after taxes on distributions and
redemptions), n = the number of years and ATV(DR) = the ending
value of a hypothetical $1,000 payment made at the beginning of
the period).
All total return figures reflect the deduction of a proportional
share of Fund expenses on an annual basis, and assume that all
dividends and distributions, less taxes due on such
distributions, are reinvested when paid. The taxes due are
calculated using the highest individual marginal federal tax
rates and capital gains tax rates in effect on the reinvestment
date. State and local taxes are not considered. In addition, the
formulas do not take into account the effect of the alternative
minimum tax or phaseouts of certain
81
tax credits, exemptions and deductions for taxpayers whose
adjusted gross income is above a specified amount.
The average annual total return before taxes of each Fund,
computed as of October 31, 2001, is shown in the table below:
<Table>
<Caption>
Average Annual Total Return (Before Taxes)
Date Number --------------------------------------------
Available of Months One Five Ten Life of
Fund Name for Sale in Lifetime Year Years Years Fund
- -------------------------------------------------------------------------------------------------------
Janus Fund 2/5/70 381 (43.42)% 7.94% 10.74% 15.24%
Janus Twenty Fund 4/30/85 198 (47.43)% 11.31% 12.41% 14.89%
Janus Venture Fund 4/30/85 198 (40.67)% 6.52% 9.38% 13.57%
Janus Olympus Fund 12/29/95 70 (50.61)% 12.88% N/A 15.06%
Janus Worldwide Fund 5/15/91 125.5 (36.56)% 8.72% 13.34% 14.32%
Janus Overseas Fund 5/2/94 89 (37.09)% 8.63% N/A 11.62%
Janus Global Life Sciences Fund 12/31/98 34 (24.26)% N/A N/A 20.53%
Janus Global Technology Fund 12/31/98 34 (59.95)% N/A N/A 3.65%
</Table>
Average annual total return after taxes on distributions assumes
that (1) taxes are paid on distributions at the time of the
distribution; (2) shares were held for the entire measurement
period; and (3) no taxes have been paid on accumulated capital
appreciation. The average annual total return after taxes on
distributions of each Fund, computed as of October 31, 2001, is
shown in the table below:
<Table>
<Caption>
Average Annual Return (After Taxes on
Distributions)
Date Number ----------------------------------------
Available of Months One Five Ten Life of
Fund Name for Sale in Lifetime Year Years Years Fund
- --------------------------------------------------------------------------------------------------
Janus Fund 2/5/70 381 (44.84)% 4.97% 8.31% 11.82%
Janus Twenty Fund 4/30/85 198 (47.73)% 8.79% 10.26% 12.53%
Janus Venture Fund 4/30/85 198 (43.56)% 2.93% 6.23% 10.53%
Janus Olympus Fund 12/29/95 70 (50.80)% 12.18% N/A 14.45%
Janus Worldwide Fund 5/15/91 125.5 (38.02)% 7.19% 12.01% 13.04%
Janus Overseas Fund 5/2/94 89 (38.94)% 7.53% N/A 10.77%
Janus Global Life Sciences
Fund 12/31/98 34 (24.28)% N/A N/A 20.52%
Janus Global Technology Fund 12/31/98 34 (60.18)% N/A N/A 3.34%
</Table>
Average annual total return after taxes on distributions and
redemption assumes that (1) taxes are paid at the time of the
distribution; (2) shares have been sold at the end of the
measurement period; and (3) the long-term capital gains tax rate
is applied on accumulated capital appreciation for all periods.
If a
82
capital loss would have occurred on liquidation, the loss is
recorded as a tax benefit, increasing the return after taxes on
distributions and redemption. The average annual total return
after taxes on distributions and redemption of each Fund,
computed as of October 31, 2001, is shown in the table below:
<Table>
<Caption>
Average Annual Total Return (After Taxes on
Date Number Distributions and Redemption)
Available of Months One Five Ten Life of
Fund Name for Sale in Lifetime Year Years Years Fund
- -------------------------------------------------------------------------------------------------------
Janus Fund 2/5/70 381 (24.28)% 6.33% 8.49% 11.67%
Janus Twenty Fund 4/30/85 198 (28.30)% 8.53% 9.68% 11.90%
Janus Venture Fund 4/30/85 198 (20.31)% 5.50% 7.28% 10.86%
Janus Olympus Fund 12/29/95 70 (30.59)% 10.59% N/A 12.60%
Janus Worldwide Fund 5/15/91 125.5 (20.17)% 6.88% 11.06% 12.02%
Janus Overseas Fund 5/2/94 89 (20.28)% 7.00% N/A 9.71%
Janus Global Life Sciences Fund 12/31/98 34 (14.77)% N/A N/A 16.93%
Janus Global Technology Fund 12/31/98 34 (36.37)% N/A N/A 2.90%
</Table>
83
From time to time in advertisements or sales material, the Funds
may discuss their performance ratings or other information as
published by recognized mutual fund statistical rating services,
including, but not limited to, Lipper Analytical Services, Inc.
("Lipper"), Ibbotson Associates, Micropal or Morningstar, Inc.
("Morningstar") or by publications of general interest such as
Forbes, Money, The Wall Street Journal, Mutual Funds Magazine,
Kiplinger's, or Smart Money. The Funds may also compare their
performance to that of other selected mutual funds (for example,
peer groups created by Lipper or Morningstar), mutual fund
averages or recognized stock market indicators, including, but
not limited to, the Standard & Poor's 500 Composite Stock Price
Index, the Dow Jones Industrial Average, the Russell 2000 Index
and the NASDAQ composite. In addition, the Funds may compare
their total return or yield to the yield on U.S. Treasury
obligations and to the percentage change in the Consumer Price
Index. Janus Worldwide Fund may also compare its performance to
the record of global market indicators, such as the Morgan
Stanley Capital International World Index. Janus Overseas Fund
may also compare its performance to the record of global market
indicators, such as the Morgan Stanley Capital International
Europe, Australasia, and the Far East (EAFE(R) Index). Such
performance ratings or comparisons may be made with funds that
may have different investment restrictions, objectives, policies
or techniques than the Funds and such other funds or market
indicators may be comprised of securities that differ
significantly from the Funds' investments.
84
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE TO THE ANNUAL REPORTS
The following audited financial statements for the period ended
October 31, 2001 are hereby incorporated into this SAI by
reference to the Funds' Annual Reports dated October 31, 2001:
Schedules of Investments as of October 31, 2001
Statements of Operations for the period ended October 31, 2001
Statements of Assets and Liabilities as of October 31, 2001
Statements of Changes in Net Assets for the periods ended October
31, 2001 and 2000
Financial Highlights for each of the periods indicated
Notes to Financial Statements
Reports of Independent Accountants
The portions of such Annual Reports that are not specifically
listed above are not incorporated by reference into this SAI and
are not part of the Registration Statement.
85
APPENDIX A
- --------------------------------------------------------------------------------
EXPLANATION OF RATING CATEGORIES
The following is a description of credit ratings issued by two of
the major credit ratings agencies. Credit ratings evaluate only
the safety of principal and interest payments, not the market
value risk of lower quality securities. Credit rating agencies
may fail to change credit ratings to reflect subsequent events on
a timely basis. Although Janus Capital considers security ratings
when making investment decisions, it also performs its own
investment analysis and does not rely solely on the ratings
assigned by credit agencies.
86
STANDARD & POOR'S
RATINGS SERVICES
<Table>
BOND RATING EXPLANATION
----------------------------------------------------------------
Investment Grade
AAA......................... Highest rating; extremely strong
capacity to pay principal and
interest.
AA.......................... High quality; very strong capacity
to pay principal and interest.
A........................... Strong capacity to pay principal
and interest; somewhat more
susceptible to the adverse effects
of changing circumstances and
economic conditions.
BBB......................... Adequate capacity to pay principal
and interest; normally exhibit
adequate protection parameters, but
adverse economic conditions or
changing circumstances more likely
to lead to a weakened capacity to
pay principal and interest than for
higher rated bonds.
Non-Investment Grade
BB, B, CCC, CC, C........... Predominantly speculative with
respect to the issuer's capacity to
meet required interest and
principal payments. BB - lowest
degree of speculation; C - the
highest degree of speculation.
Quality and protective
characteristics outweighed by large
uncertainties or major risk
exposure to adverse conditions.
D........................... In default.
</Table>
87
MOODY'S INVESTORS SERVICE, INC.
<Table>
BOND RATING EXPLANATION
----------------------------------------------------------------
Investment Grade
Aaa......................... Highest quality, smallest degree of
investment risk.
Aa.......................... High quality; together with Aaa
bonds, they compose the high-grade
bond group.
A........................... Upper-medium grade obligations;
many favorable investment
attributes.
Baa......................... Medium-grade obligations; neither
highly protected nor poorly
secured. Interest and principal
appear adequate for the present but
certain protective elements may be
lacking or may be unreliable over
any great length of time.
Non-Investment Grade
Ba.......................... More uncertain, with speculative
elements. Protection of interest
and principal payments not well
safeguarded during good and bad
times.
B........................... Lack characteristics of desirable
investment; potentially low
assurance of timely interest and
principal payments or maintenance
of other contract terms over time.
Caa......................... Poor standing, may be in default;
elements of danger with respect to
principal or interest payments.
Ca.......................... Speculative in a high degree; could
be in default or have other marked
shortcomings.
C........................... Lowest-rated; extremely poor
prospects of ever attaining
investment standing.
</Table>
88
Unrated securities will be treated as noninvestment grade
securities unless a portfolio manager determines that such
securities are the equivalent of investment grade securities.
Securities that have received different ratings from more than
one agency are considered investment grade if at least one agency
has rated the security investment grade.
89
[JANUS LOGO]
www.janus.com
PO Box 173375
Denver, CO 80217-3375
1-800-525-3713
[JANUS LOGO]
www.janus.com
PO Box 173375
Denver, CO 80217-3375
1-800-525-3713
February 25, 2002
As Supplemented April 3, 2002, May 13, 2002,
May 31, 2002 and June 19, 2002
<Table>
EQUITY FUNDS INCOME FUNDS
Janus Enterprise Fund Janus Flexible Income Fund
Janus Mercury Fund Janus Federal Tax-Exempt
Janus Special Situations Fund Fund
Janus Strategic Value Fund Janus High-Yield Fund
Janus Orion Fund Janus Short-Term Bond Fund
Janus Fund 2
Janus Global Value Fund
Janus Core Equity Fund
(formerly Janus Equity Income
Fund)
Janus Growth and Income Fund
Janus Balanced Fund
</Table>
JANUS EQUITY AND INCOME FUNDS
Statement of Additional Information
This Statement of Additional Information ("SAI") pertains to the Funds
listed above, each of which is a separate series of Janus Investment
Fund, a Massachusetts business trust. Janus Core Equity Fund was
formerly known as Janus Equity Income Fund. The name change was
effective July 31, 2001.
This SAI is not a Prospectus and should be read in conjunction with the
Funds' Prospectuses dated February 25, 2002, and any supplements
thereto, which are incorporated by reference into this SAI and may be
obtained from the Trust on janus.com, by calling 1-800-525-3713, or by
writing the Funds at the address shown on the back cover of this SAI.
This SAI contains additional and more detailed information about the
Funds' operations and activities than the Prospectuses. The Annual and
Semiannual Reports, which contain important financial information about
the Funds, are incorporated by reference into this SAI and are also
available, without charge, on janus.com, by calling 1-800-525-3713, or
by writing the Funds at the address shown on the back cover of this SAI.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
Classification, Portfolio Turnover,
Investment Policies and Restrictions,
and Investment Strategies and Risks............. 2
Investment Adviser.............................. 43
Custodian, Transfer Agent
and Certain Affiliations........................ 51
Portfolio Transactions and Brokerage............ 53
Trustees and Officers........................... 61
Purchase of Shares.............................. 72
Net Asset Value Determination................ 72
Reinvestment of Dividends and Distributions.. 73
Redemption of Shares............................ 75
Shareholder Accounts............................ 76
Online and Telephone Transactions............ 76
Systematic Redemptions....................... 76
Tax-Deferred Accounts........................... 77
Income Dividends,
Capital Gains Distributions and Tax Status...... 79
Principal Shareholders.......................... 81
Miscellaneous Information....................... 83
Shares of the Trust.......................... 83
Shareholder Meetings......................... 84
Voting Rights................................ 84
Master/Feeder Option......................... 85
Independent Accountants...................... 85
Registration Statement....................... 85
Performance Information......................... 86
Financial Statements............................ 92
Appendix A...................................... 93
</Table>
1
CLASSIFICATION, PORTFOLIO TURNOVER, INVESTMENT POLICIES AND RESTRICTIONS, AND
INVESTMENT STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
CLASSIFICATION
Each Fund is a series of the Trust, an open-end, management
investment company. The Investment Company Act of 1940 ("1940
Act") classifies mutual funds as either diversified or
nondiversified. Janus Enterprise Fund, Janus Special Situations
Fund, Janus Strategic Value Fund, Janus Orion Fund and Janus
Global Value Fund intend to operate in a nondiversified manner.
Each of these Funds may at times, however, operate in a
diversified manner if market conditions warrant. The
nondiversified Funds will be operated in a manner consistent with
the diversification requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended, and the regulations thereunder
(the "Code"). Janus Mercury Fund, Janus Fund 2, Janus Core Equity
Fund, Janus Growth and Income Fund, Janus Balanced Fund, Janus
Flexible Income Fund, Janus Federal Tax-Exempt Fund, Janus
High-Yield Fund and Janus Short-Term Bond Fund are diversified
funds.
PORTFOLIO TURNOVER
For the fiscal year ended October 31, 2001, Janus Orion Fund's
portfolio turnover rate varied significantly from its portfolio
turnover rate for the fiscal year ended October 31, 2000 due to
market and general economic conditions.
INVESTMENT POLICIES AND RESTRICTIONS APPLICABLE TO ALL FUNDS
The Funds are subject to certain fundamental policies and
restrictions that may not be changed without shareholder
approval. Shareholder approval means approval by the lesser of
(i) more than 50% of the outstanding voting securities of the
Trust (or a particular Fund if a matter affects just that Fund),
or (ii) 67% or more of the voting securities present at a meeting
if the holders of more than 50% of the outstanding voting
securities of the Trust (or a particular Fund) are present or
represented by proxy. The following policies are fundamental
policies of the Funds. Each of these policies applies to all of
the Funds, except
2
policy (1), which applies only to the Funds specifically listed
in that policy.
(1) With respect to 75% of its total assets, Janus Mercury Fund,
Janus Fund 2, Janus Core Equity Fund, Janus Growth and Income
Fund, Janus Balanced Fund, Janus Flexible Income Fund, Janus
Federal Tax-Exempt Fund, Janus High-Yield Fund and Janus
Short-Term Bond Fund may not purchase securities of an issuer
(other than the U.S. Government, its agencies, instrumentalities
or authorities or repurchase agreements collateralized by U.S.
Government securities, and other investment companies) if: (a)
such purchase would, at the time, cause more than 5% of the
Fund's total assets taken at market value to be invested in the
securities of such issuer; or (b) such purchase would, at the
time, result in more than 10% of the outstanding voting
securities of such issuer being held by the Fund.
Each Fund may not:
(2) Invest 25% or more of the value of its total assets in any
particular industry (other than U.S. government securities). This
policy does not apply to Janus Federal Tax-Exempt Fund regarding
municipal obligations only. For the purposes of this limitation
only, industrial development bonds issued by nongovernmental
users shall not be deemed to be municipal obligations. Industrial
development bonds shall be classified according to the industry
of the entity that has the ultimate responsibility for the
payment of principal and interest on the obligation.
(3) Invest directly in real estate or interests in real estate;
however, the Funds may own debt or equity securities issued by
companies engaged in those businesses.
(4) Purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this
limitation shall not prevent the Funds from purchasing or selling
foreign currencies, options, futures, swaps, forward contracts or
other derivative instruments or from investing in securities or
other instruments backed by physical commodities).
3
(5) Lend any security or make any other loan if, as a result,
more than 33 1/3% of the Fund's total assets would be lent to
other parties (but this limitation does not apply to investments
in repurchase agreements, commercial paper, debt securities or
loans, including assignments and participation interests).
(6) Act as an underwriter of securities issued by others, except
to the extent that the Fund may be deemed an underwriter in
connection with the disposition of portfolio securities of the
Fund.
(7) Borrow money except that the Funds may borrow money for
temporary or emergency purposes (not for leveraging or
investment). Borrowings from banks will not, in any event, exceed
one-third of the value of a Fund's total assets (including the
amount borrowed). This policy shall not prohibit short sales
transactions, or futures, options, swaps or forward transactions.
The Funds may not issue "senior securities" in contravention of
the 1940 Act.
As a fundamental policy, each Fund may, notwithstanding any other
investment policy or limitation (whether or not fundamental),
invest all of its assets in the securities of a single open-end
management investment company with substantially the same
fundamental investment objectives, policies and limitations as
such Fund.
The Trustees have adopted additional investment restrictions for
the Funds. These restrictions are operating policies of the Funds
and may be changed by the Trustees without shareholder approval.
The additional investment restrictions adopted by the Trustees to
date include the following:
(a) A Fund will not (i) enter into any futures contracts and
related options for purposes other than bona fide hedging
transactions within the meaning of Commodity Futures Trading
Commission ("CFTC") regulations if the aggregate initial margin
and premiums required to establish positions in futures contracts
and related options that do not fall within the definition of
bona fide hedging transactions will exceed 5% of the fair market
value of a Fund's net assets, after taking into account
unrealized profits
4
and unrealized losses on any such contracts it has entered into;
and (ii) enter into any futures contracts if the aggregate amount
of such Fund's commitments under outstanding futures contracts
positions would exceed the market value of its total assets.
(b) The Funds may sell securities short if they own or have the
right to obtain securities equivalent in kind and amount to the
securities sold short without the payment of any additional
consideration therefor ("short sales against the box"). In
addition, the Equity Funds may engage in "naked" short sales,
which involve selling a security that a Fund borrows and does not
own. The total market value of all of a Fund's naked short sale
positions will not exceed 8% of its assets. Transactions in
futures, options, swaps and forward contracts are not deemed to
constitute selling securities short.
(c) The Funds do not currently intend to purchase securities on
margin, except that the Funds may obtain such short-term credits
as are necessary for the clearance of transactions, and provided
that margin payments and other deposits in connection with
transactions in futures, options, swaps and forward contracts
shall not be deemed to constitute purchasing securities on
margin.
(d) A Fund may not mortgage or pledge any securities owned or
held by such Fund in amounts that exceed, in the aggregate, 15%
of that Fund's net asset value, provided that this limitation
does not apply to reverse repurchase agreements, deposits of
assets to margin, guarantee positions in futures, options, swaps
or forward contracts, or the segregation of assets in connection
with such contracts.
(e) The Funds do not currently intend to purchase any security or
enter into a repurchase agreement if, as a result, more than 15%
of their respective net assets would be invested in repurchase
agreements not entitling the holder to payment of principal and
interest within seven days and in securities that are illiquid by
virtue of legal or contractual restrictions on resale or the
absence of a readily available market. The Trustees, or the
Funds'
5
investment adviser acting pursuant to authority delegated by the
Trustees, may determine that a readily available market exists
for securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933 ("Rule 144A Securities"), or any
successor to such rule, Section 4(2) commercial paper and
municipal lease obligations. Accordingly, such securities may not
be subject to the foregoing limitation.
(f) The Funds may not invest in companies for the purpose of
exercising control of management.
Under the terms of an exemptive order received from the
Securities and Exchange Commission ("SEC"), each of the Funds may
borrow money from or lend money to other funds that permit such
transactions and for which Janus Capital Management LLC ("Janus
Capital") serves as investment adviser. All such borrowing and
lending will be subject to the above limits. A Fund will borrow
money through the program only when the costs are equal to or
lower than the cost of bank loans. Interfund loans and borrowings
normally extend overnight, but can have a maximum duration of
seven days. A Fund will lend through the program only when the
returns are higher than those available from other short-term
instruments (such as repurchase agreements). A Fund may have to
borrow from a bank at a higher interest rate if an interfund loan
is called or not renewed. Any delay in repayment to a lending
Fund could result in a lost investment opportunity or additional
borrowing costs.
For the purposes of these investment restrictions, the
identification of the issuer of a municipal obligation depends on
the terms and conditions of the security. When assets and
revenues of a political subdivision are separate from those of
the government that created the subdivision and the security is
backed only by the assets and revenues of the subdivision, the
subdivision is deemed to be the sole issuer. Similarly, in the
case of an industrial development bond, if the bond is backed
only by assets and revenues of a nongovernmental user, then the
nongovernmental user would be deemed to be the sole issuer. If,
however, in either case, the
6
creating government or some other entity guarantees the security,
the guarantee would be considered a separate security that would
be treated as an issue of the guaranteeing entity.
For the purposes of each Fund's policies on investing in
particular industries, the Funds will rely primarily on industry
or industry group classifications published by Bloomberg L.P. To
the extent that Bloomberg L.P. industry classifications are so
broad that the primary economic characteristics in a single
industry are materially different, the Funds may further classify
issuers in accordance with industry classifications as published
by the SEC.
INVESTMENT POLICIES APPLICABLE TO CERTAIN FUNDS
JANUS BALANCED FUND. As an operational policy, at least 25% of
the assets of Janus Balanced Fund normally will be invested in
fixed-income senior securities.
JANUS FLEXIBLE INCOME FUND. As a fundamental policy, this Fund
may not purchase a non-income-producing security if, after such
purchase, less than 80% of the Fund's total assets would be
invested in income-producing securities. Income-producing
securities include securities that make periodic interest
payments as well as those that make interest payments on a
deferred basis or pay interest only at maturity (e.g., Treasury
bills or zero coupon bonds).
JANUS FEDERAL TAX-EXEMPT FUND. As a fundamental policy, this Fund
will normally invest at least 80% of its net assets in securities
whose income is not subject to federal income taxes, including
the alternative minimum tax.
JANUS SHORT-TERM BOND FUND. As an operational policy, under
normal circumstances, this Fund expects to maintain an average
weighted effective maturity of three years or less. The portfolio
manager may consider estimated prepayment dates or call dates of
certain securities in computing the portfolio's effective
maturity.
7
INVESTMENT STRATEGIES AND RISKS
Cash Position
As discussed in the Prospectuses, a Fund's cash position may
temporarily increase under various circumstances. Securities that
the Funds may invest in as a means of receiving a return on idle
cash include commercial paper, certificates of deposit,
repurchase agreements or other short-term debt obligations. The
Funds may also invest in money market funds, including funds
managed by Janus Capital. (See "Investment Company Securities").
Illiquid Investments
Each Fund may invest up to 15% of its net assets in illiquid
investments (i.e., securities that are not readily marketable).
The Trustees have authorized Janus Capital to make liquidity
determinations with respect to certain securities, including Rule
144A Securities, commercial paper and municipal lease obligations
purchased by the Funds. Under the guidelines established by the
Trustees, Janus Capital will consider the following factors: 1)
the frequency of trades and quoted prices for the obligation; 2)
the number of dealers willing to purchase or sell the security
and the number of other potential purchasers; 3) the willingness
of dealers to undertake to make a market in the security; and 4)
the nature of the security and the nature of marketplace trades,
including the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer. In the
case of commercial paper, Janus Capital will also consider
whether the paper is traded flat or in default as to principal
and interest and any ratings of the paper by a nationally
recognized statistical rating organization ("NRSRO"). A foreign
security that may be freely traded on or through the facilities
of an offshore exchange or other established offshore securities
market is not deemed to be a restricted security subject to these
procedures.
If illiquid securities exceed 15% of a Fund's net assets after
the time of purchase the Fund will take steps to reduce in an
orderly fashion its holdings of illiquid securities. Because
illiquid securities
8
may not be readily marketable, a portfolio manager may not be
able to dispose of them in a timely manner. As a result, a Fund
may be forced to hold illiquid securities while their price
depreciates. Depreciation in the price of illiquid securities may
cause the net asset value of a Fund to decline.
Each of the Funds may invest up to 5% of its total assets in
venture capital investments, although no more than 0.5% of its
total assets will be invested in any one venture capital company.
Venture capital investments are investments in new and early
stage companies whose securities are not publicly traded. These
investments may present significant opportunities for capital
appreciation but involve a high degree of risk that can result in
substantial losses. The Funds may not be able to sell such
investments when a portfolio manager deems it appropriate to do
so due to restrictions on their sale. In addition, the Funds may
be forced to sell their venture capital investments at less than
fair market value. Where venture capital investments must be
registered prior to their sale, the Funds may be obligated to pay
all or part of the registration expenses. Any of these situations
may result in a decrease in a Fund's NAV.
Securities Lending
Under procedures adopted by the Trustees, the Funds may lend
securities to qualified parties (typically brokers or other
financial institutions) who need to borrow securities in order to
complete certain transactions such as covering short sales,
avoiding failures to deliver securities or completing arbitrage
activities. The Funds may seek to earn additional income through
securities lending. Since there is the risk of delay in
recovering a loaned security or the risk of loss in collateral
rights if the borrower fails financially, securities lending will
only be made to parties that Janus Capital deems creditworthy and
in good standing. In addition, such loans will only be made if
Janus Capital believes the benefit from granting such loans
justifies the risk. The Funds will not have the right to vote on
securities while they are being lent, but it will generally call
a loan in anticipation of any important vote. All
9
loans will be continuously secured by collateral which consists
of cash, U.S. government securities, letters of credit and such
other collateral permitted by the SEC. Cash collateral may be
invested in money market funds advised by Janus to the extent
consistent with exemptive relief obtained from the SEC.
Foreign Securities
Within the parameters of its specific investment policies, each
Fund may invest without limit in foreign securities either
indirectly (e.g., depositary receipts) or directly in foreign
markets. Investments in foreign securities, including those of
foreign governments, may involve greater risks than investing in
domestic securities, because the Funds' performance may depend on
issues other than the performance of a particular company. These
issues include:
CURRENCY RISK. As long as a Fund holds a foreign security, its
value will be affected by the value of the local currency
relative to the U.S. dollar. When a Fund sells a foreign
denominated security, its value may be worth less in U.S. dollars
even if the security increases in value in its home country. U.S.
dollar denominated securities of foreign issuers may also be
affected by currency risk.
POLITICAL AND ECONOMIC RISK. Foreign investments may be subject
to heightened political and economic risks, particularly in
emerging markets which may have relatively unstable governments,
immature economic structures, national policies restricting
investments by foreigners, different legal systems, and economies
based on only a few industries. In some countries, there is the
risk that the government may take over the assets or operations
of a company or that the government may impose taxes or limits on
the removal of a Fund's assets from that country.
REGULATORY RISK. There may be less government supervision of
foreign markets. As a result, foreign issuers may not be subject
to the uniform accounting, auditing and financial reporting
standards
10
and practices applicable to domestic issuers and there may be
less publicly available information about foreign issuers.
MARKET RISK. Foreign securities markets, particularly those of
emerging market countries, may be less liquid and more volatile
than domestic markets. Certain markets may require payment for
securities before delivery and delays may be encountered in
settling securities transactions. In some foreign markets, there
may not be protection against failure by other parties to
complete transactions.
TRANSACTION COSTS. Costs of buying, selling and holding foreign
securities, including brokerage, tax and custody costs, may be
higher than those involved in domestic transactions.
Short Sales
Each Fund may engage in "short sales against the box." This
technique involves selling either a security that a Fund owns, or
a security equivalent in kind and amount to the security sold
short that the Fund has the right to obtain, for delivery at a
specified date in the future. A Fund may enter into a short sale
against the box to hedge against anticipated declines in the
market price of portfolio securities. If the value of the
securities sold short increases prior to the scheduled delivery
date, a Fund loses the opportunity to participate in the gain.
The Equity Funds may also engage in "naked" short sales. In a
naked short sale transaction, a Fund sells a security it does not
own to a purchaser at a specified price. To complete a naked
short sale, a Fund must: (1) borrow the security to deliver it to
the purchaser and (2) buy that same security in the market to
return it to the lender. A Fund may sell securities short only on
a fully collateralized basis, as permitted by SEC
interpretations. At the time of a short sale, a Fund will
establish and maintain a segregated account consisting of liquid
assets equal in value to the purchase price due on the settlement
date under the short sale period. The value of the liquid assets
will be marked to market daily. A Fund will engage in naked short
sales when its portfolio
11
manager anticipates that the security's market purchase price
will be less than its borrowing price. Naked short sales involve
the same fundamental risk as short sales against the box, as
described in the previous paragraph. In addition, naked short
sales carry risks of loss if the value of a security sold short
increases prior to the scheduled delivery date and a Fund must
pay more for the security than it has received from the purchaser
in the short sale. The total market value of all of a Fund's
naked short sale positions will not exceed 8% of its assets.
Zero Coupon, Step Coupon and Pay-In-Kind Securities
Each Fund may invest up to 10% (without limit for Janus High-
Yield Fund and Janus Flexible Income Fund) of its assets in zero
coupon, pay-in-kind and step coupon securities. Zero coupon bonds
are issued and traded at a discount from their face value. They
do not entitle the holder to any periodic payment of interest
prior to maturity. Step coupon bonds trade at a discount from
their face value and pay coupon interest. The coupon rate is low
for an initial period and then increases to a higher coupon rate
thereafter. The discount from the face amount or par value
depends on the time remaining until cash payments begin,
prevailing interest rates, liquidity of the security and the
perceived credit quality of the issuer. Pay-in-kind bonds
normally give the issuer an option to pay cash at a coupon
payment date or give the holder of the security a similar bond
with the same coupon rate and a face value equal to the amount of
the coupon payment that would have been made. For the purposes of
any Fund's restriction on investing in income-producing
securities, income-producing securities include securities that
make periodic interest payments as well as those that make
interest payments on a deferred basis or pay interest only at
maturity (e.g., Treasury bills or zero coupon bonds).
Current federal income tax law requires holders of zero coupon
and step coupon securities to report the portion of the original
issue discount on such securities that accrues during a given
year as interest income, even though the holders receive no cash
12
payments of interest during the year. In order to qualify as a
"regulated investment company" under the Code, a Fund must
distribute its investment company taxable income, including the
original issue discount accrued on zero coupon or step coupon
bonds. Because a Fund will not receive cash payments on a current
basis in respect of accrued original-issue discount on zero
coupon bonds or step coupon bonds during the period before
interest payments begin, in some years that Fund may have to
distribute cash obtained from other sources in order to satisfy
the distribution requirements under the Code. A Fund might obtain
such cash from selling other portfolio holdings which might cause
the Fund to incur capital gains or losses on the sale.
Additionally, these actions are likely to reduce the assets to
which Fund expenses could be allocated and to reduce the rate of
return for the Fund. In some circumstances, such sales might be
necessary in order to satisfy cash distribution requirements even
though investment considerations might otherwise make it
undesirable for a Fund to sell the securities at the time.
Generally, the market prices of zero coupon, step coupon and
pay-in-kind securities are more volatile than the prices of
securities that pay interest periodically and in cash and are
likely to respond to changes in interest rates to a greater
degree than other types of debt securities having similar
maturities and credit quality.
Pass-Through Securities
The Funds may invest in various types of pass-through securities,
such as mortgage-backed securities, asset-backed securities and
participation interests. A pass-through security is a share or
certificate of interest in a pool of debt obligations that have
been repackaged by an intermediary, such as a bank or
broker-dealer. The purchaser of a pass-through security receives
an undivided interest in the underlying pool of securities. The
issuers of the underlying securities make interest and principal
payments to the intermediary which are passed through to
purchasers, such as the Funds. The most common type of
pass-through securities are
13
mortgage-backed securities. Ginnie Mae Certificates are mortgage-
backed securities that evidence an undivided interest in a pool
of mortgage loans. Ginnie Mae Certificates differ from bonds in
that principal is paid back monthly by the borrowers over the
term of the loan rather than returned in a lump sum at maturity.
A Fund will generally purchase "modified pass-through" Ginnie Mae
Certificates, which entitle the holder to receive a share of all
interest and principal payments paid and owned on the mortgage
pool, net of fees paid to the "issuer" and Ginnie Mae, regardless
of whether or not the mortgagor actually makes the payment.
Ginnie Mae Certificates are backed as to the timely payment of
principal and interest by the full faith and credit of the U.S.
government.
Freddie Mac issues two types of mortgage pass-through securities:
mortgage participation certificates ("PCs") and guaranteed
mortgage certificates ("GMCs"). PCs resemble Ginnie Mae
Certificates in that each PC represents a pro rata share of all
interest and principal payments made and owned on the underlying
pool. Freddie Mac guarantees timely payments of interest on PCs
and the full return of principal. GMCs also represent a pro rata
interest in a pool of mortgages. However, these instruments pay
interest semiannually and return principal once a year in
guaranteed minimum payments. This type of security is guaranteed
by Freddie Mac as to timely payment of principal and interest but
it is not guaranteed by the full faith and credit of the U.S.
government.
Fannie Mae issues guaranteed mortgage pass-through certificates
("Fannie Mae Certificates"). Fannie Mae Certificates resemble
Ginnie Mae Certificates in that each Fannie Mae Certificate
represents a pro rata share of all interest and principal
payments made and owned on the underlying pool. This type of
security is guaranteed by Fannie Mae as to timely payment of
principal and interest but it is not guaranteed by the full faith
and credit of the U.S. government.
Except for GMCs, each of the mortgage-backed securities described
above is characterized by monthly payments to the
14
holder, reflecting the monthly payments made by the borrowers who
received the underlying mortgage loans. The payments to the
security holders (such as the Funds), like the payments on the
underlying loans, represent both principal and interest. Although
the underlying mortgage loans are for specified periods of time,
such as 20 or 30 years, the borrowers can, and typically do, pay
them off sooner. Thus, the security holders frequently receive
prepayments of principal in addition to the principal that is
part of the regular monthly payments. A portfolio manager will
consider estimated prepayment rates in calculating the average
weighted maturity of a Fund. A borrower is more likely to prepay
a mortgage that bears a relatively high rate of interest. This
means that in times of declining interest rates, higher yielding
mortgage-backed securities held by a Fund might be converted to
cash and that Fund will be forced to accept lower interest rates
when that cash is used to purchase additional securities in the
mortgage-backed securities sector or in other investment sectors.
Additionally, prepayments during such periods will limit a Fund's
ability to participate in as large a market gain as may be
experienced with a comparable security not subject to prepayment.
Asset-backed securities represent interests in pools of consumer
loans and are backed by paper or accounts receivables originated
by banks, credit card companies or other providers of credit.
Generally, the originating bank or credit provider is neither the
obligor nor the guarantor of the security, and interest and
principal payments ultimately depend upon payment of the
underlying loans by individuals. Tax-exempt asset-backed
securities include units of beneficial interests in pools of
purchase contracts, financing leases, and sales agreements that
may be created when a municipality enters into an installment
purchase contract or lease with a vendor. Such securities may be
secured by the assets purchased or leased by the municipality;
however, if the municipality stops making payments, there
generally will be no recourse against the vendor. These
obligations are likely to involve unscheduled prepayments of
principal.
15
Investment Company Securities
From time to time, the Funds may invest in securities of other
investment companies, subject to the provisions of Section
12(d)(1) of the 1940 Act. The Funds may invest in securities of
money market funds managed by Janus Capital in excess of the
limitations of Section 12(d)(1) under the terms of an SEC
exemptive order obtained by Janus Capital and the Janus funds.
Depositary Receipts
The Funds may invest in sponsored and unsponsored American
Depositary Receipts ("ADRs"), which are receipts issued by an
American bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer. ADRs, in registered form,
are designed for use in U.S. securities markets. Unsponsored ADRs
may be created without the participation of the foreign issuer.
Holders of these ADRs generally bear all the costs of the ADR
facility, whereas foreign issuers typically bear certain costs in
a sponsored ADR. The bank or trust company depositary of an
unsponsored ADR may be under no obligation to distribute
shareholder communications received from the foreign issuer or to
pass through voting rights. The Funds may also invest in European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs")
and in other similar instruments representing securities of
foreign companies. EDRs and GDRs are securities that are
typically issued by foreign banks or foreign trust companies,
although U.S. banks or U.S. trust companies may issue them. EDRs
and GDRs are structured similar to the arrangements of ADRs.
EDRs, in bearer form, are designed for use in European securities
markets.
Depositary Receipts are generally subject to the same sort of
risks as direct investments in a foreign country, such as,
currency risk, political and economic risk, and market risk,
because their values depend on the performance of a foreign
security denominated in its home currency. The risks of foreign
investing are addressed in some detail in the Funds'
prospectuses.
16
Municipal Obligations
The Funds may invest in municipal obligations issued by states,
territories and possessions of the United States and the District
of Columbia. Janus Federal Tax-Exempt Fund may, at times, invest
more than 25% of the value of its assets in industrial
development bonds, a type of revenue bond which, although issued
by a public authority, may be backed only by the credit and
security of a private issuer, thus presenting a greater credit
risk.
The value of municipal obligations can be affected by changes in
their actual or perceived credit quality. The credit quality of
municipal obligations can be affected by among other things the
financial condition of the issuer or guarantor, the issuer's
future borrowing plans and sources of revenue, the economic
feasibility of the revenue bond project or general borrowing
purpose, political or economic developments in the region where
the security is issued, and the liquidity of the security.
Because municipal securities are generally traded
over-the-counter, the liquidity of a particular issue often
depends on the willingness of dealers to make a market in the
security. The liquidity of some municipal obligations may be
enhanced by demand features, which would enable a Fund to demand
payment on short notice from the issuer or a financial
intermediary.
Other Income-Producing Securities
Other types of income producing securities that the Funds may
purchase include, but are not limited to, the following types of
securities:
VARIABLE AND FLOATING RATE OBLIGATIONS. These types of securities
have variable or floating rates of interest and, under certain
limited circumstances, may have varying principal amounts.
Variable and floating rate securities pay interest at rates that
are adjusted periodically according to a specified formula,
usually with reference to some interest rate index or market
interest rate (the "underlying index"). The floating rate tends
to decrease the security's price sensitivity to changes in
interest rates.
17
In order to most effectively use these investments, a portfolio
manager must correctly assess probable movements in interest
rates. This involves different skills than those used to select
most portfolio securities. If the portfolio manager incorrectly
forecasts such movements, a Fund could be adversely affected by
the use of variable or floating rate obligations.
STANDBY COMMITMENTS. These instruments, which are similar to a
put, give a Fund the option to obligate a broker, dealer or bank
to repurchase a security held by that Fund at a specified price.
TENDER OPTION BONDS. Tender option bonds are relatively long-
term bonds that are coupled with the option to tender the
securities to a bank, broker-dealer or other financial
institution at periodic intervals and receive the face value of
the bond. This investment structure is commonly used as a means
of enhancing a security's liquidity.
INVERSE FLOATERS. Inverse floaters are debt instruments whose
interest bears an inverse relationship to the interest rate on
another security. No Fund will invest more than 5% of its assets
in inverse floaters. Similar to variable and floating rate
obligations, effective use of inverse floaters requires skills
different from those needed to select most portfolio securities.
If movements in interest rates are incorrectly anticipated, a
Fund could lose money or its NAV could decline by the use of
inverse floaters.
STRIP BONDS. Strip bonds are debt securities that are stripped of
their interest (usually by a financial intermediary) after the
securities are issued. The market value of these securities
generally fluctuates more in response to changes in interest
rates than interest-paying securities of comparable maturity.
The Funds will purchase standby commitments, tender option bonds
and instruments with demand features primarily for the purpose of
increasing the liquidity of their portfolios.
18
Repurchase and Reverse Repurchase Agreements
In a repurchase agreement, a Fund purchases a security and
simultaneously commits to resell that security to the seller at
an agreed upon price on an agreed upon date within a number of
days (usually not more than seven) from the date of purchase. The
resale price consists of the purchase price plus an agreed upon
incremental amount that is unrelated to the coupon rate or
maturity of the purchased 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 (at
least equal to the amount of the agreed upon resale price and
marked-to-market daily) of the underlying security or
"collateral." A risk associated with repurchase agreements is the
failure of the seller to repurchase the securities as agreed,
which may cause a Fund to suffer a loss if the market value of
such securities declines before they can be liquidated on the
open market. In the event of bankruptcy or insolvency of the
seller, a Fund may encounter delays and incur costs in
liquidating the underlying security. Repurchase agreements that
mature in more than seven days are subject to the 15% limit on
illiquid investments. While it is not possible to eliminate all
risks from these transactions, it is the policy of the Funds to
limit repurchase agreements to those parties whose
creditworthiness has been reviewed and found satisfactory by
Janus Capital.
A Fund may use reverse repurchase agreements to obtain cash to
satisfy unusually heavy redemption requests or for other
temporary or emergency purposes without the necessity of selling
portfolio securities, or to earn additional income on portfolio
securities, such as Treasury bills or notes. In a reverse
repurchase agreement, a Fund sells a portfolio security to
another party, such as a bank or broker-dealer, in return for
cash and agrees to repurchase the instrument at a particular
price and time. While a reverse repurchase agreement is
outstanding, a Fund will maintain cash and appropriate liquid
assets in a segregated custodial account to cover its obligation
under the agreement. The Funds
19
will enter into reverse repurchase agreements only with parties
that Janus Capital deems creditworthy. Using reverse repurchase
agreements to earn additional income involves the risk that the
interest earned on the invested proceeds is less than the expense
of the reverse repurchase agreement transaction. This technique
may also have a leveraging effect on the Fund's portfolio,
although the Fund's intent to segregate assets in the amount of
the reverse repurchase agreement minimizes this effect.
High-Yield/High-Risk Bonds
Janus Flexible Income Fund and Janus High-Yield Fund may invest
without limit in bonds that are rated below investment grade
(e.g., bonds rated BB or lower by Standard & Poor's Ratings
Services or Ba or lower by Moody's Investors Service, Inc.).
Within the parameters of its specific investment policies, no
other Fund intends to invest 35% or more of its net assets in
such bonds, except Janus Core Equity Fund will, under normal
circumstances, limit its investment in such bonds to 20% of its
net assets. Lower rated bonds involve a higher degree of credit
risk, which is the risk that the issuer will not make interest or
principal payments when due. In the event of an unanticipated
default, a Fund would experience a reduction in its income, and
could expect a decline in the market value of the bonds so
affected.
Any Fund may also invest in unrated bonds of foreign and domestic
issuers. For the Funds subject to such limit, unrated bonds will
be included in each Fund's limit on investments in bonds rated
below investment grade unless its portfolio manager deems such
securities to be the equivalent of investment grade bonds.
Unrated bonds, while not necessarily of lower quality than rated
bonds, may not have as broad a market. Because of the size and
perceived demand of the issue, among other factors, certain
municipalities may not incur the costs of obtaining a rating. A
Fund's portfolio manager will analyze the creditworthiness of the
issuer, as well as any financial institution or other party
20
responsible for payments on the bond, in determining whether to
purchase unrated municipal bonds.
Defaulted Securities
A Fund will invest in defaulted securities only when its
portfolio manager believes, based upon his or her analysis of the
financial condition, results of operations and economic outlook
of an issuer, that there is potential for resumption of income
payments and that the securities offer an unusual opportunity for
capital appreciation. For the Funds subject to such limit,
defaulted securities will be included in each Fund's limit on
investments in bonds rated below investment grade.
Notwithstanding the portfolio manager's belief about the
resumption of income, however, the purchase of any security on
which payment of interest or dividends is suspended involves a
high degree of risk. Such risk includes, among other things, the
following:
FINANCIAL AND MARKET RISKS. Investments in securities that are in
default involve a high degree of financial and market risks that
can result in substantial or, at times, even total losses.
Issuers of defaulted securities may have substantial capital
needs and may become involved in bankruptcy or reorganization
proceedings. Among the problems involved in investments in such
issuers is the fact that it may be difficult to obtain
information about the condition of such issuers. The market
prices of such securities also are subject to abrupt and erratic
movements and above average price volatility, and the spread
between the bid and asked prices of such securities may be
greater than normally expected.
DISPOSITION OF PORTFOLIO SECURITIES. Although these Funds
generally will purchase securities for which their portfolio
managers expect an active market to be maintained, defaulted
securities may be less actively traded than other securities and
it may be difficult to dispose of substantial holdings of such
securities at prevailing market prices. The Funds will limit
holdings of any such securities to amounts that the portfolio
managers believe could be readily sold, and holdings of such
securities would, in any event,
21
be limited so as not to limit the Funds' ability to readily
dispose of securities to meet redemptions.
OTHER. Defaulted securities require active monitoring and may, at
times, require participation in bankruptcy or receivership
proceedings on behalf of the Funds.
Futures, Options and Other Derivative Instruments
FUTURES CONTRACTS. The Funds may enter into contracts for the
purchase or sale for future delivery of equity securities, fixed-
income securities, foreign currencies or contracts based on
financial indices, including indices of U.S. government
securities, foreign government securities, equity or fixed-income
securities. U.S. futures contracts are traded on exchanges which
have been designated "contract markets" by the CFTC and must be
executed through a futures commission merchant ("FCM"), or
brokerage firm, which is a member of the relevant contract
market. Through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing
members of the exchange.
The buyer or seller of a futures contract is not required to
deliver or pay for the underlying instrument unless the contract
is held until the delivery date. However, both the buyer and
seller are required to deposit "initial margin" for the benefit
of the FCM when the contract is entered into. Initial margin
deposits are equal to a percentage of the contract's value, as
set by the exchange on which the contract is traded, and may be
maintained in cash or certain other liquid assets by the Funds'
custodian for the benefit of the FCM. Initial margin payments are
similar to good faith deposits or performance bonds. Unlike
margin extended by a securities broker, initial margin payments
do not constitute purchasing securities on margin for purposes of
the Fund's investment limitations. If the value of either party's
position declines, that party will be required to make additional
"variation margin" payments for the benefit of the FCM to settle
the change in value on a daily basis. The party that has a gain
may be entitled to receive all or a portion of this amount. In
the event of
22
the bankruptcy of the FCM that holds margin on behalf of a Fund,
that Fund may be entitled to return of margin owed to such Fund
only in proportion to the amount received by the FCM's other
customers. Janus Capital will attempt to minimize the risk by
careful monitoring of the creditworthiness of the FCMs with which
the Funds do business and by depositing margin payments in a
segregated account with the Funds' custodian.
The Funds intend to comply with guidelines of eligibility for
exclusion from the definition of the term "commodity pool
operator" adopted by the CFTC and the National Futures
Association, which regulate trading in the futures markets. The
Funds will use futures contracts and related options primarily
for bona fide hedging purposes within the meaning of CFTC
regulations. To the extent that the Funds hold positions in
futures contracts and related options that do not fall within the
definition of bona fide hedging transactions, the aggregate
initial margin and premiums required to establish such positions
will not exceed 5% of the fair market value of a Fund's net
assets, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into.
Although a Fund will segregate cash and liquid assets in an
amount sufficient to cover its open futures obligations, the
segregated assets would be available to that Fund immediately
upon closing out the futures position, while settlement of
securities transactions could take several days. However, because
a Fund's cash that may otherwise be invested would be held
uninvested or invested in other liquid assets so long as the
futures position remains open, such Fund's return could be
diminished due to the opportunity losses of foregoing other
potential investments.
A Fund's primary purpose in entering into futures contracts is to
protect that Fund from fluctuations in the value of individual
securities or the securities markets generally, or interest rates
without actually buying or selling the underlying debt or equity
security. For example, if the Fund anticipates an increase in the
23
price of stocks, and it intends to purchase stocks at a later
time, that Fund could enter into a futures contract to purchase a
stock index as a temporary substitute for stock purchases. If an
increase in the market occurs that influences the stock index as
anticipated, the value of the futures contracts will increase,
thereby serving as a hedge against that Fund not participating in
a market advance. This technique is sometimes known as an
anticipatory hedge. A Fund may also use this technique with
respect to an individual company's stock. To the extent a Fund
enters into futures contracts for this purpose, the segregated
assets maintained to cover such Fund's obligations with respect
to the futures contracts will consist of other liquid assets from
its portfolio in an amount equal to the difference between the
contract price and the aggregate value of the initial and
variation margin payments made by that Fund with respect to the
futures contracts. Conversely, if a Fund holds stocks and seeks
to protect itself from a decrease in stock prices, the Fund might
sell stock index futures contracts, thereby hoping to offset the
potential decline in the value of its portfolio securities by a
corresponding increase in the value of the futures contract
position. Similarly, if a Fund holds an individual company's
stock and expects the price of that stock to decline, the Fund
may sell a futures contract on that stock in hopes of offsetting
the potential decline in the company's stock price. A Fund could
protect against a decline in stock prices by selling portfolio
securities and investing in money market instruments, but the use
of futures contracts enables it to maintain a defensive position
without having to sell portfolio securities.
If a Fund owns bonds and the portfolio manager expects interest
rates to increase, that Fund may take a short position in
interest rate futures contracts. Taking such a position would
have much the same effect as that Fund selling bonds in its
portfolio. If interest rates increase as anticipated, the value
of the bonds would decline, but the value of that Fund's interest
rate futures contract will increase, thereby keeping the net
asset value of that Fund from declining as much as it may have
otherwise. If, on the other
24
hand, a portfolio manager expects interest rates to decline, that
Fund may take a long position in interest rate futures contracts
in anticipation of later closing out the futures position and
purchasing the bonds. Although a Fund can accomplish similar
results by buying securities with long maturities and selling
securities with short maturities, given the greater liquidity of
the futures market than the cash market, it may be possible to
accomplish the same result more easily and more quickly by using
futures contracts as an investment tool to reduce risk.
The ordinary spreads between prices in the cash and futures
markets, due to differences in the nature of those markets, are
subject to distortions. First, all participants in the futures
market are subject to initial margin and variation margin
requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal price
relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking
delivery of the instrument underlying a futures contract. To the
extent participants decide to make or take delivery, liquidity in
the futures market could be reduced and prices in the futures
market distorted. Third, from the point of view of speculators,
the margin deposit requirements in the futures market are less
onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures
market may cause temporary price distortions. Due to the
possibility of the foregoing distortions, a correct forecast of
general price trends by a portfolio manager still may not result
in a successful use of futures.
Futures contracts entail risks. Although the Funds believe that
use of such contracts will benefit the Funds, a Fund's overall
performance could be worse than if such Fund had not entered into
futures contracts if the portfolio manager's investment judgement
proves incorrect. For example, if a Fund has hedged against the
effects of a possible decrease in prices of securities
25
held in its portfolio and prices increase instead, that Fund will
lose part or all of the benefit of the increased value of these
securities because of offsetting losses in its futures positions.
This risk may be magnified for single stock futures transactions,
as the Fund's portfolio manager must predict the direction of the
price of an individual stock, as opposed to securities prices
generally. In addition, if a Fund has insufficient cash, it may
have to sell securities from its portfolio to meet daily
variation margin requirements. Those sales may be, but will not
necessarily be, at increased prices which reflect the rising
market and may occur at a time when the sales are disadvantageous
to such Fund.
The prices of futures contracts depend primarily on the value of
their underlying instruments. Because there are a limited number
of types of futures contracts, it is possible that the
standardized futures contracts available to a Fund will not match
exactly such Fund's current or potential investments. A Fund may
buy and sell futures contracts based on underlying instruments
with different characteristics from the securities in which it
typically invests -- for example, by hedging investments in
portfolio securities with a futures contract based on a broad
index of securities -- which involves a risk that the futures
position will not correlate precisely with the performance of
such Fund's investments.
Futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments
closely correlate with a Fund's investments, such as with a
single stock futures contract. Futures prices are affected by
factors such as current and anticipated short-term interest
rates, changes in volatility of the underlying instruments and
the time remaining until expiration of the contract. Those
factors may affect securities prices differently from futures
prices. Imperfect correlations between a Fund's investments and
its futures positions also may result from differing levels of
demand in the futures markets and the securities markets, from
structural differences in how futures and securities are traded,
and from imposition of daily price fluctuation limits for futures
contracts. A Fund may buy or sell futures contracts
26
with a greater or lesser value than the securities it wishes to
hedge or is considering purchasing in order to attempt to
compensate for differences in historical volatility between the
futures contract and the securities, although this may not be
successful in all cases. If price changes in a Fund's futures
positions are poorly correlated with its other investments, its
futures positions may fail to produce desired gains or result in
losses that are not offset by the gains in that Fund's other
investments.
Because futures contracts are generally settled within a day from
the date they are closed out, compared with a settlement period
of three days for some types of securities, the futures markets
can provide superior liquidity to the securities markets.
Nevertheless, there is no assurance that a liquid secondary
market will exist for any particular futures contract at any
particular time. In addition, futures exchanges may establish
daily price fluctuation limits for futures contracts and may halt
trading if a contract's price moves upward or downward more than
the limit in a given day. On volatile trading days when the price
fluctuation limit is reached, it may be impossible for a Fund to
enter into new positions or close out existing positions. If the
secondary market for a futures contract is not liquid because of
price fluctuation limits or otherwise, a Fund may not be able to
promptly liquidate unfavorable futures positions and potentially
could be required to continue to hold a futures position until
the delivery date, regardless of changes in its value. As a
result, such Fund's access to other assets held to cover its
futures positions also could be impaired.
OPTIONS ON FUTURES CONTRACTS. The Funds may buy and write put and
call options on futures contracts. An option on a future gives a
Fund the right (but not the obligation) to buy or sell a futures
contract at a specified price on or before a specified date. The
purchase of a call option on a futures contract is similar in
some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based
or
27
the price of the underlying instrument, ownership of the option
may or may not be less risky than ownership of the futures
contract or the underlying instrument. As with the purchase of
futures contracts, when a Fund is not fully invested it may buy a
call option on a futures contract to hedge against a market
advance.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign
currency which is deliverable under, or of the index comprising,
the futures contract. If the futures' price at the expiration of
the option is below the exercise price, a Fund will retain the
full amount of the option premium which provides a partial hedge
against any decline that may have occurred in that Fund's
portfolio holdings. The writing of a put option on a futures
contract constitutes a partial hedge against increasing prices of
the security or foreign currency which is deliverable under, or
of the index comprising, the futures contract. If the futures'
price at expiration of the option is higher than the exercise
price, a Fund will retain the full amount of the option premium
which provides a partial hedge against any increase in the price
of securities which that Fund is considering buying. If a call or
put option a Fund has written is exercised, such Fund will incur
a loss which will be reduced by the amount of the premium it
received. Depending on the degree of correlation between the
change in the value of its portfolio securities and changes in
the value of the futures positions, a Fund's losses from existing
options on futures may to some extent be reduced or increased by
changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in
some respects to the purchase of protective put options on
portfolio securities. For example, a Fund may buy a put option on
a futures contract to hedge its portfolio against the risk of
falling prices or rising interest rates.
The amount of risk a Fund assumes when it buys an option on a
futures contract is the premium paid for the option plus related
28
transaction costs. In addition to the correlation risks discussed
above, the purchase of an option also entails the risk that
changes in the value of the underlying futures contract will not
be fully reflected in the value of the options bought.
FORWARD CONTRACTS. A forward contract is an agreement between two
parties in which one party is obligated to deliver a stated
amount of a stated asset at a specified time in the future and
the other party is obligated to pay a specified amount for the
assets at the time of delivery. The Funds may enter into forward
contracts to purchase and sell government securities, equity or
income securities, foreign currencies or other financial
instruments. Forward contracts generally are traded in an
interbank market conducted directly between traders (usually
large commercial banks) and their customers. Unlike futures
contracts, which are standardized contracts, forward contracts
can be specifically drawn to meet the needs of the parties that
enter into them. The parties to a forward contract may agree to
offset or terminate the contract before its maturity, or may hold
the contract to maturity and complete the contemplated exchange.
The following discussion summarizes the Funds' principal uses of
forward foreign currency exchange contracts ("forward currency
contracts"). A Fund may enter into forward currency contracts
with stated contract values of up to the value of that Fund's
assets. A forward currency contract is an obligation to buy or
sell an amount of a specified currency for an agreed price (which
may be in U.S. dollars or a foreign currency). A Fund will
exchange foreign currencies for U.S. dollars and for other
foreign currencies in the normal course of business and may buy
and sell currencies through forward currency contracts in order
to fix a price for securities it has agreed to buy or sell
("transaction hedge"). A Fund also may hedge some or all of its
investments denominated in a foreign currency or exposed to
foreign currency fluctuations against a decline in the value of
that currency relative to the U.S. dollar by entering into
forward currency contracts to sell an amount of that currency (or
a proxy currency whose performance
29
is expected to replicate or exceed the performance of that
currency relative to the U.S. dollar) approximating the value of
some or all of its portfolio securities denominated in that
currency ("position hedge") or by participating in options or
futures contracts with respect to the currency. A Fund also may
enter into a forward currency contract with respect to a currency
where the Fund is considering the purchase or sale of investments
denominated in that currency but has not yet selected the
specific investments ("anticipatory hedge"). In any of these
circumstances a Fund may, alternatively, enter into a forward
currency contract to purchase or sell one foreign currency for a
second currency that is expected to perform more favorably
relative to the U.S. dollar if the portfolio manager believes
there is a reasonable degree of correlation between movements in
the two currencies ("cross-hedge").
These types of hedging minimize the effect of currency
appreciation as well as depreciation, but do not eliminate
fluctuations in the underlying U.S. dollar equivalent value of
the proceeds of or rates of return on a Fund's foreign currency
denominated portfolio securities. The matching of the increase in
value of a forward contract and the decline in the U.S. dollar
equivalent value of the foreign currency denominated asset that
is the subject of the hedge generally will not be precise.
Shifting a Fund's currency exposure from one foreign currency to
another removes that Fund's opportunity to profit from increases
in the value of the original currency and involves a risk of
increased losses to such Fund if its portfolio manager's
projection of future exchange rates is inaccurate. Proxy hedges
and cross-hedges may result in losses if the currency used to
hedge does not perform similarly to the currency in which hedged
securities are denominated. Unforeseen changes in currency prices
may result in poorer overall performance for a Fund than if it
had not entered into such contracts.
The Funds will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated in or whose
value is tied to, the currency underlying the forward contract or
30
the currency being hedged. To the extent that a Fund is not able
to cover its forward currency positions with underlying portfolio
securities, the Funds' custodian will segregate cash or other
liquid assets having a value equal to the aggregate amount of
such Fund's commitments under forward contracts entered into with
respect to position hedges, cross-hedges and anticipatory hedges.
If the value of the securities used to cover a position or the
value of segregated assets declines, a Fund will find alternative
cover or segregate additional cash or liquid assets on a daily
basis so that the value of the covered and segregated assets will
be equal to the amount of such Fund's commitments with respect to
such contracts. As an alternative to segregating assets, a Fund
may buy call options permitting such Fund to buy the amount of
foreign currency being hedged by a forward sale contract or a
Fund may buy put options permitting it to sell the amount of
foreign currency subject to a forward buy contract.
While forward contracts are not currently regulated by the CFTC,
the CFTC may in the future assert authority to regulate forward
contacts. In such event, the Funds' ability to utilize forward
contracts may be restricted. In addition, a Fund may not always
be able to enter into forward contracts at attractive prices and
may be limited in its ability to use these contracts to hedge
Fund assets.
OPTIONS ON FOREIGN CURRENCIES. The Funds may buy and write
options on foreign currencies in a manner similar to that in
which futures or forward contracts on foreign currencies will be
utilized. For example, a decline in the U.S. dollar value of a
foreign currency in which portfolio securities are denominated
will reduce the U.S. dollar value of such securities, even if
their value in the foreign currency remains constant. In order to
protect against such diminutions in the value of portfolio
securities, a Fund may buy put options on the foreign currency.
If the value of the currency declines, such Fund will have the
right to sell such currency for a fixed amount in U.S. dollars,
thereby offsetting, in whole or in part, the adverse effect on
its portfolio.
31
Conversely, when a rise in the U.S. dollar value of a currency in
which securities to be acquired are denominated is projected,
thereby increasing the cost of such securities, a Fund may buy
call options on the foreign currency. The purchase of such
options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to a Fund from purchases
of foreign currency options will be reduced by the amount of the
premium and related transaction costs. In addition, if currency
exchange rates do not move in the direction or to the extent
projected, a Fund could sustain losses on transactions in foreign
currency options that would require such Fund to forego a portion
or all of the benefits of advantageous changes in those rates.
The Funds may also write options on foreign currencies. For
example, to hedge against a potential decline in the U.S. dollar
value of foreign currency denominated securities due to adverse
fluctuations in exchange rates, a Fund could, instead of
purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most
likely not be exercised and the decline in value of portfolio
securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a
potential increase in the U.S. dollar cost of securities to be
acquired, a Fund could write a put option on the relevant
currency which, if rates move in the manner projected, should
expire unexercised and allow that Fund to hedge the increased
cost up to the amount of the premium. As in the case of other
types of options, however, the writing of a foreign currency
option will constitute only a partial hedge up to the amount of
the premium. If exchange rates do not move in the expected
direction, the option may be exercised and a Fund would be
required to buy or sell the underlying currency at a loss which
may not be offset by the amount of the premium. Through the
writing of options on foreign currencies, a Fund also may lose
all
32
or a portion of the benefits which might otherwise have been
obtained from favorable movements in exchange rates.
The Funds may write covered call options on foreign currencies. A
call option written on a foreign currency by a Fund is "covered"
if that Fund owns the foreign currency underlying the call or has
an absolute and immediate right to acquire that foreign currency
without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon
conversion or exchange of other foreign currencies held in its
portfolio. A call option is also covered if a Fund has a call on
the same foreign currency in the same principal amount as the
call written if the exercise price of the call held (i) is equal
to or less than the exercise price of the call written or (ii) is
greater than the exercise price of the call written, if the
difference is maintained by such Fund in cash or other liquid
assets in a segregated account with the Funds' custodian.
The Funds also may write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is
for cross-hedging purposes if it is designed to provide a hedge
against a decline due to an adverse change in the exchange rate
in the U.S. dollar value of a security which a Fund owns or has
the right to acquire and which is denominated in the currency
underlying the option. Call options on foreign currencies which
are entered into for cross-hedging purposes are not covered.
However, in such circumstances, a Fund will collateralize the
option by segregating cash or other liquid assets in an amount
not less than the value of the underlying foreign currency in
U.S. dollars marked-to-market daily.
OPTIONS ON SECURITIES. In an effort to increase current income
and to reduce fluctuations in net asset value, the Funds may
write covered put and call options and buy put and call options
on securities that are traded on United States and foreign
securities exchanges and over-the-counter. The Funds may write
and buy options on the same types of securities that the Funds
may purchase directly.
33
A put option written by a Fund is "covered" if that Fund (i)
segregates cash not available for investment or other liquid
assets with a value equal to the exercise price of the put with
the Funds' custodian or (ii) holds a put on the same security and
in the same principal amount as the put written and the exercise
price of the put held is equal to or greater than the exercise
price of the put written. The premium paid by the buyer of an
option will reflect, among other things, the relationship of the
exercise price to the market price and the volatility of the
underlying security, the remaining term of the option, supply and
demand and interest rates.
A call option written by a Fund is "covered" if that Fund owns
the underlying security covered by the call or has an absolute
and immediate right to acquire that security without additional
cash consideration (or for additional cash consideration held in
a segregated account by the Funds' custodian) upon conversion or
exchange of other securities held in its portfolio. A call option
is also deemed to be covered if a Fund holds a call on the same
security and in the same principal amount as the call written and
the exercise price of the call held (i) is equal to or less than
the exercise price of the call written or (ii) is greater than
the exercise price of the call written if the difference is
maintained by that Fund in cash and other liquid assets in a
segregated account with its custodian.
The Funds also may write call options that are not covered for
cross-hedging purposes. A Fund collateralizes its obligation
under a written call option for cross-hedging purposes by
segregating cash or other liquid assets in an amount not less
than the market value of the underlying security,
marked-to-market daily. A Fund would write a call option for
cross-hedging purposes, instead of writing a covered call option,
when the premium to be received from the cross-hedge transaction
would exceed that which would be received from writing a covered
call option and its portfolio manager believes that writing the
option would achieve the desired hedge.
34
The writer of an option may have no control over when the
underlying securities must be sold, in the case of a call option,
or bought, in the case of a put option, since with regard to
certain options, the writer may be assigned an exercise notice at
any time prior to the termination of the obligation. Whether or
not an option expires unexercised, the writer retains the amount
of the premium. This amount, of course, may, in the case of a
covered call option, be offset by a decline in the market value
of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from
the sale of the underlying security. If a put option is
exercised, the writer must fulfill the obligation to buy the
underlying security at the exercise price, which will usually
exceed the then market value of the underlying security.
The writer of an option that wishes to terminate its obligation
may effect a "closing purchase transaction." This is accomplished
by buying an option of the same series as the option previously
written. The effect of the purchase is that the writer's position
will be canceled by the clearing corporation. However, a writer
may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who
is the holder of an option may liquidate its position by
effecting a "closing sale transaction." This is accomplished by
selling an option of the same series as the option previously
bought. There is no guarantee that either a closing purchase or a
closing sale transaction can be effected.
In the case of a written call option, effecting a closing
transaction will permit a Fund to write another call option on
the underlying security with either a different exercise price or
expiration date or both. In the case of a written put option,
such transaction will permit a Fund to write another put option
to the extent that the exercise price is secured by other liquid
assets. Effecting a closing transaction also will permit a Fund
to use the cash or proceeds from the concurrent sale of any
securities subject to the option for other investments. If a Fund
desires to sell a particular security
35
from its portfolio on which it has written a call option, such
Fund will effect a closing transaction prior to or concurrent
with the sale of the security.
A Fund will realize a profit from a closing transaction if the
price of the purchase transaction is less than the premium
received from writing the option or the price received from a
sale transaction is more than the premium paid to buy the option.
A Fund will realize a loss from a closing transaction if the
price of the purchase transaction is more than the premium
received from writing the option or the price received from a
sale transaction is less than the premium paid to buy the option.
Because increases in the market of a call option generally will
reflect increases in the market price of the underlying security,
any loss resulting from the repurchase of a call option is likely
to be offset in whole or in part by appreciation of the
underlying security owned by a Fund.
An option position may be closed out only where a secondary
market for an option of the same series exists. If a secondary
market does not exist, the Fund may not be able to effect closing
transactions in particular options and the Fund would have to
exercise the options in order to realize any profit. If a Fund is
unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon
exercise. The absence of a liquid secondary market may be due to
the following: (i) insufficient trading interest in certain
options, (ii) restrictions imposed by a national securities
exchange ("Exchange") on which the option is traded on opening or
closing transactions or both, (iii) trading halts, suspensions or
other restrictions imposed with respect to particular classes or
series of options or underlying securities, (iv) unusual or
unforeseen circumstances that interrupt normal operations on an
Exchange, (v) the facilities of an Exchange or of the Options
Clearing Corporation ("OCC") may not at all times be adequate to
handle current trading volume, or (vi) one or more Exchanges
could, for economic or other reasons, decide or be compelled at
some future
36
date to discontinue the trading of options (or a particular class
or series of options), in which event the secondary market on
that Exchange (or in that class or series of options) would cease
to exist, although outstanding options on that Exchange that had
been issued by the OCC as a result of trades on that Exchange
would continue to be exercisable in accordance with their terms.
A Fund may write options in connection with buy-and-write
transactions. In other words, a Fund may buy a security and then
write a call option against that security. The exercise price of
such call will depend upon the expected price movement of the
underlying security. The exercise price of a call option may be
below ("in-the-money"), equal to ("at-the-money") or above ("out-
of-the-money") the current value of the underlying security at
the time the option is written. Buy-and-write transactions using
in-the-money call options may be used when it is expected that
the price of the underlying security will remain flat or decline
moderately during the option period. Buy-and-write transactions
using at-the-money call options may be used when it is expected
that the price of the underlying security will remain fixed or
advance moderately during the option period. Buy-and-write
transactions using out-of-the-money call options may be used when
it is expected that the premiums received from writing the call
option plus the appreciation in the market price of the
underlying security up to the exercise price will be greater than
the appreciation in the price of the underlying security alone.
If the call options are exercised in such transactions, a Fund's
maximum gain will be the premium received by it for writing the
option, adjusted upwards or downwards by the difference between
that Fund's purchase price of the security and the exercise
price. If the options are not exercised and the price of the
underlying security declines, the amount of such decline will be
offset by the amount of premium received.
The writing of covered put options is similar in terms of risk
and return characteristics to buy-and-write transactions. If the
market price of the underlying security rises or otherwise is
above the
37
exercise price, the put option will expire worthless and a Fund's
gain will be limited to the premium received. If the market price
of the underlying security declines or otherwise is below the
exercise price, a Fund may elect to close the position or take
delivery of the security at the exercise price and that Fund's
return will be the premium received from the put options minus
the amount by which the market price of the security is below the
exercise price.
A Fund may buy put options to hedge against a decline in the
value of its portfolio. By using put options in this way, a Fund
will reduce any profit it might otherwise have realized in the
underlying security by the amount of the premium paid for the put
option and by transaction costs.
A Fund may buy call options to hedge against an increase in the
price of securities that it may buy in the future. The premium
paid for the call option plus any transaction costs will reduce
the benefit, if any, realized by such Fund upon exercise of the
option, and, unless the price of the underlying security rises
sufficiently, the option may expire worthless to that Fund.
EURODOLLAR INSTRUMENTS. A Fund may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated
futures contracts or options thereon which are linked to the
London Interbank Offered Rate ("LIBOR"), although foreign
currency-denominated instruments are available from time to time.
Eurodollar futures contracts enable purchasers to obtain a fixed
rate for the lending of funds and sellers to obtain a fixed rate
for borrowings. A Fund might use Eurodollar futures contracts and
options thereon to hedge against changes in LIBOR, to which many
interest rate swaps and fixed-income instruments are linked.
SWAPS AND SWAP-RELATED PRODUCTS. A Fund may enter into interest
rate swaps, caps and floors on either an asset-based or
liability-based basis, depending upon whether it is hedging its
assets or its liabilities, and will usually enter into interest
rate swaps on a net basis (i.e., the two payment streams are
netted
38
out, with a Fund receiving or paying, as the case may be, only
the net amount of the two payments). The net amount of the
excess, if any, of a Fund's obligations over its entitlement with
respect to each interest rate swap will be calculated on a daily
basis and an amount of cash or other liquid assets having an
aggregate net asset value at least equal to the accrued excess
will be maintained in a segregated account by the Funds'
custodian. If a Fund enters into an interest rate swap on other
than a net basis, it would maintain a segregated account in the
full amount accrued on a daily basis of its obligations with
respect to the swap. A Fund will not enter into any interest rate
swap, cap or floor transaction unless the unsecured senior debt
or the claims-paying ability of the other party thereto is rated
in one of the three highest rating categories of at least one
NRSRO at the time of entering into such transaction. Janus
Capital will monitor the creditworthiness of all counterparties
on an ongoing basis. If there is a default by the other party to
such a transaction, a Fund will have contractual remedies
pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap
documentation. Janus Capital has determined that, as a result,
the swap market has become relatively liquid. Caps and floors are
more recent innovations for which standardized documentation has
not yet been developed and, accordingly, they are less liquid
than swaps. To the extent a Fund sells (i.e., writes) caps and
floors, it will segregate cash or other liquid assets having an
aggregate net asset value at least equal to the full amount,
accrued on a daily basis, of its obligations with respect to any
caps or floors.
There is no limit on the amount of interest rate swap
transactions that may be entered into by a Fund. These
transactions may in some instances involve the delivery of
securities or other underlying assets by a Fund or its
counterparty to collateralize obligations under the swap. Under
the documentation currently used in those markets, the risk of
loss with respect to interest rate
39
swaps is limited to the net amount of the payments that a Fund is
contractually obligated to make. If the other party to an
interest rate swap that is not collateralized defaults, a Fund
would risk the loss of the net amount of the payments that it
contractually is entitled to receive. A Fund may buy and sell
(i.e., write) caps and floors without limitation, subject to the
segregation requirement described above.
ADDITIONAL RISKS OF OPTIONS ON FOREIGN CURRENCIES, FORWARD
CONTRACTS AND FOREIGN INSTRUMENTS. Unlike transactions entered
into by the Funds in futures contracts, options on foreign
currencies and forward contracts are not traded on contract
markets regulated by the CFTC or (with the exception of certain
foreign currency options) by the SEC. To the contrary, such
instruments are traded through financial institutions acting as
market-makers, although foreign currency options are also traded
on certain Exchanges, such as the Philadelphia Stock Exchange and
the Chicago Board Options Exchange, subject to SEC regulation.
Similarly, options on currencies may be traded over-the-counter.
In an over-the-counter trading environment, many of the
protections afforded to Exchange participants will not be
available. For example, there are no daily price fluctuation
limits, and adverse market movements could therefore continue to
an unlimited extent over a period of time. Although the buyer of
an option cannot lose more than the amount of the premium plus
related transaction costs, this entire amount could be lost.
Moreover, an option writer and a buyer or seller of futures or
forward contracts could lose amounts substantially in excess of
any premium received or initial margin or collateral posted due
to the potential additional margin and collateral requirements
associated with such positions.
Options on foreign currencies traded on Exchanges are within the
jurisdiction of the SEC, as are other securities traded on
Exchanges. As a result, many of the protections provided to
traders on organized Exchanges will be available with respect to
such transactions. In particular, all foreign currency option
40
positions entered into on an Exchange are cleared and guaranteed
by the OCC, thereby reducing the risk of counterparty default.
Further, a liquid secondary market in options traded on an
Exchange may be more readily available than in the over-the-
counter market, potentially permitting a Fund to liquidate open
positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency
options, however, is subject to the risks of the availability of
a liquid secondary market described above, as well as the risks
regarding adverse market movements, margining of options written,
the nature of the foreign currency market, possible intervention
by governmental authorities and the effects of other political
and economic events. In addition, exchange-traded options on
foreign currencies involve certain risks not presented by the
over-the-counter market. For example, exercise and settlement of
such options must be made exclusively through the OCC, which has
established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that
foreign governmental restrictions or taxes would prevent the
orderly settlement of foreign currency option exercises, or would
result in undue burdens on the OCC or its clearing member, impose
special procedures on exercise and settlement, such as technical
changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
In addition, options on U.S. government securities, futures
contracts, options on futures contracts, forward contracts and
options on foreign currencies may be traded on foreign exchanges
and over-the-counter in foreign countries. Such transactions are
subject to the risk of governmental actions affecting trading in
or the prices of foreign currencies or securities. The value of
such positions also could be adversely affected by (i) other
complex foreign political and economic factors, (ii) lesser
availability than in the United States of data on which to make
trading decisions,
41
(iii) delays in a Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the
United States, (iv) the imposition of different exercise and
settlement terms and procedures and margin requirements than in
the United States, and (v) low trading volume.
42
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
As stated in the Prospectuses, each Fund has an Investment
Advisory Agreement with Janus Capital, 100 Fillmore Street,
Denver, Colorado 80206-4928. Each Advisory Agreement provides
that Janus Capital will furnish continuous advice and
recommendations concerning the Funds' investments, provide office
space for the Funds, and pay the salaries, fees and expenses of
all Fund officers and of those Trustees who are interested
persons of Janus Capital. Janus Capital also may make payments to
selected broker-dealer firms or institutions which perform
recordkeeping or other services with respect to shareholder
accounts. The minimum aggregate size required for eligibility for
such payments, and the factors in selecting the broker-dealer
firms and institutions to which they will be made, are determined
from time to time by Janus Capital. Janus Capital is also
authorized to perform the management and administrative services
necessary for the operation of the Funds.
The Funds pay custodian and transfer agent fees and expenses,
brokerage commissions and dealer spreads and other expenses in
connection with the execution of portfolio transactions, legal
and accounting expenses, interest and taxes, trade or other
investment company organization dues and expenses, registration
fees, expenses of shareholders' meetings and reports to
shareholders, fees and expenses of Trustees who are not
affiliated with Janus Capital, costs of preparing, printing and
mailing the Funds' Prospectuses and SAI to current shareholders
and other costs of complying with applicable laws regulating the
sale of Fund shares. Pursuant to the Advisory Agreements, Janus
Capital furnishes certain other services, including net asset
value determination and fund accounting, recordkeeping, and blue
sky registration and monitoring services, for which the Funds may
reimburse Janus Capital for its costs.
Each of the Equity Funds have agreed to compensate Janus Capital
for its services by the monthly payment of a fee at the annual
rate of 0.65% of the average daily net assets of each Fund.
43
Janus High Yield Fund has agreed to compensate Janus Capital for
its services by the monthly payment of a fee at the annual rate
of 0.75% of the first $300 million of average daily net assets of
the Fund and 0.65% of the average daily net assets in excess of
$300 million. Janus Flexible Income Fund and Janus Short-Term
Bond Fund have each agreed to compensate Janus Capital for its
services by the monthly payment of a fee at the annual rate of
0.65% of the first $300 million of the average daily net assets
of the Fund, plus 0.55% of the average daily net assets of the
Fund in excess of $300 million. Janus Federal Tax-Exempt Fund has
agreed to compensate Janus Capital for its services by the
monthly payment of a fee at the annual rate of 0.60% of the first
$300 million of average daily net assets of the Fund and 0.55% of
the average daily net assets in excess of $300 million. Janus
Capital has agreed by contract to waive the advisory fee payable
by any of the Fixed-Income Funds in an amount equal to the
amount, if any, that such Fund's normal operating expenses
chargeable to its income account in any fiscal year, including
the investment advisory fee but excluding brokerage commissions,
interest, taxes and extraordinary expenses, exceed 1% of the
average daily net assets for a fiscal year for Janus Flexible
Income Fund and Janus High-Yield Fund and 0.65% of the average
daily net assets for a fiscal year for Janus Short-Term Bond Fund
and Janus Federal Tax-Exempt Fund. Janus Capital has agreed to
continue such waivers until at least the next annual renewal of
the advisory agreement.
44
The following table summarizes the advisory fees paid by the
Funds and any advisory fee waivers for the last three fiscal
periods of each Fund. The information below is for fiscal periods
ended October 31. The information presented in the table below
reflects the management fees in effect during each of the periods
shown.
<Table>
<Caption>
2001 2000(1) 1999
------------------------ ------------------------ ------------------------
Fund Name Advisory Fees Waiver Advisory Fees Waiver Advisory Fees Waiver
- -----------------------------------------------------------------------------------------------------
Janus Enterprise Fund $31,579,339 - $ 47,327,307 - $ 7,724,455 -
Janus Mercury Fund $73,061,347 - $103,376,727 - $34,579,777 -
Janus Special
Situations Fund $ 8,604,180 - $ 11,046,610 - $ 6,903,567 -
Janus Strategic Value
Fund $17,326,328 - $ 12,410,248(2) - N/A -
Janus Orion Fund $ 4,953,922 - $ 2,393,411(3) - N/A -
Janus Fund 2 $ 2,540,859(4) - N/A - N/A -
Janus Global Value
Fund $ 122,058(5) - N/A - N/A -
Janus Core Equity
Fund(6) $ 5,690,845 - $ 6,724,651 - $ 4,084,064 -
Janus Growth and
Income Fund $50,426,105 - $ 55,928,716 - $28,839,302 -
Janus Balanced Fund $30,309,706 $ 26,568,643 - $13,099,760 -
Janus Flexible Income
Fund $ 6,609,724 - $ 6,558,853 - $ 7,263,539 -
Janus Federal
Tax-Exempt Fund $ 630,395 $394,781 $ 466,766 $271,741 $ 614,197 $352,448
Janus High-Yield Fund $ 2,783,120 - $ 2,140,904 $ 35,287 $ 2,217,408 $ 75,922
Janus Short-Term Bond
Fund $ 1,814,236 $913,061 $ 837,123 $475,646 $ 883,230 $504,515
</Table>
(1) Effective January 31, 2000, the management fee paid by each Equity Fund was
changed to 0.65% of the average daily net assets of such Fund.
(2) February 29, 2000 (inception) to October 31, 2000.
(3) June 30, 2000 (inception) to October 31, 2000.
(4) December 29, 2000 (inception) to October 31, 2001.
(5) June 29, 2001 (inception) to October 31, 2001.
(6) Formerly, Janus Equity Income Fund.
45
Each Fund's Advisory Agreement is dated April 3, 2002 and will
continue in effect until July 1, 2002, and thereafter from year
to year so long as such continuance is approved annually by a
majority of the Funds' Trustees who are not parties to the
Advisory Agreements or interested persons of any such party, and
by either a majority of the outstanding voting shares of each
Fund or the Trustees of the Funds. Each Advisory Agreement (i)
may be terminated without the payment of any penalty by a Fund or
Janus Capital on 60 days' written notice; (ii) terminates
automatically in the event of its assignment; and (iii)
generally, may not be amended without the approval by vote of a
majority of the Trustees of the affected Fund, including the
Trustees who are not interested persons of that Fund or Janus
Capital and, to the extent required by the 1940 Act, the vote of
a majority of the outstanding voting securities of that Fund.
Janus Capital is an indirect subsidiary of Stilwell Financial
Inc. ("Stilwell"), a publicly traded holding company with
principal operations in financial asset management businesses.
Stilwell, through its subsidiaries, indirectly owns approximately
92% of Janus Capital, and certain Janus Capital employees
directly own approximately 8%.
In approving the Funds' existing Advisory Agreements, the
Trustees considered various matters relating to the possible
effects on Janus Capital and the Funds of the expiration of Mr.
Bailey's contractual management rights with respect to Janus
Capital, including Stilwell's intentions regarding the
preservation and strengthening of Janus Capital's business and
existing and proposed incentive compensation arrangements for key
Janus Capital employees.
In addition, the Trustees considered a wide range of information
of the type they regularly consider when determining whether to
continue the Funds' Advisory Agreements as in effect from year to
46
year. The Trustees considered information about, among other
things:
- Janus Capital and its personnel (including particularly those
personnel with responsibilities for providing services to the
Funds), resources and investment process;
- the terms of each Advisory Agreement;
- the scope and quality of the services that Janus Capital has
been providing to the Funds;
- the investment performance of each Fund and of comparable funds
managed by other advisers over various periods;
- the advisory fee rates payable to Janus Capital by the Funds
and by other funds and client accounts managed by Janus
Capital, and payable by comparable funds managed by other
advisers;
- the total expense ratio of each Fund and of comparable funds
managed by other advisers;
- compensation payable by the Funds to affiliates of Janus
Capital for other services;
- the profitability to Janus Capital and its affiliates of their
relationships with the Funds; and
- Janus Capital's use of the Funds' portfolio brokerage
transactions to obtain research benefiting the Funds or other
Janus Capital clients at a cost that may be in excess of the
amount other brokers would charge or to reduce certain
out-of-pocket expenses otherwise payable by the Funds.
Janus Capital acts as sub-adviser for a number of private-label
mutual funds and provides separate account advisory services for
institutional accounts. Investment decisions for each account
managed by Janus Capital, including the Funds, are made
independently from those for any other account that is or may in
the future become managed by Janus Capital or its affiliates. If,
47
however, a number of accounts managed by Janus Capital are
contemporaneously engaged in the purchase or sale of the same
security, the orders may be aggregated and/or the transactions
may be averaged as to price and allocated to each account in
accordance with allocation procedures adopted by Janus Capital.
Partial fills for the accounts of two or more portfolio managers
will be allocated pro rata under procedures adopted by Janus
Capital. In some cases, these allocation procedures may adversely
affect the price paid or received by an account or the size of
the position obtained or liquidated for an account. In others,
however, the accounts' ability to participate in volume
transactions may produce better executions and prices for the
accounts.
With respect to allocations of initial public offerings ("IPOs"),
under IPO allocation procedures adopted by Janus Capital,
accounts will participate in an IPO if the portfolio manager
believes the IPO is an appropriate investment based on the
account's investment restrictions, risk profile, asset
composition, and/or cash levels. These IPO allocation procedures
require that each account be assigned to a pre-defined group
("IPO Group"), based on objective criteria set forth in the
procedures. Generally, an account may not participate in an IPO
unless it is assigned to an IPO Group that correlates with the
pre-offering market capitalization ("IPO Classification") of the
company. If, however, the portfolio manager intends to build a
long-term position in the company and purchases securities in
both the initial offering and in the immediate aftermarket, then
all participating portfolio managers' clients will receive the
same proportion of IPO shares to aftermarket shares, resulting in
a blended price equal to the average price paid for all IPO and
immediate aftermarket shares. If there is no immediate
aftermarket activity, all shares purchased will be allocated pro
rata to the participating manager's accounts in the IPO Group
corresponding to the IPO Classification, subject to a de minimis
standard. In situations where a portfolio manager wants to take a
small position in a security, an exception to this de minimis
standard may be allowed. These IPO allocation
48
procedures may result in certain accounts, particularly larger
accounts, receiving fewer IPOs than other accounts, which may
impact performance.
Janus Capital is permitted to adjust its allocation procedures to
eliminate fractional shares or odd lots, and has the discretion
to deviate from its allocation procedures in certain
circumstances. For example, additional securities may be
allocated to a portfolio manager who is instrumental in
originating or developing an investment opportunity or to comply
with a portfolio manager's request to ensure that his or her
accounts receive sufficient securities to satisfy specialized
investment objectives.
Pursuant to an exemptive order granted by the SEC, the Funds and
other funds advised by Janus Capital may also transfer daily
uninvested cash balances into one or more joint trading accounts.
Assets in the joint trading accounts are invested in money market
instruments and the proceeds are allocated to the participating
funds on a pro rata basis.
Each account managed by Janus Capital has its own investment
objective and policies and is managed accordingly by a particular
portfolio manager or team of portfolio managers. As a result,
from time to time two or more different managed accounts may
pursue divergent investment strategies with respect to
investments or categories of investments.
The Funds' portfolio managers are not permitted to purchase and
sell securities for their own accounts except under the limited
exceptions contained in the Code of Ethics, which applies to
Directors/Trustees of Janus Capital and the Funds and employees
of, and persons working on a contractual basis for, Janus Capital
and its subsidiaries. The Code of Ethics is on file with and
available from the SEC through the SEC Web site at www.sec.gov.
The Code of Ethics requires investment personnel, inside
Directors/Trustees of Janus Capital and the Funds and certain
other designated employees deemed to have access to current
trading information to pre-clear all transactions in securities
not otherwise
49
exempt under the Code of Ethics. Requests for trading
authorization will be denied when, among other reasons, the
proposed personal transaction would be contrary to the provisions
of the Code of Ethics or would be deemed to adversely affect any
transaction then known to be under consideration for or to have
been effected on behalf of any client account, including the
Funds.
In addition to the pre-clearance requirement described above, the
Code of Ethics subjects such personnel to various trading
restrictions and reporting obligations. All reportable
transactions are required to be reviewed for compliance with the
Code of Ethics. Those persons also may be required under certain
circumstances to forfeit their profits made from personal
trading.
The provisions of the Code of Ethics are administered by and
subject to exceptions authorized by Janus Capital.
50
CUSTODIAN, TRANSFER AGENT AND CERTAIN
AFFILIATIONS
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, P.O. Box 0351, Boston,
Massachusetts 02117-0351 is the custodian of the domestic
securities and cash of the Funds. State Street is the designated
Foreign Custody Manager (as the term is defined in Rule 17f-5
under the 1940 Act) of the Funds' securities and cash held
outside the United States. The Funds' Trustees have delegated to
State Street certain responsibilities for such assets, as
permitted by Rule 17f-5. State Street and the foreign
subcustodians selected by it hold the Funds' assets in
safekeeping and collect and remit the income thereon, subject to
the instructions of each Fund.
Janus Services LLC, P.O. Box 173375, Denver, Colorado 80217-3375,
a wholly-owned subsidiary of Janus Capital, is the Funds'
transfer agent. In addition, Janus Services provides certain
other administrative, recordkeeping and shareholder relations
services to the Funds. For transfer agency and other services,
Janus Services receives a fee calculated at an annual rate of
0.16% of average net assets of each Fund and, in addition, $4 per
open shareholder account in each Fund. In addition, the Funds pay
DST Systems, Inc. ("DST"), a subsidiary of Stilwell, license fees
at the annual rate of $3.06 per shareholder account for the
equity funds and $3.98 per shareholder account for the
fixed-income funds for the use of DST's shareholder accounting
system. The Funds also pay DST $1.10 per closed shareholder
account, as well as postage and forms costs that a DST affiliate
incurred in mailing Fund shareholder transaction confirmations.
Prior to June 1, 2001, the Funds also paid DST a monthly base fee
for the use of its portfolio and fund accounting system, of $265
to $1,323 per month based on the number of Janus funds using the
system and an asset charge of $1 per million dollars of net
assets (not to exceed $500 per month). Effective June 1, 2001,
State Street Bank and Trust Company acquired the portfolio and
fund accounting system of DST.
The Trustees have authorized the Funds to use an affiliate of DST
as introducing broker for certain Fund portfolio transactions.
Brokerage commissions paid on such transactions may be used as
51
a means to reduce Fund expenses through credits against the
charges of DST and its affiliates. Such credits will not reduce
the fees Janus Capital is obligated to pay any Fund under its
waiver agreement, and such Fund receives the benefit of any such
credits. See "Portfolio Transactions and Brokerage."
Janus Distributors LLC, 100 Fillmore Street, Denver, Colorado
80206-4928, a wholly-owned subsidiary of Janus Capital, is a
distributor of the Funds. Janus Distributors is registered as a
broker-dealer under the Securities Exchange Act of 1934 and is a
member of the National Association of Securities Dealers, Inc.
Janus Distributors acts as the agent of the Funds in connection
with the sale of their shares in all states in which the shares
are registered and in which Janus Distributors is qualified as a
broker-dealer. Under the Distribution Agreement, Janus
Distributors continuously offers the Funds' shares and accepts
orders at net asset value. No sales charges are paid by
investors. Promotional expenses in connection with offers and
sales of shares are paid by Janus Capital.
52
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
Decisions as to the assignment of portfolio business for the
Funds and negotiation of its commission rates are made by Janus
Capital, whose policy is to seek to obtain the "best execution"
of all portfolio transactions (the best net prices under the
circumstances based upon a number of factors discussed below)
except to the extent that Janus Capital may be permitted to pay
higher commissions for research services as described below. The
Funds may trade foreign securities in foreign countries because
the best available market for these securities is often on
foreign exchanges. In transactions on foreign stock exchanges,
brokers' commissions are frequently fixed and are often higher
than in the United States, where commissions are negotiated.
Janus Capital considers a number of factors in seeking best
execution in selecting brokers and dealers and in negotiating
commissions. Those factors include, but are not limited to: Janus
Capital's knowledge of currently available negotiated commission
rates or prices of securities currently available and other
current transaction costs; the nature of the security being
traded; the size and type of the transaction; the nature and
character of the markets for the security to be purchased or
sold; the desired timing of the trade; the activity existing and
expected in the market for the particular security;
confidentiality, including trade anonymity; liquidity; the
quality of the execution, clearance and settlement services;
financial stability of the broker or dealer; and rebates of
commissions by a broker to a Fund or to a third party service
provider to the Fund to pay Fund expenses. In addition, Janus
Capital may consider the value of research products or services
provided by broker-dealers as a factor in selecting brokers and
dealers and in negotiating commissions. In recognition of the
value of the foregoing factors, Janus Capital may place portfolio
transactions with a broker or dealer with whom it has negotiated
a commission that is in excess of the commission another broker
or dealer would have charged for effecting that transaction if
Janus Capital determines in good faith that such amount of
commission was reasonable in relation to the value of the
brokerage and
53
research provided by such broker or dealer viewed in terms of
either that particular transaction or of the overall
responsibilities of Janus Capital. Research may include
furnishing advice, either directly or through publications or
writings, as to the value of securities, the advisability of
purchasing or selling specific securities and the availability of
securities or purchasers or sellers of securities; furnishing
seminars, information, analyses and reports concerning issuers,
industries, securities, trading markets and methods, legislative
developments, changes in accounting practices, economic factors
and trends and portfolio strategy; access to research analysts,
corporate management personnel, industry experts, economists and
government officials; comparative performance evaluation and
technical measurement services and quotation services, and
products and other services (such as third party publications,
reports and analyses, and computer and electronic access,
equipment, software, information and accessories that deliver,
process or otherwise utilize information, including the research
described above) that assist Janus Capital in carrying out its
responsibilities. Research received from brokers or dealers is
supplemental to Janus Capital's own research efforts. Most
brokers and dealers used by Janus Capital provide research and
other services described above. Much of the research provided to
Janus Capital by broker-dealers would otherwise be available to
Janus Capital for a cash payment. In some cases, research is
generated by third parties, but is provided to Janus Capital
through broker-dealers. For example, Janus Capital has
arrangements with broker-dealers to allocate brokerage in
exchange for, among other things, third-party research reports
relating to specific industry fundamentals and trends,
third-party research reports providing analysis of micro and
macro economic trends, and access to databases providing
financial, market, economic and fundamental data. Because Janus
Capital receives research from broker-dealers, Janus Capital may
have an incentive to continue to use those broker-dealers to
effect transactions. Janus Capital may also direct trades to a
broker-dealer with the instruction that the broker-dealer execute
the transaction, but direct a portion of the commission to
54
another broker-dealer that supplies Janus Capital with research
services and/or products.
For the fiscal period ended October 31, 2001, the total brokerage
commissions paid by the Funds to brokers and dealers in
transactions identified for execution primarily on the basis of
research and other services provided to the Funds are summarized
below:
<Table>
<Caption>
Fund Name Commissions Transactions
- -----------------------------------------------------------------------------------------
Janus Enterprise Fund $ 491,759 $244,822,707
Janus Mercury Fund $1,295,645 $857,440,917
Janus Special Situations Fund $ 128,351 $ 77,368,297
Janus Strategic Value Fund $ 418,043 $289,305,821
Janus Orion Fund $ 129,294 $ 81,326,431
Janus Fund 2(1) $ 173,224 $ 82,642,634
Janus Global Value Fund(2) $ 584 $ 245,654
Janus Core Equity Fund(3) $ 114,571 $ 88,811,163
Janus Growth and Income Fund $ 341,974 $182,956,760
Janus Balanced Fund $ 303,101 $197,652,773
</Table>
(1) December 29, 2000 (inception) to October 31, 2001.
(2) June 29, 2001 (inception) to October 31, 2001.
(3) Formerly, Janus Equity Income Fund.
Note: Funds that are not included in the table did not pay any commissions
related to research for the stated period.
Janus Capital may use research products and services in servicing
other accounts in addition to the Funds. Fixed-income related
research products and services may be paid for by commissions
generated by equity trades. If Janus Capital determines that any
research product or service has a mixed use, such that it also
serves functions that do not assist in the investment decision-
making process, Janus Capital may allocate the costs of such
service or product accordingly. Only that portion of the product
or service that Janus Capital determines will assist it in the
investment decision-making process may be paid for in brokerage
commission dollars. Such allocation may create a conflict of
interest for Janus Capital.
Janus Capital does not enter into agreements with any brokers
regarding the placement of securities transactions because of the
55
research services they provide. It does, however, have an
internal procedure for allocating transactions in a manner
consistent with its execution policy to brokers that it has
identified as providing superior execution and research,
research-related products or services which benefit its advisory
clients, including the Funds. Research products and services
incidental to effecting securities transactions furnished by
brokers or dealers may be used in servicing any or all of Janus
Capital's clients and such research may not necessarily be used
by Janus Capital in connection with the accounts which paid
commissions to the broker-dealer providing such research products
and services.
Janus Capital may consider sales of Fund shares by a broker-
dealer or the recommendation of a broker-dealer to its customers
that they purchase Fund shares as a factor in the selection of
broker-dealers to execute Fund portfolio transactions. Janus
Capital may also consider payments made by brokers effecting
transactions for a Fund i) to the Fund or ii) to other persons on
behalf of the Fund for services provided to the Fund for which it
would be obligated to pay. In placing portfolio business with
such broker-dealers, Janus Capital will seek the best execution
of each transaction.
When the Funds purchase or sell a security in the over-the-
counter market, the transaction takes place directly with a
principal market-maker, without the use of a broker, except in
those circumstances where in the opinion of Janus Capital better
prices and executions will be achieved through the use of a
broker.
The Funds' Trustees have authorized Janus Capital to place
transactions with DST Securities, Inc. ("DSTS"), a wholly-owned
broker-dealer subsidiary of DST. Janus Capital may do so if it
reasonably believes that the quality of the transaction and the
associated commission are fair and reasonable and if, overall,
the associated transaction costs, net of any credits described
above under "Custodian, Transfer Agent and Certain Affiliations,"
are
56
lower than the net costs that would be incurred through other
brokerage firms that provide comparable best execution.
The following table lists the total amount of brokerage
commissions paid by each Fund for the fiscal periods ending on
October 31st of each year:
<Table>
<Caption>
Fund Name 2001 2000 1999
- ----------------------------------------------------------------------------------------
Janus Enterprise Fund $ 803,218 $ 4,583,253 $1,437,645
Janus Mercury Fund $1,956,037 $13,866,778 $7,635,143
Janus Special Situations Fund $ 177,235 $ 3,001,448 $2,062,789
Janus Strategic Value Fund $ 621,938 $ 7,156,098(1) N/A
Janus Orion Fund $ 240,695 $ 998,890(2) N/A
Janus Fund 2 $ 225,412(3) N/A N/A
Janus Global Value Fund $ 5,535(4) N/A N/A
Janus Core Equity Fund(5) $ 129,018 $ 1,355,115 $ 493,786
Janus Growth and Income Fund $ 586,980 $ 5,807,271 $3,425,984
Janus Balanced Fund $ 451,600 $ 3,466,502 $1,046,051
Janus Flexible Income Fund - $ 22,597 $ 5,000
Janus High-Yield Fund - $ 6,633 $ 12,353
Janus Federal Tax-Exempt Fund - $ 68 -
Janus Short-Term Bond Fund - $ 1,411
</Table>
(1) February 29, 2000 (inception) to October 31, 2000.
(2) June 30, 2000 (inception) to October 31, 2000.
(3) December 29, 2000 (inception) to October 31, 2001.
(4) June 29, 2001 (inception) to October 31, 2001.
(5) Formerly, Janus Equity Income Fund.
57
Included in such brokerage commissions are the following amounts
paid to DSTS, which served to reduce each Fund's out-of-pocket
expenses as follows:
<Table>
<Caption>
Commission Paid
through DSTS for the
Period Ended Reduction of % of Total % of Total
Fund Name October 31, 2001* Expenses* Commissions+ Transactions
- ----------------------------------------------------------------------------------------------------
Janus Enterprise Fund $66,888 $50,179 8.33% 7.79%
Janus Mercury Fund $29,688 $22,272 1.52% 2.48%
Janus Special Situations Fund $18,950 $14,216 10.69% 6.51%
Janus Strategic Value Fund $56,298 $42,234 9.05% 11.43%
Janus Orion Fund $13,472 $10,106 5.60% 2.74%
Janus Fund 2(1) $ 4,500 $ 3,376 2.00% 4.95%
Janus Global Value Fund(2) $ 933 $ 700 16.86% 10.46%
Janus Core Equity Fund(3) $12,637 $ 9,480 9.80% 8.36%
Janus Growth and Income Fund $37,480 $28,117 6.39% 11.33%
Janus Balanced Fund $41,217 $30,920 9.13% 5.71%
</Table>
* The difference between commissions paid through DSTS and expenses reduced
constitute commissions paid to an unaffiliated clearing broker.
+ Differences in the percentage of total commissions versus the percentage of
total transactions is due, in part, to variations among share prices and
number of shares traded, while average price per share commission rates were
substantially the same.
(1) December 29, 2000 (inception) to October 31, 2001.
(2) June 29, 2001 (inception) to October 31, 2001.
(3) Formerly, Janus Equity Income Fund.
Note: Funds that did not execute trades with DSTS during the stated period are
not included in the table.
<Table>
<Caption>
Commission Paid Commission Paid
through DSTS for the through DSTS for the
Period Ended Reduction of Period Ended Reduction of
Fund Name October 31, 2000* Expenses* October 31, 1999* Expenses*
- -------------------------------------------------------------------------------------------------------
Janus Enterprise Fund N/A N/A $ 917 $ 688
Janus Mercury Fund $90,323 $67,743 $77,757 $58,318
Janus Special Situations Fund $ 5,500 $ 4,125 $24,048 $18,036
Janus Core Equity Fund(1) $ 8,119 $ 6,089 N/A N/A
Janus Growth and Income Fund $77,670 $58,253 $33,857 $25,393
Janus Balanced Fund $ 2,448 $ 1,836 $ 3,274 $ 2,456
</Table>
* The difference between commissions paid through DSTS and expenses reduced
constitute commissions paid to an unaffiliated clearing broker.
(1) Formerly, Janus Equity Income Fund.
Note: Funds that did not execute trades with DSTS during the stated periods are
not included in the table.
58
The Funds may also place trades with E*Trade Securities
("E*Trade"), a registered broker-dealer and a wholly-owned
subsidiary of E*Trade Group, Inc. Janus Capital owns, in the
aggregate, more than 5% of the outstanding securities of E*Trade
Group in various accounts, including the Funds. By virtue of such
ownership, E*Trade Group is considered an affiliate of Janus
Capital for 1940 Act purposes. Because it is a wholly-owned
subsidiary of E*Trade Group, an affiliate of the Funds, E*Trade
is considered an affiliated broker of the Funds. The table below
sets forth the aggregate dollar amount of brokerage commissions
paid by each Fund to E*Trade for the fiscal year ended October
31, 2001. The Funds did not execute any transactions through
E*Trade during their fiscal years ended October 31, 1999 or
October 31, 2000. Funds not listed below did not pay any
commissions to E*Trade.
<Table>
<Caption>
Aggregate Commissions
Fund Name Paid to E*Trade
- -----------------------------------------------------------------------------------
Janus Mercury Fund $795
</Table>
For the most recent fiscal year ended October 31, 2001, the table
below shows the percentage of each Fund's aggregate brokerage
commissions paid to E*Trade and the percentage of each Fund's
aggregate dollar amount of transactions involving the payment of
commissions effected through E*Trade. Funds not listed below did
not pay any commissions to E*Trade.
<Table>
<Caption>
Percentage of Aggregate
Percentage of Aggregate Transactions Effected
Fund Name Commissions Paid to E*Trade Through E*Trade
- -----------------------------------------------------------------------------------------------
Janus Mercury Fund 0.01% 0.01%
</Table>
59
As of October 31, 2001, certain Funds owned securities of their
regular broker-dealers (or parents), as shown below:
<Table>
<Caption>
Value of
Name of Securities
Fund Name Broker-Dealer Owned
- ------------------------------------------------------------------------------
Janus Enterprise Fund Charles Schwab Corp. $17,989,045
Janus Enterprise Fund E*TRADE Group, Inc. 16,847,302
Janus Mercury Fund E*TRADE Group, Inc. 81,743,977
Janus Mercury Fund Goldman Sachs Group, Inc. 73,485,641
Janus Special Situations Fund E*TRADE Group, Inc. 16,681,251
Janus Special Situations Fund Lehman Brothers Holdings, Inc. 13,531,022
Janus Strategic Value Fund Lehman Brothers Holdings, Inc. 77,239,285
Janus Orion Fund E*TRADE Group, Inc. 19,968,577
Janus Orion Fund Goldman Sachs Group, Inc. 14,530,335
Janus Growth and Income Fund Charles Schwab Corp. 39,978,232
Goldman Sachs Group, Inc. 81,481,018
Merrill Lynch, Pierce, Fenner and 71,605,113
Smith, Inc.
Janus Balanced Fund Charles Schwab Corp. 15,833,000
Janus Balanced Fund J.P. Morgan Securities, Inc. 58,850,199
Janus Balanced Fund Merrill Lynch, Pierce, Fenner and 16,371,580
Smith, Inc.
Janus Balanced Fund Salomon Smith Barney Holdings, 25,193,150
Inc.
Janus High-Yield Fund Labranche & Company, Inc. 3,240,000
Janus Short-Term Bond Fund Merrill Lynch, Pierce, Fenner and 9,139,063
Smith, Inc.
</Table>
60
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The following are the Trustees and officers of the Trust,
together with a brief description of their principal occupations
during the last five years. Each Trustee has served in that
capacity since he was originally elected or appointed. In
addition, each Trustee is currently a Trustee of two other
registered investment companies advised by Janus Capital: Janus
Aspen Series and Janus Adviser Series. Collectively, these three
registered investment companies consist of 52 series or funds.
The Trustees do not serve a specified term of office. Each
Trustee will hold office until the termination of the Trust or
his earlier death, resignation, retirement, incapacity, or
removal. The retirement age for Trustees is 72. The Funds'
Nominating and Governance Committee will consider nominees for
the position of Trustee recommended by shareholders. Shareholders
may submit the name of a candidate for consideration by the
Committee by submitting their recommendations to the Trust's
Secretary.
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------
TRUSTEES
- --------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS IN
FUND OTHER
POSITIONS PRINCIPAL OCCUPATIONS COMPLEX DIRECTORSHIPS
NAME, AGE AND HELD WITH LENGTH OF DURING THE PAST OVERSEEN BY HELD BY
ADDRESS FUND TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- --------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
- --------------------------------------------------------------------------------------------------
Thomas H. President, 6/69-Present Until July 1, 2002, 52 N/A
Bailey* Chairman President and Chief
100 Fillmore and Executive Officer of
Street Trustee Janus Capital.
Denver, CO 80206 Formerly, President and
Age 64 Director (1994-2002) of
the Janus Foundation;
Chairman and Director
(1978-2002) of Janus
Capital Corporation;
and Director
(1997-2001) of Janus
Distributors, Inc.
- --------------------------------------------------------------------------------------------------
</Table>
* The Funds are treating Mr. Bailey as an "interested person" of the Trust by
virtue of his past positions and continuing relationships with Janus Capital.
61
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------
TRUSTEES
- --------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS IN
FUND OTHER
POSITIONS PRINCIPAL OCCUPATIONS COMPLEX DIRECTORSHIPS
NAME, AGE AND HELD WITH LENGTH OF DURING THE PAST OVERSEEN BY HELD BY
ADDRESS FUND TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- --------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------------------------
William F. Trustee 6/02-Present Executive Vice 52 Founding
McCalpin President and Chief Director and
100 Fillmore Operating Officer of Board Chair,
Street The Rockefeller Solar
Denver, CO 80206 Brothers Fund (a Development
Age 45 private family Foundation;
foundation). Formerly, Trustee and
Director of Investments Vice
(1991-1998) of The John President,
D. and Catherine T. Asian
MacArthur Foundation (a Cultural
private family Council.
foundation).
- --------------------------------------------------------------------------------------------------
John W. Trustee 6/02-Present President and Chief 52 Chairman of
McCarter, Jr. Executive Officer of the Board,
100 Fillmore The Field Museum of Divergence
Street Natural History. LLC; Director
Denver, CO 80206 Formerly, Senior Vice of A.M.
Age 64 President (1987-1997) Castle & Co.,
of Booz-Allen & Harris
Hamilton, Inc. (a Insight
management consulting Funds, W.W.
firm). Grainger,
Inc.; Trustee
of WTTW
(Chicago
public
television
station), the
University of
Chicago and
Chicago
Public
Education
Fund.
- --------------------------------------------------------------------------------------------------
Dennis B. Mullen Trustee 2/71-Present Private Investor. 52 N/A
100 Fillmore Formerly (1997-1998)
Street Chief Financial
Denver, CO 80206 Officer - Boston Market
Age 58 Concepts, Boston
Chicken, Inc., Golden,
CO (a restaurant
chain).
- --------------------------------------------------------------------------------------------------
</Table>
62
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------
TRUSTEES
- --------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS IN
FUND OTHER
POSITIONS PRINCIPAL OCCUPATIONS COMPLEX DIRECTORSHIPS
NAME, AGE AND HELD WITH LENGTH OF DURING THE PAST OVERSEEN BY HELD BY
ADDRESS FUND TIME SERVED FIVE YEARS TRUSTEE TRUSTEE
- --------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CNTD.)
- --------------------------------------------------------------------------------------------------
James T. Rothe Trustee 1/97-Present Professor of Business, 52 Director of
100 Fillmore University of Colorado, Optika, Inc.
Street Colorado Springs, CO. and NeoCore
Denver, CO 80206 Formerly, Distinguished Corp.
Age 58 Visiting Professor of
Business (2001-2002),
Thunderbird (American
Graduate School of
International
Management), Phoenix,
AZ; and Principal
(1988-1999) of
Phillips-Smith Retail
Group, Colorado
Springs, CO (a venture
capital firm).
- --------------------------------------------------------------------------------------------------
William D. Trustee 6/84-Present Corporate Vice 52 N/A
Stewart President and General
100 Fillmore Manager of MKS
Street Instruments - HPS
Denver, CO 80206 Products, Boulder, CO
Age 57 (a manufacturer of
vacuum fittings and
valves).
- --------------------------------------------------------------------------------------------------
Martin H. Trustee 8/69-Present Consultant 52 N/A
Waldinger
100 Fillmore
Street
Denver, CO 80206
Age 63
- --------------------------------------------------------------------------------------------------
</Table>
63
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
OFFICERS
- ---------------------------------------------------------------------------------------------------
TERM OF OFFICE*
NAME, AGE AND POSITIONS HELD WITH AND LENGTH OF TIME PRINCIPAL OCCUPATIONS DURING THE PAST
ADDRESS FUND SERVED FIVE YEARS
- ---------------------------------------------------------------------------------------------------
Jonathan D. Executive Vice 2/02-Present Vice President of Janus Capital.
Coleman** President and Formerly, Co-Portfolio Manager (1997-
100 Fillmore Portfolio Manager 2000) for Janus Venture Fund and
Street Janus Enterprise Analyst (1994-1997 and 2000-2002) for
Denver, CO 80206 Fund Janus Capital Corporation.
Age 31
- ---------------------------------------------------------------------------------------------------
David J. Executive Vice 8/97-Present Vice President of Janus Capital.
Corkins**+ President and Formerly, Analyst (1995-1997) for
100 Fillmore Portfolio Manager Janus Capital Corporation.
Street Janus Growth and
Denver, CO 80206 Income Fund
Age 35
- ---------------------------------------------------------------------------------------------------
David C. Decker** Executive Vice 9/96-Present Vice President of Janus Capital.
100 Fillmore President and Formerly, Assistant Vice President
Street Portfolio Manager (1996-1997) of Janus Capital
Denver, CO 80206 Janus Special Corporation.
Age 36 Situations Fund
Janus Strategic
Value Fund
- ---------------------------------------------------------------------------------------------------
Warren B. Lammert, Executive Vice 2/93-Present Vice President of Janus Capital.
III**+ President and
100 Fillmore Portfolio Manager
Street Janus Mercury Fund
Denver, CO 80206
Age 40
- ---------------------------------------------------------------------------------------------------
Sharon S. Executive Vice 1/01-Present Vice President of Janus Capital.
Pichler** President and
100 Fillmore Portfolio Manager
Street Janus Federal Tax-
Denver, CO 80206 Exempt Fund
Age 53
- ---------------------------------------------------------------------------------------------------
Karen L. Reidy** Executive Vice 1/00-Present Vice President of Janus Capital.
100 Fillmore President and Formerly, Analyst (1995-1999) of
Street Portfolio Manager Janus Capital Corporation.
Denver, CO 80206 Janus Balanced Fund
Age 35 Janus Core Equity
Fund
- ---------------------------------------------------------------------------------------------------
</Table>
* Officers are elected annually by the Trustees for a one-year term.
** "Interested person" of the Trust by virtue of positions with Janus Capital.
+ Mr. Lammert and Mr. Corkins are related by marriage.
64
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
OFFICERS
- ---------------------------------------------------------------------------------------------------
TERM OF OFFICE*
NAME, AGE AND POSITIONS HELD WITH AND LENGTH OF TIME PRINCIPAL OCCUPATIONS DURING THE PAST
ADDRESS FUND SERVED FIVE YEARS
- ---------------------------------------------------------------------------------------------------
Sandy R. Executive Vice 12/95-Present Vice President of Janus Capital.
Rufenacht, Jr.** President and Formerly, Portfolio Manager (1996-
100 Fillmore Portfolio Manager 1998) of Janus Flexible Income Fund
Street Janus High-Yield and Assistant Vice President (1996-
Denver, CO 80206 Fund 1997) of Janus Capital Corporation.
Age 37 Janus Short-Term
Bond Fund
- ---------------------------------------------------------------------------------------------------
Ron Sachs** Executive Vice 4/00-Present Vice President of Janus Capital.
100 Fillmore President and Formerly, Analyst (1996-2000) for
Street Portfolio Manager Janus Capital Corporation.
Denver, CO 80206 Janus Orion Fund
Age 34
- ---------------------------------------------------------------------------------------------------
John H. Executive Vice 9/00-Present Vice President of Janus Capital.
Schreiber** President and Formerly, Analyst (1997-2000) for
100 Fillmore Portfolio Manager Janus Capital Corporation and Analyst
Street Janus Fund 2 (1995- 1997) for Fidelity
Denver, CO 80206 Investments.
Age 32
- ---------------------------------------------------------------------------------------------------
Ronald V. Executive Vice 7/92-Present Vice President of Janus Capital.
Speaker** President and Formerly, Portfolio Manager (1995-
100 Fillmore Portfolio Manager 1998) of Janus High-Yield Fund.
Street Janus Flexible
Denver, CO 80206 Income Fund
Age 37
- ---------------------------------------------------------------------------------------------------
Jason P. Yee** Executive Vice 3/01-Present Vice President of Janus Capital.
100 Fillmore President and Formerly, Portfolio Manager and
Street Portfolio Manager Managing Director (1996-2000) for Bee
Denver, CO 80206 Janus Global Value & Associates and Analyst (2000- 2001)
Age 32 Fund for Janus Capital Corporation.
- ---------------------------------------------------------------------------------------------------
</Table>
* Officers are elected annually by the Trustees for a one-year term.
** "Interested person" of the Trust by virtue of positions with Janus Capital.
65
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
OFFICERS
- ---------------------------------------------------------------------------------------------------
TERM OF OFFICE*
NAME, AGE AND POSITIONS HELD WITH AND LENGTH OF TIME PRINCIPAL OCCUPATIONS DURING THE PAST
ADDRESS FUND SERVED FIVE YEARS
- ---------------------------------------------------------------------------------------------------
Thomas A. Early** Vice President and 3/98-Present Vice President, General Counsel,
100 Fillmore General Counsel Secretary and Interim Director of
Street Janus Capital; Vice President,
Denver, CO 80206 General Counsel, Secretary and
Age 47 Director of Janus Services LLC, Janus
Capital International LLC and Janus
Institutional Services LLC; Vice
President, General Counsel and
Director to Janus International
(Asia) Limited and Janus
International Limited; Vice
President, General Counsel and
Secretary to Janus Distributors LLC
and the Janus Foundation; and
Director for Janus Capital Trust
Manager Limited and Janus World
Funds. Formerly, Director (2001) of
Janus Distributors, Inc.; Vice
President, General Counsel, Secretary
and Director (2000-2002) of Janus
International Holding, Inc.; and
Executive Vice President and General
Counsel/Mutual Funds (1994-1998) of
Prudential Insurance Company.
- ---------------------------------------------------------------------------------------------------
Bonnie M. Howe** Vice President 12/99-Present Vice President and Assistant General
100 Fillmore Counsel to Janus Capital, Janus
Street Distributors LLC and Janus Services
Denver, CO 80206 LLC. Formerly, Assistant Vice
Age 36 President (1997-1999) and Associate
Counsel (1995-1999) for Janus Capital
Corporation and Assistant Vice
President (1998-2000) for Janus
Service Corporation.
- ---------------------------------------------------------------------------------------------------
Kelley Abbott Vice President and 12/99-Present Vice President and Assistant General
Howes** Secretary Counsel of Janus Capital, Janus
100 Fillmore Distributors LLC and Janus Services
Street LLC. Formerly, Assistant Vice
Denver, CO 80206 President (1997-1999) of Janus
Age 36 Capital Corporation; Chief Compliance
Officer, Director and President
(1997-1999) of Janus Distributors
Inc.; and Assistant Vice President
(1998-2000) of Janus Service
Corporation.
- ---------------------------------------------------------------------------------------------------
</Table>
* Officers are elected annually by the Trustees for a one-year term.
** "Interested person" of the Trust by virtue of positions with Janus Capital.
66
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
OFFICERS
- ---------------------------------------------------------------------------------------------------
TERM OF OFFICE*
NAME, AGE AND POSITIONS HELD WITH AND LENGTH OF TIME PRINCIPAL OCCUPATIONS DURING THE PAST
ADDRESS FUND SERVED FIVE YEARS
- ---------------------------------------------------------------------------------------------------
David R. Vice President 6/02-Present Vice President and Chief Compliance
Kowalski** Officer of Janus Capital and Janus
100 Fillmore Distributors LLC; and Assistant Vice
Street President of Janus Services LLC.
Denver, CO 80206 Formerly, Senior Vice President and
Age 45 Director (1985-2000) of Mutual Fund
Compliance for Van Kampen Funds.
- ---------------------------------------------------------------------------------------------------
Glenn P. Treasurer and Chief 1/96-Present Vice President of Janus Capital.
O'Flaherty** Accounting Officer Formerly, Director of Fund Accounting
100 Fillmore (1991-1997) of Janus Capital
Street Corporation.
Denver, CO 80206
Age 43
- ---------------------------------------------------------------------------------------------------
Loren M. Starr** Vice President and 9/01-Present Vice President of Finance, Treasurer,
100 Fillmore Chief Financial Chief Financial Officer and Interim
Street Officer Director of Janus Capital; Vice
Denver, CO 80206 President of Finance, Treasurer and
Age 40 Chief Financial Officer of Janus
Services LLC and Janus International
Limited; Vice President of Finance,
Treasurer, Chief Financial Officer
and Director of Janus Distributors
LLC, Janus Capital International LLC
and Janus Institutional Services LLC;
and Director of Janus Capital Trust
Manager Limited and Janus World
Funds. Formerly, Vice President of
Finance, Treasurer, Chief Financial
Officer (2001-2002) and Director
(2002) of Janus International
Holding, Inc.; Managing Director,
Treasurer and Head of Corporate
Finance and Reporting (1998-2001) for
Putnam Investments; and Senior Vice
President of Financial Planning and
Analysis (1996-1998) for Lehman
Brothers, Inc.
- ---------------------------------------------------------------------------------------------------
Heidi J. Walter** Vice President 4/00-Present Vice President and Assistant General
100 Fillmore Counsel to Janus Capital and Janus
Street Services LLC. Formerly, Vice
Denver, CO 80206 President and Senior Legal Counsel
Age 34 (1995-1999) for Stein Roe & Farnham,
Inc.
- ---------------------------------------------------------------------------------------------------
</Table>
* Officers are elected annually by the Trustees for a one-year term.
** "Interested person" of the Trust by virtue of positions with Janus Capital.
67
The Trustees are responsible for major decisions relating to each
Fund's objective(s), policies and techniques. The Trustees also
supervise the operation of the Funds by their officers and review
the investment decisions of the officers, although they do not
actively participate on a regular basis in making such decisions.
The Board of Trustees has five standing committees that each
perform specialized functions: an Audit Committee, Brokerage
Committee, Money Market Committee, Nominating and Governance
Committee and Pricing Committee. Information about each of these
committees is provided in the following table:
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------
NUMBER OF MEETINGS
MEMBERS (AS OF HELD DURING LAST
FUNCTIONS JUNE 19, 2002) FISCAL YEAR
- --------------------------------------------------------------------------------------------------
AUDIT COMMITTEE Reviews the financial John W. McCarter, Jr. 4
reporting process, the (Chairman)
system of internal Dennis B. Mullen
control, the audit William D. Stewart
process, and the Trusts'
process for monitoring
compliance with investment
restrictions and
applicable laws and the
Trusts' Code of Ethics.
- --------------------------------------------------------------------------------------------------
BROKERAGE COMMITTEE Reviews and makes James T. Rothe 5
recommendations regarding (Chairman)
matters related to the William F. McCalpin
Trusts' use of brokerage Dennis B. Mullen
commissions and placement
of portfolio transactions.
- --------------------------------------------------------------------------------------------------
MONEY MARKET Reviews various matters Martin H. Waldinger 4
COMMITTEE related to the operations (Chairman)
of the Janus Money Market William F. McCalpin
Funds, including James T. Rothe
compliance with each
Trust's Money Market Fund
Procedures.
- --------------------------------------------------------------------------------------------------
</Table>
68
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------
NUMBER OF MEETINGS
MEMBERS (AS OF HELD DURING LAST
FUNCTIONS JUNE 19, 2002) FISCAL YEAR
- --------------------------------------------------------------------------------------------------
NOMINATING AND Identifies and recommends Dennis B. Mullen 3
GOVERNANCE COMMITTEE individuals for Trustee (Chairman)
membership, consults with John W. McCarter, Jr.
Management in planning William D. Stewart
Trustee meetings, and
oversees the
administration of, and
ensures the compliance
with, the Governance
Procedures and Guidelines
adopted by the Trusts.
- --------------------------------------------------------------------------------------------------
PRICING COMMITTEE Determines the fair value William D. Stewart 15
of restricted securities (Chairman)
and other securities for James T. Rothe
which market quotations Martin H. Waldinger
are not readily available,
pursuant to procedures
adopted by the Trustees.
- --------------------------------------------------------------------------------------------------
</Table>
The table below gives the dollar range of Shares of each Fund
described in this SAI, as well as the aggregate dollar range of
shares of all funds advised and sponsored by Janus Capital
(collectively, the "Janus Funds"), owned by each Trustee as of
December 31, 2001.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
DOLLAR RANGE OF EQUITY COMPANIES OVERSEEN BY
NAME OF TRUSTEE SECURITIES IN THE FUNDS TRUSTEE IN JANUS FUNDS
- ---------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
THOMAS H. BAILEY Janus Enterprise Fund $10,001-$50,000 Over $100,000
Janus Mercury Fund Over $100,000
Janus Special Situations Over $100,000
Fund
Janus Strategic Value Fund Over $100,000
Janus Orion Fund Over $100,000
Janus Fund 2 Over $100,000
Janus Global Value Fund Over $100,000
Janus Core Equity Fund Over $100,000
Janus Growth and Income Fund Over $100,000
Janus Balanced Fund $10,001-$50,000
- ---------------------------------------------------------------------------------------------------
</Table>
69
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
DOLLAR RANGE OF EQUITY COMPANIES OVERSEEN BY
NAME OF TRUSTEE SECURITIES IN THE FUNDS TRUSTEE IN JANUS FUNDS
- ---------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
WILLIAM F. None Over $100,000
MCCALPIN*
- ---------------------------------------------------------------------------------------------------
None None
JOHN W. MCCARTER, JR.*
- ---------------------------------------------------------------------------------------------------
DENNIS B. MULLEN Janus Enterprise Fund $50,001-$100,000 Over $100,000
Janus Mercury Fund Over $100,000
Janus Special Situations $50,001-$100,000
Fund
Janus Strategic Value Fund $50,001-$100,000
Janus Orion Fund $50,001-$100,000
Janus Fund 2 $50,001-$100,000
Janus Global Value Fund Over $100,000
Janus Growth and Income Fund Over $100,000
- ---------------------------------------------------------------------------------------------------
JAMES T. ROTHE Janus Enterprise Fund $10,001-$50,000 Over $100,000
Janus Fund 2 $10,001-$50,000
- ---------------------------------------------------------------------------------------------------
WILLIAM D. STEWART Janus Enterprise Fund $1-$10,000 Over $100,000
Janus Flexible Income Fund $1-$10,000
Janus Mercury Fund $50,001-$100,000
Janus Special Situations $1-$10,000
Fund
Janus Orion Fund $1-$10,000
- ---------------------------------------------------------------------------------------------------
MARTIN H. Janus Strategic Value Fund $10,001-$50,000 Over $100,000
WALDINGER
Janus Orion Fund $50,001-$100,000
- ---------------------------------------------------------------------------------------------------
</Table>
* Trustee since June 2002.
As of December 31, 2001, none of the Trustees or their immediate
family members owned shares of Janus Capital, Janus Distributors
LLC, or their control persons.
70
The following table shows the aggregate compensation earned by
and paid to each Trustee by the Funds described in this SAI and
all Janus Funds for the periods indicated. None of the Trustees
receives any pension or retirement benefits from the Funds or the
Janus Funds.
<Table>
<Caption>
Aggregate Compensation Total Compensation
From the Funds for From the Janus Funds for
Fiscal year ended calendar year ended
Name of Person, Position* October 31, 2001 December 31, 2001****
- -------------------------------------------------------------------------------------------------
Thomas H. Bailey, Chairman and Trustee** $0 $0
William D. Stewart, Trustee*** $32,035 $185,000
Dennis B. Mullen, Trustee*** $29,872 $185,000
Martin H. Waldinger, Trustee*** $32,328 $185,000
James T. Rothe, Trustee*** $29,677 $185,000
</Table>
* Mr. McCalpin and Mr. McCarter were elected as Trustees in June 2002.
Therefore, they did not receive any compensation from the Funds described
in this SAI or the Janus Funds during the periods shown in the table.
** Mr. Bailey is being treated as an interested person of the Funds and Janus
Capital and is compensated by Janus Capital.
*** Independent Trustee.
**** As of December 31, 2001, Janus Funds consisted of three registered
investment companies comprised of a total of 51 funds.
71
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Shares of the Funds are sold at the net asset value per share as
determined at the close of the regular trading session of the New
York Stock Exchange (the "NYSE") next occurring after a purchase
order is received and accepted by a Fund. The Shareholder's
Manual section of the Funds' Prospectuses contains detailed
information about the purchase of shares.
NET ASSET VALUE DETERMINATION
As stated in the Funds' Prospectuses, the net asset value ("NAV")
of Fund shares is determined once each day the NYSE is open, at
the close of its regular trading session (normally 4:00 p.m., New
York time, Monday through Friday). The NAV of Fund shares is not
determined on days the NYSE is closed. The per share NAV of each
Fund is determined by dividing the total value of a Fund's
securities and other assets, less liabilities, by the total
number of shares outstanding. In determining NAV, securities
listed on an Exchange, the Nasdaq National Market and foreign
markets are generally valued at the closing prices on such
markets, or if such price is lacking for the trading period
immediately preceding the time of determination, such securities
are valued at their current bid price. Municipal securities held
by the Funds are traded primarily in the over-the-counter market.
Valuations of such securities are furnished by one or more
pricing services employed by the Funds and approved by the
Trustees and are based upon a computerized matrix system or
appraisals obtained by a pricing service, in each case in
reliance upon information concerning market transactions and
quotations from recognized municipal securities dealers. Other
securities that are traded on the over-the-counter market are
generally valued at their closing bid prices. Foreign securities
and currencies are converted to U.S. dollars using the exchange
rate in effect at the close of the NYSE. Each Fund will determine
the market value of individual securities held by it, by using
prices provided by one or more professional pricing services
which may provide market prices to other funds, or, as needed, by
obtaining market quotations from independent broker-dealers.
Short-term securities maturing within 60 days are
72
valued on an amortized cost basis. Securities for which market
quotations are not readily available are valued at fair value
determined in good faith under procedures established by and
under the supervision of the Trustees (the "Valuation
Procedures").
Trading in securities on European and Far Eastern securities
exchanges and over-the-counter markets is normally completed well
before the close of business on each business day in New York
(i.e., a day on which the NYSE is open). In addition, European or
Far Eastern securities trading generally or in a particular
country or countries may not take place on all business days in
New York. Furthermore, trading takes place in Japanese markets on
certain Saturdays and in various foreign markets on days which
are not business days in New York and on which a Fund's NAV is
not calculated. A Fund calculates its NAV per share, and
therefore effects sales, redemptions and repurchases of its
shares, as of the close of the NYSE once on each day on which the
NYSE is open. Such calculation may not take place
contemporaneously with the determination of the prices of the
foreign portfolio securities used in such calculation. If an
event that is expected to affect the value of a portfolio
security occurs after the close of the exchange or market on
which that security is traded, and before the Fund calculates its
NAV per share, then that security may be valued in good faith
under the Valuation Procedures.
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
If investors do not elect online at janus.com, in writing or by
phone to receive their dividends and distributions in cash, all
income dividends and capital gains distributions, if any, on a
Fund's shares are reinvested automatically in additional shares
of that Fund at the NAV determined on the payment date. Checks
for cash dividends and distributions and confirmations of
reinvestments are usually mailed to shareholders within ten days
after the record date. Any election of the manner in which a
shareholder wishes to receive dividends and distributions (which
may be made online at janus.com or by phone) will apply to
dividends and
73
distributions the record dates of which fall on or after the date
that a Fund receives such notice. Changes to distribution options
must be received at least three days prior to the record date to
be effective for such date. Investors receiving cash
distributions and dividends may elect online at janus.com, in
writing or by phone to change back to automatic reinvestment at
any time.
74
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Procedures for selling shares are set forth in the Shareholder's
Manual section of the Funds' Prospectuses. Shares normally will
be sold for cash, although each Fund retains the right to sell
some or all of its shares in kind under unusual circumstances, in
order to protect the interests of remaining shareholders, or to
accommodate a request by a particular shareholder that does not
adversely affect the interest of the remaining shareholders, by
delivery of securities selected from its assets at its
discretion. However, the Funds are governed by Rule 18f-1 under
the 1940 Act, which requires each Fund to sell shares solely in
cash up to the lesser of $250,000 or 1% of the NAV of that Fund
during any 90-day period for any one shareholder. Should
redemptions by any shareholder exceed such limitation, a Fund
will have the option of selling the excess in cash or in kind. If
shares are sold in kind, the redeeming shareholder might incur
brokerage costs in converting the assets to cash. The method of
valuing securities used to make redemptions in kind will be the
same as the method of valuing portfolio securities described
under "Purchase of Shares - Net Asset Value Determination" and
such valuation will be made as of the same time the redemption
price is determined.
The right to require the Funds to sell their shares may be
suspended, or the date of payment may be postponed, whenever (1)
trading on the NYSE is restricted, as determined by the SEC, or
the NYSE is closed except for holidays and weekends, (2) the SEC
permits such suspension and so orders, or (3) an emergency exists
as determined by the SEC so that disposal of securities or
determination of NAV is not reasonably practicable.
75
SHAREHOLDER ACCOUNTS
- --------------------------------------------------------------------------------
Detailed information about the general procedures for shareholder
accounts and specific types of accounts is set forth in the
Funds' Prospectuses and at janus.com. Applications for specific
types of accounts may be obtained by visiting janus.com, calling
a Janus Representative or writing to the Funds at P.O. Box
173375, Denver, Colorado 80217-3375.
ONLINE AND TELEPHONE TRANSACTIONS
As stated in the Prospectuses, shareholders may initiate a number
of transactions at janus.com and by telephone. The Funds, their
transfer agent and their distributor disclaim responsibility for
the authenticity of instructions received at janus.com and by
telephone. Such entities will employ reasonable procedures to
confirm that instructions communicated online at janus.com and by
telephone are genuine. Such procedures may include, among others,
requiring personal identification prior to acting upon online and
telephone instructions, providing written confirmation of online
and telephone transactions and tape recording telephone
conversations.
SYSTEMATIC REDEMPTIONS
As stated in the Shareholder's Manual section of the
Prospectuses, if you have a regular account or are eligible for
distributions from a retirement plan, you may establish a
systematic redemption option. The payments will be made from the
proceeds of periodic redemptions of shares in the account at the
NAV. Depending on the size or frequency of the disbursements
requested, and the fluctuation in value of a Fund's portfolio,
redemptions for the purpose of making such disbursements may
reduce or even exhaust the shareholder's account. Either an
investor or a Fund, by written notice to the other, may terminate
the investor's systematic redemption option without penalty at
any time.
Information about requirements to establish a systematic
redemption option may be obtained by visiting janus.com, calling
a Janus Representative or writing the Funds.
76
TAX-DEFERRED ACCOUNTS
- --------------------------------------------------------------------------------
The Funds offer several different types of tax-deferred accounts
that an investor may establish to invest in Fund shares,
depending on rules prescribed by the Code. Traditional and Roth
Individual Retirement Accounts may be used by most individuals
who have taxable compensation. Simplified Employee Pensions and
Defined Contribution Plans (Profit Sharing or Money Purchase
Pension Plans) may be used by most employers, including
corporations, partnerships and small business owners (including
sole proprietors), for the benefit of business owners and their
employees. In addition, the Funds offer a Section 403(b)(7) Plan
for employees of educational organizations and other qualifying
tax-exempt organizations. Investors should consult their tax
adviser or legal counsel before selecting a tax-deferred account.
Contributions under Traditional and Roth IRAs, SEPs, Defined
Contribution Plans and Section 403(b)(7) Plans are subject to
specific contribution limitations. Generally, such contributions
may be invested at the direction of the participant.
Distributions from tax-deferred retirement accounts may be
subject to ordinary income tax and may be subject to an
additional 10% tax if withdrawn prior to age 59 1/2 or used for a
nonqualifying purpose. Additionally, shareholders generally must
start withdrawing retirement plan assets no later than April 1 of
the year after they reach age 70 1/2. Several exceptions to these
general rules may apply and several methods exist to determine
the amount and timing of the minimum annual distribution (if
any). Shareholders should consult with their tax adviser or legal
counsel prior to receiving any distribution from any tax-deferred
account, in order to determine the income tax impact of any such
distribution.
Coverdell Education Savings Accounts (formerly Education IRAs)
allow individuals, subject to certain income limitations, to
contribute up to $2,000 annually on behalf of any child under the
age of 18. Contributions are also allowed on behalf of children
with special needs beyond age 18. Distributions are generally
subject to income tax if not used for qualified education
expenses.
77
To receive additional information about Traditional and Roth
IRAs, SEPs, Defined Contribution Plans, Section 403(b)(7) Plans
and Coverdell Education Savings Accounts along with the necessary
materials to establish an account, please visit janus.com, call a
Janus Representative or write to the Funds at P.O. Box 173375,
Denver, Colorado 80217-3375. No contribution to a Traditional or
Roth IRA, SEP, Defined Contribution Plan, Section 403(b)(7) Plan
or Coverdell Education Savings Account can be made until the
appropriate forms to establish any such plan have been completed.
78
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS
AND TAX STATUS
- --------------------------------------------------------------------------------
It is a policy of the Funds to make distributions of
substantially all of their investment income and any net realized
capital gains. Any capital gains realized during each fiscal year
ended October 31, as defined by the Code, are normally declared
and payable to shareholders in December. Janus Enterprise Fund,
Janus Mercury Fund, Janus Special Situations Fund, Janus
Strategic Value Fund, Janus Orion Fund, Janus Fund 2, Janus
Global Value Fund and Janus Core Equity Fund declare and make
annual distributions of income (if any); Janus Balanced Fund and
Janus Growth and Income Fund declare and make quarterly
distributions of income and Janus Flexible Income Fund, Janus
High-Yield Fund, Janus Federal Tax-Exempt Fund and Janus
Short-Term Bond Fund declare dividends daily and make monthly
distributions of income. If a month begins on a Saturday, Sunday
or holiday, dividends for daily dividend Funds for those days are
declared at the end of the preceding month. Janus Federal Tax-
Exempt Fund will use the "average annual method" to determine the
designated percentage of each distribution that is tax-exempt.
Under this method, the percentage of income designated as tax-
exempt is based on the percentage of tax-exempt income earned for
each annual period, and may be substantially different from the
Fund's income that was tax-exempt during any monthly period. The
Funds intend to qualify as regulated investment companies by
satisfying certain requirements prescribed by Subchapter M of the
Code. Accordingly, a Fund will invest no more than 25% of its
total assets in a single issuer (other than U.S. government
securities).
The Funds may purchase securities of certain foreign corporations
considered to be passive foreign investment companies by the IRS.
In order to avoid taxes and interest that must be paid by the
Funds, the Funds may make various elections permitted by the tax
laws. However, these elections could require that the Funds
recognize taxable income, which in turn must be distributed.
Some foreign securities purchased by the Funds may be subject to
foreign taxes which could reduce the yield on such securities. If
79
the amount of foreign taxes is significant in a particular year,
the Funds that qualify under Section 853 of the Code may elect to
pass through such taxes to shareholders, who will each decide
whether to deduct such taxes or claim a foreign tax credit. If
such election is not made, foreign taxes paid or accrued will
represent an expense to each Fund which will reduce its
investment company taxable income.
80
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
As of January 31, 2002, the officers and Trustees of the Funds as
a group owned less than 1% of the outstanding shares of each of
the Funds.
As of January 28, 2002, Charles Schwab & Co., Inc. ("Schwab"),
101 Montgomery Street, San Francisco, CA 94140-4122, and National
Financial Services Co. ("National Financial"), P.O. Box 3908,
Church Street Station, New York, NY 10008-3908, owned of record
5% or more of the outstanding shares of the Funds for the
exclusive benefit of their customers, as shown below:
<Table>
<Caption>
Fund Name Held by Schwab
- ------------------------------------------------------------------------------------------
Janus Enterprise Fund 14.11%
Janus Mercury Fund 17.55%
Janus Special Situations Fund 15.29%
Janus Strategic Value Fund 17.78%
Janus Orion Fund 10.77%
Janus Fund 2 22.75%
Janus Global Value Fund 26.16%
Janus Core Equity Fund(1) 18.53%
Janus Growth and Income Fund 21.51%
Janus Balanced Fund 18.82%
Janus Flexible Income Fund 26.79%
Janus Federal Tax-Exempt Fund 8.02%
Janus High-Yield Fund 29.15%
Janus Short-Term Bond Fund 6.82%
</Table>
<Table>
<Caption>
Fund Name Held by National Financial
- ------------------------------------------------------------------------------------------
Janus Enterprise Fund 7.07%
Janus Mercury Fund 8.27%
Janus Special Situations Fund 8.42%
Janus Strategic Value Fund 6.64%
Janus Orion Fund 8.62%
Janus Fund 2 5.04%
Janus Core Equity Fund(1) 10.84%
Janus Growth and Income Fund 10.62%
Janus Balanced Fund 7.53%
Janus Flexible Income Fund 8.50%
Janus High-Yield Fund 15.08%
Janus Short-Term Bond Fund 5.26%
</Table>
(1) Formerly, Janus Equity Income Fund.
81
According to information provided by Schwab and National
Financial, this ownership is by nominee only and does not
represent beneficial ownership of such shares, because they have
no investment discretion or voting power with respect to such
shares.
In addition, as of January 28, 2002, more than 5% of the
outstanding shares of the following Funds were owned of record by
the shareholders listed below:
<Table>
<Caption>
Shareholder and Percentage
Fund Address of Record Ownership
- -----------------------------------------------------------------------------------
Janus Enterprise Fund FIIOC as Agent for Certain Employee Benefit 7.88%
Plans
100 Magellan Way, KW1C
Covington, KY 41015-1987
The Manufacturers Life Insurance Company (USA) 7.28%
250 Bloor Street East, 7th Floor
Toronto, ON M4W
Canada M4W 1E5
Janus Balanced Fund FIIOC as Agent for Certain Employee Benefit 8.22%
Plans
100 Magellan Way, KW1C
Covington, KY 41015-1987
</Table>
To the knowledge of the Funds, no other shareholder owned 5% or
more of the outstanding shares of any Fund as of January 28,
2002.
82
MISCELLANEOUS INFORMATION
- --------------------------------------------------------------------------------
Each Fund is a series of the Trust, a Massachusetts business
trust that was created on February 11, 1986. The Trust is an
open-end management investment company registered under the 1940
Act. As of the date of this SAI, the Trust offers 26 separate
series, three of which currently offer three classes of shares.
Janus Capital reserves the right to the name "Janus." In the
event that Janus Capital does not continue to provide investment
advice to the Funds, the Funds must cease to use the name "Janus"
as soon as reasonably practicable.
Under Massachusetts law, shareholders of the Funds could, under
certain circumstances, be held liable for the obligations of
their Fund. However, the Declaration of Trust disclaims
shareholder liability for acts or obligations of the Funds and
requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by
the Funds or the Trustees. The Declaration of Trust also provides
for indemnification from the assets of the Funds for all losses
and expenses of any Fund shareholder held liable for the
obligations of their Fund. Thus, the risk of a shareholder
incurring a financial loss on account of its liability as a
shareholder of one of the Funds is limited to circumstances in
which their Fund would be unable to meet its obligations. The
possibility that these circumstances would occur is remote. The
Trustees intend to conduct the operations of the Funds to avoid,
to the extent possible, liability of shareholders for liabilities
of their Fund.
SHARES OF THE TRUST
The Trust is authorized to issue an unlimited number of shares of
beneficial interest with a par value of one cent per share for
each series of the Trust. Shares of each Fund are fully paid and
nonassessable when issued. All shares of a Fund participate
equally in dividends and other distributions by such Fund, and in
residual assets of that Fund in the event of liquidation. Shares
of each Fund have no preemptive, conversion or subscription
rights. Shares of each Fund may be transferred by endorsement or
stock
83
power as is customary, but a Fund is not bound to recognize any
transfer until it is recorded on its books.
SHAREHOLDER MEETINGS
The Trust does not intend to hold annual or regular shareholder
meetings unless otherwise required by the Declaration of Trust or
the 1940 Act. Special meetings may be called for a specific Fund
or for the Trust as a whole for purposes such as changing
fundamental policies; electing or removing Trustees; making any
changes to the Declaration of Trust that would materially
adversely affect shareholders' rights; determining whether to
bring certain derivative actions; or for any other purpose that
requires a shareholder vote under applicable law or the Trust's
governing documents, or as the Trustees consider necessary or
desirable. The present Trustees were elected at a meeting of
shareholders held on January 31, 2002. Under the Declaration of
Trust, each Trustee will continue in office until the termination
of the Trust or his earlier death, retirement, resignation,
incapacity, or removal. Vacancies will be filled by a majority of
the remaining Trustees, subject to the 1940 Act.
VOTING RIGHTS
As a shareholder, you are entitled to one vote for each dollar of
net asset value of the Fund that you own. Generally all Funds
vote together as a single group, except where a separate vote of
one or more Funds is required by law or where the interests of
one or more Funds are affected differently from other Funds.
Shares of all series of the Trust have noncumulative voting
rights, which means that the holders of more than 50% of the
value of shares of all series of the Trust voting for election of
Trustees can elect 100% of the Trustees if they choose to do so.
In such event, the holders of the remaining value of shares will
not be able to elect any Trustees.
84
MASTER/FEEDER OPTION
The Trust may in the future seek to achieve a Fund's objective by
investing all of that Fund's assets in another investment company
having the same investment objective and substantially the same
investment policies and restrictions as those applicable to that
Fund. Unless otherwise required by law, this policy may be
implemented by the Trustees without shareholder approval.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1670 Broadway, Suite 1000, Denver,
Colorado 80202, independent accountants for the Funds, audit the
Funds' annual financial statements and prepare their tax returns.
REGISTRATION STATEMENT
The Trust has filed with the SEC, Washington, D.C., a
Registration Statement under the Securities Act of 1933, as
amended, with respect to the securities to which this SAI
relates. If further information is desired with respect to the
Funds or such securities, reference is made to the Registration
Statement and the exhibits filed as a part thereof.
85
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Quotations of average annual total return for a Fund will be
expressed in terms of the average annual compounded rate of
return of a hypothetical investment in such Fund over periods of
1, 5, and 10 years (up to the life of the Fund) that would equate
the initial amount invested to the ending value. These rates of
return are quoted using three different measures: (1) average
annual total return before taxes; (2) average annual total return
after taxes on distributions; and (3) average annual total return
after taxes on distribution and redemption. The average annual
total return before taxes is calculated based on the following
formula: P(1+T)(n) = ERV (where P = a hypothetical initial
payment of $1,000, T = the average annual total return, n = the
number of years and ERV = the ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the period).
The average annual total return after taxes on distribution is
calculated based on the following formula: P(1+T)(n) = ATV(D)
(where P = a hypothetical initial payment of $1,000, T = average
annual total return (after taxes on distributions), n = the
number of years and ATV(D) = the ending value of a hypothetical
$1,000 payment made at the beginning of the period). Average
annual total return after taxes on distributions and redemption
is calculated based on the following formula: P(1+T)(n) = ATV(DR)
(where P = a hypothetical initial payment of $1,000, T = the
average annual total return (after taxes on distributions and
redemptions), n = the number of years and ATV(DR) = the ending
value of a hypothetical $1,000 payment made at the beginning of
the period).
All total return figures reflect the deduction of a proportional
share of Fund expenses on an annual basis, and assume that all
dividends and distributions, less taxes due on such
distributions, are reinvested when paid. The taxes due are
calculated using the highest individual marginal federal tax
rates and capital gains tax rates in effect on the reinvestment
date. State and local taxes are not considered. In addition, the
formulas do not take into account the effect of the alternative
minimum tax or phaseouts of certain
86
tax credits, exemptions and deductions for taxpayers whose
adjusted gross income is above a specified amount.
The average annual total return before taxes of each Fund,
computed as of October 31, 2001, is shown in the table below:
<Table>
<Caption>
Average Annual Total Return (Before Taxes)
Date Number ------------------------------------------
Available of Months One Five Ten Life of
Fund Name for Sale in Lifetime Year Years Years Fund
- ---------------------------------------------------------------------------------------------------
Janus Enterprise Fund 9/1/92 110 (56.63)% 4.57% N/A 12.55%
Janus Mercury Fund 5/3/93 102 (46.21)% 12.44% N/A 16.89%
Janus Special Situations Fund 12/31/96 58 (34.49)% N/A N/A 11.78%
Janus Strategic Value Fund 2/29/00 20 (23.61)% N/A N/A (8.47)%
Janus Orion Fund 6/30/00 16 (40.69)% N/A N/A (38.46)%
Janus Fund 2 12/29/00 10 N/A N/A N/A (31.70)%(1)
Janus Global Value Fund 6/29/01 4 N/A N/A N/A (3.10)%(2)
Janus Core Equity Fund(3) 6/28/96 64 (21.70)% 14.50% N/A 16.18%
Janus Growth and Income Fund 5/15/91 125.5 (27.66)% 15.17% 14.94% 16.38%
Janus Balanced Fund 9/1/92 110 (8.83)% 12.94% N/A 13.79%
Janus Flexible Income Fund 7/7/87 172 12.41% 7.33% 8.88% 8.52%
Janus Federal Tax-Exempt Fund 5/3/93 102 8.80% 5.21% N/A 5.11%
Janus High-Yield Fund 12/29/95 70 2.23% 5.98% N/A 8.37%
Janus Short-Term Bond Fund 9/1/92 110 9.50% 6.61% N/A 5.69%
</Table>
(1) Cumulative total return from December 29, 2000 (inception) to October 31,
2001.
(2) Cumulative total return from June 29, 2001 (inception) to October 31, 2001.
(3) Formerly, Janus Equity Income Fund
Average annual total return after taxes on distributions assumes
that (1) taxes are paid on distributions at the time of the
distribution; (2) shares were held for the entire measurement
period; and (3) no taxes have been paid on accumulated capital
appreciation. The average annual total return after taxes on
87
distributions of each Fund, computed as of October 31, 2001, is
shown in the table below:
<Table>
<Caption>
Average Annual Return (After Taxes on
Distributions)
Date Number --------------------------------------
Available of Months One Five Ten Life of
Fund Name for Sale in Lifetime Year Years Years Fund
- -----------------------------------------------------------------------------------------------
Janus Enterprise Fund 9/1/92 110 (56.63)% 3.25% N/A 11.19%
Janus Mercury Fund 5/3/93 102 (48.03)% 8.87% N/A 14.00%
Janus Special Situations Fund 12/31/96 58 (35.53)% N/A N/A 10.01%
Janus Strategic Value Fund 2/29/00 20 (24.33)% N/A N/A (8.99)%
Janus Orion Fund 6/30/00 16 (40.76)% N/A N/A (38.51)%
Janus Fund 2 12/29/00 10 N/A N/A N/A (31.70)%(1)
Janus Global Value Fund 6/29/01 4 N/A N/A N/A (3.10)%(2)
Janus Core Equity Fund(3) 6/28/96 64 (24.06)% 12.56% N/A 14.31%
Janus Growth and Income Fund 5/15/91 125.5 (28.59)% 12.90% 13.12% 14.61%
Janus Balanced Fund 9/1/92 110 (10.98)% 10.20% N/A 11.53%
Janus Flexible Income Fund 7/7/87 172 9.68% 4.28% 5.66% 5.33%
Janus Federal Tax-Exempt Fund 5/3/93 102 8.77% 5.17% N/A 5.07%
Janus High-Yield Fund 12/29/95 70 (0.93)% 2.13% N/A 4.48%
Janus Short-Term Bond Fund 9/1/92 110 7.40% 4.26% N/A 3.37%
</Table>
(1) Cumulative total return from December 29, 2000 (inception) to October 31,
2001.
(2) Cumulative total return from June 29, 2001 (inception) to October 31, 2001.
(3) Formerly, Janus Equity Income Fund
Average annual total return after taxes on distributions and
redemption assumes that (1) taxes are paid at the time of the
distribution; (2) shares have been sold at the end of the
measurement period; and (3) the long-term capital gains tax rate
is applied on accumulated capital appreciation for all periods.
If a capital loss would have occurred on liquidation, the loss is
recorded as a tax benefit, increasing the return after taxes on
distributions and redemption. The average annual total return
88
after taxes on distributions and redemption of each Fund,
computed as of October 31, 2001, is shown in the table below:
<Table>
<Caption>
Average Annual Total Return (After Taxes on
Distributions and Redemption)
Date Number ----------------------------------------------
Available of Months One Five Ten Life of
Fund Name for Sale in Lifetime Year Years Years Fund
- -------------------------------------------------------------------------------------------------------
Janus Enterprise Fund 9/1/92 110 (34.49)% 3.64% N/A 10.38%
Janus Mercury Fund 5/3/93 102 (26.14)% 9.44% N/A 13.45%
Janus Special Situations Fund 12/31/96 58 (19.80)% N/A N/A 9.45%
Janus Strategic Value Fund 2/29/00 20 (14.30)% N/A N/A (6.93)%
Janus Orion Fund 6/30/00 16 (24.76)% N/A N/A (30.24)%
Janus Fund 2 12/29/00 10 N/A N/A N/A (19.31)%(1)
Janus Global Value Fund 6/29/01 4 N/A N/A N/A (1.89)%(2)
Janus Core Equity Fund(3) 6/28/96 64 (11.47)% 11.38% N/A 12.91%
Janus Growth and Income Fund 5/15/91 125.5 (15.96)% 11.91% 12.13% 13.54%
Janus Balanced Fund 9/1/92 110 (4.74)% 9.38% N/A 10.56%
Janus Flexible Income Fund 7/7/87 172 7.46% 4.34% 5.58% 5.36%
Janus Federal Tax-Exempt Fund 5/3/93 102 7.17% 5.12% N/A 5.06%
Janus High-Yield Fund 12/29/95 70 1.35% 2.88% N/A 4.83%
Janus Short-Term Bond Fund 9/1/92 110 5.73% 4.11% N/A 3.37%
</Table>
(1) Cumulative total return from December 29, 2000 (inception) to October 31,
2001.
(2) Cumulative total return from June 29, 2001 (inception) to October 31, 2001.
(3) Formerly, Janus Equity Income Fund.
89
Quotations of a Fund's yield are based on the investment income
per share earned during a particular 30-day period (including
dividends, if any, and interest), less expenses accrued during
the period ("net investment income"), and are computed by
dividing net investment income by the net asset value per share
on the last day of the period, according to the following
formula:
YIELD = 2[(a - b + 1)(6) - 1]
-----
cd
where a = dividend and interest income
b = expenses accrued for the period (net of reimbursements)
c = average daily number of shares outstanding during the
period that were entitled to receive dividends
d = maximum net asset value per share on the last day of
the period
The tax-equivalent yield used for Janus Federal Tax-Exempt Fund
is the rate that an investor would have to earn from a fully
taxable investment after taxes to equal the Fund's tax-free
yield. Tax-equivalent yields are calculated by dividing a Fund's
yield by the result of one minus a stated federal or combined
federal and state tax rate. If only a portion of a Funds' yield
is tax-exempt, only that portion is adjusted in the calculation.
Janus Federal Tax-Exempt Fund may invest a portion of its assets
in obligations that are subject to federal income tax. When the
Fund invests in these obligations, its tax-equivalent yield will
be lower.
The yield for the 30-day period ending October 31, 2001, for the
Fixed-Income Funds is shown below:
<Table>
Janus Flexible Income Fund 5.20%
Janus Federal Tax-Exempt Fund 4.15%
Janus High-Yield Fund 8.17%
Janus Short-Term Bond Fund 3.34%
</Table>
90
From time to time in advertisements or sales material, the Funds
may discuss their performance ratings or other information as
published by recognized mutual fund statistical rating services,
including, but not limited to, Lipper Analytical Services, Inc.
("Lipper"), Ibbotson Associates, Micropal or Morningstar, Inc.
("Morningstar") or by publications of general interest such as
Forbes, Money, The Wall Street Journal, Mutual Funds Magazine,
Kiplinger's, or Smart Money. The Funds may also compare their
performance to that of other selected mutual funds (for example,
peer groups created by Lipper or Morningstar), mutual fund
averages or recognized stock market indicators, including, but
not limited to, the Standard & Poor's 500 Composite Stock Price
Index, the Standard & Poor's 400 Midcap Index, the Dow Jones
Industrial Average, the Lehman Brothers Government/Credit Index,
the Lehman Brothers 1-3 Year Government/Credit Index, the Lehman
Brothers High Yield Index, the Lehman Brothers Municipal Bond
Index, the Russell 2000 Index and the NASDAQ composite. In
addition, the Funds may compare their total return or yield to
the yield on U.S. Treasury obligations and to the percentage
change in the Consumer Price Index. Such performance ratings or
comparisons may be made with funds that may have different
investment restrictions, objectives, policies or techniques than
the Funds and such other funds or market indicators may be
comprised of securities that differ significantly from the Funds'
investments.
91
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE TO THE ANNUAL REPORTS
The following audited financial statements for the period ended
October 31, 2001 are hereby incorporated into this SAI by
reference to the Funds' Annual Reports dated October 31, 2001:
Schedules of Investments as of October 31, 2001
Statements of Operations for the period ended October 31, 2001
Statements of Assets and Liabilities as of October 31, 2001
Statements of Changes in Net Assets for the periods ended October
31, 2001 and 2000
Financial Highlights for each of the periods indicated
Notes to Financial Statements
Reports of Independent Accountants
The portions of such Annual Reports that are not specifically
listed above are not incorporated by reference into this SAI and
are not part of the Registration Statement.
92
APPENDIX A
- --------------------------------------------------------------------------------
EXPLANATION OF RATING CATEGORIES
The following is a description of credit ratings issued by two of
the major credit ratings agencies. Credit ratings evaluate only
the safety of principal and interest payments, not the market
value risk of lower quality securities. Credit rating agencies
may fail to change credit ratings to reflect subsequent events on
a timely basis. Although Janus Capital considers security ratings
when making investment decisions, it also performs its own
investment analysis and does not rely solely on the ratings
assigned by credit agencies.
93
STANDARD & POOR'S
RATINGS SERVICES
<Table>
BOND RATING EXPLANATION
----------------------------------------------------------------
Investment Grade
AAA......................... Highest rating; extremely strong
capacity to pay principal and
interest.
AA.......................... High quality; very strong capacity
to pay principal and interest.
A........................... Strong capacity to pay principal
and interest; somewhat more
susceptible to the adverse effects
of changing circumstances and
economic conditions.
BBB......................... Adequate capacity to pay principal
and interest; normally exhibit
adequate protection parameters, but
adverse economic conditions or
changing circumstances more likely
to lead to a weakened capacity to
pay principal and interest than for
higher rated bonds.
Non-Investment Grade
BB, B, CCC, CC, C........... Predominantly speculative with
respect to the issuer's capacity to
meet required interest and
principal payments. BB - lowest
degree of speculation; C - the
highest degree of speculation.
Quality and protective
characteristics outweighed by large
uncertainties or major risk
exposure to adverse conditions.
D........................... In default.
</Table>
94
MOODY'S INVESTORS SERVICE, INC.
<Table>
BOND RATING EXPLANATION
----------------------------------------------------------------
Investment Grade
Aaa......................... Highest quality, smallest degree of
investment risk.
Aa.......................... High quality; together with Aaa
bonds, they compose the high-grade
bond group.
A........................... Upper-medium grade obligations;
many favorable investment
attributes.
Baa......................... Medium-grade obligations; neither
highly protected nor poorly
secured. Interest and principal
appear adequate for the present but
certain protective elements may be
lacking or may be unreliable over
any great length of time.
Non-Investment Grade
Ba.......................... More uncertain, with speculative
elements. Protection of interest
and principal payments not well
safeguarded during good and bad
times.
B........................... Lack characteristics of desirable
investment; potentially low
assurance of timely interest and
principal payments or maintenance
of other contract terms over time.
Caa......................... Poor standing, may be in default;
elements of danger with respect to
principal or interest payments.
Ca.......................... Speculative in a high degree; could
be in default or have other marked
shortcomings.
C........................... Lowest-rated; extremely poor
prospects of ever attaining
investment standing.
</Table>
95
Unrated securities will be treated as noninvestment grade
securities unless a portfolio manager determines that such
securities are the equivalent of investment grade securities.
Securities that have received different ratings from more than
one agency are considered investment grade if at least one agency
has rated the security investment grade.
96
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[JANUS LOGO]
www.janus.com
PO Box 173375
Denver, CO 80217-3375
1-800-525-3713
BERGER GROWTH FUND
BERGER LARGE CAP GROWTH FUND
BERGER MID CAP GROWTH FUND
(A SERIES OF BERGER INVESTMENT PORTFOLIO TRUST)
BERGER SMALL COMPANY GROWTH FUND - INVESTOR SHARES
(A SERIES OF BERGER INVESTMENT PORTFOLIO TRUST)
BERGER NEW GENERATION FUND - INVESTOR SHARES
(A SERIES OF BERGER INVESTMENT PORTFOLIO TRUST)
BERGER SELECT FUND
(A SERIES OF BERGER INVESTMENT PORTFOLIO TRUST)
BERGER INFORMATION TECHNOLOGY FUND - INVESTOR SHARES
(A SERIES OF BERGER INVESTMENT PORTFOLIO TRUST)
BERGER LARGE CAP VALUE FUND - INVESTOR SHARES
(A SERIES OF BERGER INVESTMENT PORTFOLIO TRUST)
BERGER MID CAP VALUE FUND
(A SERIES OF BERGER INVESTMENT PORTFOLIO TRUST)
BERGER BALANCED FUND
(A SERIES OF BERGER INVESTMENT PORTFOLIO TRUST)
STATEMENT OF ADDITIONAL INFORMATION
INVESTOR SERVICES: 1-800-551-5849
This Statement of Additional Information ("SAI") is not a
prospectus. It relates to the Prospectus for the Berger Funds listed above (the
"Funds"), dated January 29, 2002, as it may be amended or supplemented from time
to time, which may be obtained by writing the Funds at P.O. Box 5005, Denver,
Colorado 80217-5005, or calling 1-800-333-1001.
The Funds are all "no-load" mutual funds, meaning that a buyer
pays no commissions or sales loads when buying or redeeming shares of the Funds,
although each Fund pays certain costs of distributing its shares. See "Section
5. Expenses of the Funds -- 12b-1 Plans." This SAI describes each of these
Funds, which have many features in common, but may have different investment
objectives and different investment emphases.
The financial statements of each of the Funds for the fiscal
year ended September 30, 2001, and the related Report of Independent Accountants
on those statements, are incorporated into this SAI by reference from the Funds'
2001 Annual Report to Shareholders dated September 30, 2001.
Copies of the Annual Report are available, without charge,
upon request, by calling 1-800-333-1001.
DATED JANUARY 29, 2002
TABLE OF CONTENTS
&
CROSS-REFERENCES TO PROSPECTUS
<Table>
<Caption>
CROSS-REFERENCES TO
PAGE RELATED DISCLOSURES
SECTION NO. IN PROSPECTUS
- ------- ---- -------------
Introduction 1 Table of Contents
1. Investment Strategies and Risks of the Funds. 1 Berger Funds; Investment Techniques,
Securities and the Associated Risks
2. Investment Restrictions 17 Berger Funds; Investment Techniques,
Securities and the Associated Risks
3. Management of the Funds 20 Organization of the Berger Funds
Family
4. Investment Advisers and Sub-Advisers 26 Organization of the Berger Funds
Family
5. Expenses of the Funds 30 Berger Funds; Organization of the
Berger Funds Family; Financial
Highlights for the Berger Funds
Family
6. Brokerage Policy 36 Organization of the Berger Funds
Family
7. How to Purchase and Redeem Shares in the Funds 39 To Open an Account or Purchase
Shares; Selling (Redeeming) Shares
8. How the Net Asset Value is Determined 40 Your Share Price
9. Income Dividends, Capital Gains Distributions 41 Distributions and Taxes
and Tax Treatment
10. Suspension of Redemption Rights 43 Information About Your Account
11. Tax-Sheltered Retirement Plans 43 Tax-Sheltered Retirement Plans
12. Exchange Privilege and Systematic Withdrawal 46 Exchanging Shares; Selling (Redeeming)
Plan Shares
13. Performance Information 47 Financial Highlights for the Berger
Funds Family
14. Additional Information 49 Organization of the Berger Funds
Family; Special Fund Structures
Financial Information 54 Financial Highlights
</Table>
i
INTRODUCTION
The Funds described in this SAI are all mutual funds, or open-end,
management investment companies. All of the Funds are diversified funds, except
the Berger Select Fund. See under "Non-Diversification" in Section 1 for further
information concerning the Berger Select Fund. Although each Fund is offering
only its own shares and is not participating in the sale of the shares of the
other Funds, it is possible that a Fund might become liable for any
misstatement, inaccuracy or incomplete disclosure in the Prospectus or SAI
concerning the other Funds.
1. INVESTMENT STRATEGIES AND RISKS OF THE FUNDS
The Prospectus describes the investment objective of each of the Funds
and the principal investment policies and strategies used to achieve that
objective. It also describes the principal risks of investing in each Fund.
This section contains supplemental information concerning the types of
securities and other instruments in which the Funds may invest, the investment
policies and portfolio strategies that the Funds may utilize and certain risks
attendant to those investments, policies and strategies.
COMMON AND PREFERRED STOCKS. Stocks represent shares of ownership in a
company. Generally, preferred stock has a specified dividend and ranks after
bonds and before common stocks in its claim on income for dividend payments and
on assets should the company be liquidated. After other claims are satisfied,
common stockholders participate in company profits on a pro rata basis. Profits
may be paid out in dividends or reinvested in the company to help it grow.
Increases and decreases in earnings are usually reflected in a company's stock
price, so common stocks generally have the greatest appreciation and
depreciation potential of all corporate securities. While most preferred stocks
pay dividends, any of the Funds may purchase preferred stock where the issuer
has omitted, or is in danger of omitting, payment of its dividends. Such
investments would be made primarily for their capital appreciation potential.
All investments in stocks are subject to market risk, meaning that their prices
may move up and down with the general stock market, and that such movements
might reduce their value.
DEBT SECURITIES. Debt securities (such as bonds or debentures) are
fixed-income securities that bear interest and are issued by corporations or
governments. The issuer has a contractual obligation to pay interest at a stated
rate on specific dates and to repay principal on a specific maturity date. In
addition to market risk, debt securities are generally subject to two other
kinds of risk: credit risk and interest rate risk. Credit risk refers to the
ability of the issuer to meet interest or principal payments as they come due.
The lower the rating given a security by a rating service (such as Moody's
Investor Service ("Moody's") and Standard & Poor's ("S&P")), the greater the
credit risk the rating service perceives with respect to that security. None of
the Funds will purchase any nonconvertible securities rated below investment
grade (Ba or lower by Moody's, BB or lower by S&P). In cases where the ratings
assigned by more than one rating agency differ, the Funds will consider the
security as rated in the higher category. If nonconvertible securities purchased
by a Fund are downgraded to below investment grade following purchase, the
directors or trustees of the Fund, in consultation with the Fund's adviser or
sub-adviser, will determine what action, if any, is appropriate in light of all
relevant circumstances. For a further discussion of debt security ratings, see
Appendix A to this SAI.
Interest rate risk refers to the fact that the value of fixed-income
securities (like debt securities) generally fluctuates in response to changes in
interest rates. A decrease in interest rates will generally result in an
increase in the price of fixed-income securities held by a Fund. Conversely,
during periods of rising interest rates, the value of fixed-income securities
held by a Fund will generally decline. Longer-term securities are generally more
sensitive to interest rate changes and are more volatile than shorter-term
securities, but they generally offer higher yields to compensate investors for
the associated risks.
Certain debt securities can also present prepayment risk. For example,
a security may contain redemption and call provisions. If an issuer exercises
these provisions when interest rates are declining, the Fund could sustain
investment losses as well as have to reinvest the proceeds from the security at
lower interest rates, resulting in a decreased return for the Fund.
1
CONVERTIBLE SECURITIES. Each Fund may also purchase debt or equity
securities that are convertible into common stock when the Fund's adviser or
sub-adviser believes they offer the potential for a higher total return than
nonconvertible securities. Although fixed-income securities generally have a
priority claim on a corporation's assets over that of common stock, some of the
convertible securities that the Funds may hold are high-yield/high-risk
securities that are subject to special risks, including the risk of default in
interest or principal payments, which could result in a loss of income to the
Fund or a decline in the market value of the securities. Convertible securities
often display a degree of market price volatility that is comparable to common
stocks. The credit risk associated with convertible securities generally is
reflected by their ratings by organizations such as Moody's or S&P or a similar
determination of creditworthiness by the Fund's adviser or sub-adviser. Each
Fund has no preestablished minimum quality standards for convertible securities
and may invest in convertible securities of any quality, including lower rated
or unrated securities. However, the Funds will not invest in any security in
default at the time of purchase, and each of the Funds will invest less than 20%
of the market value of its assets at the time of purchase in convertible
securities rated below investment grade. If convertible securities purchased by
a Fund are downgraded following purchase, or if other circumstances cause 20% or
more of a Fund's assets to be invested in convertible securities rated below
investment grade, the directors or trustees of the Fund, in consultation with
the Fund's adviser or sub-adviser, will determine what action, if any, is
appropriate in light of all relevant circumstances. For a further discussion of
debt security ratings, see Appendix A to this SAI. Convertible securities will
be included in the 25% of total assets the Berger Balanced Fund will keep in
fixed-income senior securities. However, only that portion of their value
attributable to their fixed-income characteristics will be used in calculating
the 25%.
ZEROS/STRIPS. Each Fund, except the Berger New Generation Fund and the
Berger Small Company Growth Fund, may invest in zero coupon bonds or in
"strips." Zero coupon bonds do not make regular interest payments; rather, they
are sold at a discount from face value. Principal and accreted discount
(representing interest accrued but not paid) are paid at maturity. "Strips" are
debt securities that are stripped of their interest coupon after the securities
are issued, but otherwise are comparable to zero coupon bonds. The market values
of "strips" and zero coupon bonds generally fluctuate in response to changes in
interest rates to a greater degree than do interest-paying securities of
comparable term and quality.
SECURITIES OF SMALLER COMPANIES. Each Fund may invest in securities of
companies with small or mid-sized market capitalizations. Market capitalization
is defined as total current market value of a company's outstanding common
stock. Investments in companies with smaller market capitalizations may involve
greater risks and price volatility (that is, more abrupt or erratic price
movements) than investments in larger, more mature companies because smaller
companies may be at an earlier stage of development and may have limited product
lines, reduced market liquidity for their shares, limited financial resources or
less depth in management than larger or more established companies. Smaller
companies also may be less significant factors within their industries and may
have difficulty withstanding competition from larger companies. While smaller
companies may be subject to these additional risks, they may also realize more
substantial growth than larger or more established companies.
SECURITIES OF COMPANIES WITH LIMITED OPERATING HISTORIES. Each Fund may
invest in securities of companies with limited operating histories. Each Fund
considers these to be securities of companies with a record of less than three
years' continuous operation, even including the operations of any predecessors
and parents. (These are sometimes referred to as "unseasoned issuers.") These
companies by their nature have only a limited operating history that can be used
for evaluating the company's growth prospects. As a result, investment decisions
for these securities may place a greater emphasis on current or planned product
lines and the reputation and experience of the company's management and less
emphasis on fundamental valuation factors than would be the case for more mature
companies. In addition, many of these companies may also be small companies and
involve the risks and price volatility associated with smaller companies.
INITIAL PUBLIC OFFERINGS. Each Fund may invest in a company's
securities at the time the company first offers securities to the public, that
is, at the time of the company's initial public offering or IPO. Although
companies can be any age or size at the time of their IPOs, they are often
smaller and have a limited operating history, which involves a greater potential
for the value of their securities to be impaired following the IPO. See
"Securities of Smaller Companies" and "Securities of Companies with Limited
Operating Histories" above.
2
Investors in IPOs can be adversely affected by substantial dilution in
the value of their shares, by sales of additional shares and by concentration of
control in existing management and principal investors. In addition, all of the
factors that affect stock market performance may have a greater impact on the
shares of IPO companies.
The price of a company's securities may be highly unstable at the time
of its IPO and for a period thereafter due to market psychology prevailing at
the time of the IPO, the absence of a prior public market, the small number of
shares available and limited availability of investor information. As a result
of this or other factors, a Fund's adviser or sub-adviser might decide to sell
an IPO security more quickly than it would otherwise, which may result in a
significant gain or loss and greater transaction costs to the Fund. Any gains
from shares held for 12 months or less will be treated as short-term gains,
taxable as ordinary income to the Fund's investors. In addition, IPO securities
may be subject to varying patterns of trading volume and may, at times, be
difficult to sell without an unfavorable impact on prevailing prices.
The effect of an IPO investment can have a magnified impact on a Fund's
performance when the Fund's asset base is small. Consequently, IPOs may
constitute a significant portion of a Fund's returns particularly when the Fund
is small. Since the number of securities issued in an IPO is limited, it is
likely that IPO securities will represent a smaller component of a Fund's assets
as it increases in size and therefore have a more limited effect on the Fund's
performance.
There can be no assurance that IPOs will continue to be available for
any of the Funds to purchase. The number or quality of IPOs available for
purchase by a Fund may vary, decrease or entirely disappear. In some cases, a
Fund may not be able to purchase IPOs at the offering price, but may have to
purchase the shares in the aftermarket at a price greatly exceeding the offering
price, making it more difficult for the Fund to realize a profit.
The adviser's or sub-adviser's IPO trade allocation procedures govern
which Funds and other advised accounts participate in the allocation of any IPO.
See the heading "Trade Allocations" under Section 4. Under the IPO allocation
procedures of Berger Financial Group LLC, a Fund generally will not participate
in an IPO if the securities available for allocation to the Fund are
insignificant relative to the Fund's net assets. As a result, any Fund or
account whose assets are very large is not likely to participate in the
allocation of many IPOs.
FOREIGN SECURITIES. Each Fund may invest in foreign securities, which
may be traded in foreign markets and denominated in foreign currency. The Funds'
investments may also include American Depositary Receipts (ADRs), European
Depositary Receipts (EDRs) that are similar to ADRs, in bearer form, designed
for use in the European securities markets, and in Global Depositary Receipts
(GDRs).
Investments in foreign securities involve some risks that are different
from the risks of investing in securities of U.S. issuers, such as the risk of
adverse political, social, diplomatic and economic developments and, with
respect to certain countries, the possibility of expropriation, taxes imposed by
foreign countries or limitations on the removal of monies or other assets of the
Funds. Moreover, the economies of individual foreign countries will vary in
comparison to the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, capital reinvestment, resources, self-sufficiency
and balance of payments position. Securities of some foreign companies,
particularly those in developing countries, are less liquid and more volatile
than securities of comparable domestic companies. A developing country generally
is considered to be in the initial stages of its industrialization cycle.
Investing in the securities of developing countries may involve exposure to
economic structures that are less diverse and mature and to political systems
that can be expected to have less stability than developed countries.
There also may be less publicly available information about foreign
issuers and securities than domestic issuers and securities, and foreign issuers
generally are not subject to accounting, auditing and financial reporting
standards, requirements and practices comparable to those applicable to domestic
issuers. Also, there is generally less government supervision and regulation of
exchanges, brokers, financial institutions and issuers in foreign countries than
there is in the U.S. Foreign financial markets typically have substantially less
volume than U.S. markets. Foreign markets also have different clearance and
settlement procedures and, in certain markets, delays or other factors could
make it difficult to effect transactions, potentially causing a Fund to
experience losses
3
or miss investment opportunities. The use of a foreign securities depository may
increase this risk. The Funds may maintain assets with a foreign securities
depository if certain conditions are met. A foreign securities depository may
maintain assets on behalf of a Fund if the depository: (a) acts as or operates a
system for the central handling of securities that is regulated by a foreign
financial regulatory authority; (b) holds assets on behalf of the Fund under
safekeeping conditions no less favorable than those that apply to other
participants; (c) maintains records that identify the assets of participants and
keeps its own assets separated from the assets of participants; (d) provides
periodic reports to participants; and (e) undergoes periodic examination by
regulatory authorities or independent accountants. In addition, the Fund's
primary custodian provides the Fund with an analysis of the custodial risks of
using a depository, monitors the depository on a continuous basis and notifies
the Fund of any material changes in risks associated with using the depository.
In general, the analysis may include an analysis of a depository's expertise and
market reputation; the quality of its services, its financial strength, and
insurance or indemnification arrangements; the extent and quality of regulation
and independent examination of the depository; its standing in published
ratings; its internal controls and other procedures for safeguarding
investments; and any related legal proceedings.
Costs associated with transactions in foreign securities are generally
higher than with transactions in U.S. securities. A Fund will incur greater
costs in maintaining assets in foreign jurisdictions and in buying and selling
foreign securities generally, resulting in part from converting foreign
currencies into U.S. dollars. In addition, a Fund might have greater difficulty
taking appropriate legal action with respect to foreign investments in non-U.S.
courts than with respect to domestic issuers in U.S. courts, which may heighten
the risk of possible losses through the holding of securities by custodians and
securities depositories in foreign countries.
For any Fund invested in securities denominated or quoted in currencies
other than the U.S. dollar, changes in foreign currency exchange rates will
affect the value of the investments in its portfolio and the unrealized
appreciation or depreciation of investments insofar as U.S. investors are
concerned. If the foreign currency in which a security is denominated
appreciates against the U.S. dollar, the dollar value of the security will
increase. Conversely, a decline in the exchange rate of the foreign currency
against the U.S. dollar would adversely affect the dollar value of the foreign
securities. Foreign currency exchange rates are determined by forces of supply
and demand on the foreign exchange markets, which are in turn affected by the
international balance of payments and other economic and financial conditions,
government intervention, speculation and other factors.
PASSIVE FOREIGN INVESTMENT COMPANIES (PFICS). The Funds may purchase
the securities of certain companies considered Passive Foreign Investment
Companies (PFICs) under U.S. tax laws. For certain types of PFICs, in addition
to bearing their proportionate share of a Fund's expenses (management fees and
operating expenses), investors will also indirectly bear similar expenses of
such PFIC. PFIC investments also may be subject to less favorable U.S. tax
treatment, as discussed in Section 9.
ILLIQUID AND RESTRICTED SECURITIES. Each Fund is authorized to invest
in securities that are illiquid or not readily marketable because they are
subject to restrictions on their resale ("restricted securities") or because,
based upon their nature or the market for such securities, no ready market is
available. None of the Funds will purchase any such security, the purchase of
which would cause the Fund to invest more than 15% of its net assets, measured
at the time of purchase, in illiquid securities. Investments in illiquid
securities involve certain risks to the extent that a Fund may be unable to
dispose of such a security at the time desired or at a reasonable price or, in
some cases, may be unable to dispose of it at all. In addition, in order to
resell a restricted security, a Fund might have to incur the potentially
substantial expense and delay associated with effecting registration. If
securities become illiquid following purchase or other circumstances cause more
than 15% of a Fund's net assets to be invested in illiquid securities, the
directors or trustees of that Fund, in consultation with the Fund's adviser,
will determine what action, if any, is appropriate in light of all relevant
circumstances.
Repurchase agreements maturing in more than seven days will be
considered as illiquid for purposes of this restriction. Pursuant to guidelines
established by the directors or trustees, a Fund's adviser or sub-adviser will
determine whether securities eligible for resale to qualified institutional
buyers pursuant to SEC Rule 144A under the Securities Act of 1933 should be
treated as illiquid investments considering, among other things, the following
factors: (a) the frequency of trades and quotes for the security; (b) the number
of dealers willing to purchase or sell the security and the number of other
potential purchasers; (c) dealer undertakings to
4
make a market in the security; and (d) the nature of the security and the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer). The liquidity of a
Fund's investments in Rule 144A securities could be impaired if qualified
institutional buyers become uninterested in purchasing these securities.
REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements
with various financial organizations, including commercial banks, registered
broker-dealers and registered government securities dealers. A repurchase
agreement is an agreement under which a Fund acquires a debt security (generally
a debt security issued or guaranteed by the U.S. government or an agency
thereof, a banker's acceptance or a certificate of deposit) from a commercial
bank, broker or dealer, subject to resale to the seller at an agreed upon price
and date (normally, the next business day). A repurchase agreement may be
considered a loan collateralized by securities. The resale price reflects an
agreed upon interest rate effective for the period the instrument is held by a
Fund and is unrelated to the interest rate on the underlying instrument. In
these transactions, the securities acquired by a Fund (including accrued
interest earned thereon) must have a total value equal to or in excess of the
value of the repurchase agreement and are held by the Fund's custodian bank
until repurchased. In addition, the directors or trustees will establish
guidelines and standards for review by the investment adviser of the
creditworthiness of any bank, broker or dealer party to a repurchase agreement
with a Fund. None of the Funds will enter into a repurchase agreement maturing
in more than seven days if as a result more than 15% of the Fund's net assets
would be invested in such repurchase agreements and other illiquid securities.
These transactions must be fully collateralized at all times by debt
securities (generally a security issued or guaranteed by the U.S. Government or
an agency thereof, a banker's acceptance or a certificate of deposit) but
involve certain risks, such as credit risk to the Fund if the other party
defaults on its obligation and the Fund is delayed or prevented from liquidating
the collateral. For example, if the other party to the agreement defaults on its
obligation to repurchase the underlying security at a time when the value of the
security has declined, a Fund may incur a loss upon disposition of the security.
If the other party to the agreement becomes insolvent and subject to liquidation
or reorganization under the Bankruptcy Code or other laws, a court may determine
that the underlying security is collateral for a loan by a Fund not within the
control of the Fund and therefore the realization by the Fund on such collateral
may automatically be stayed and delayed. Further, it is possible that a Fund may
not be able to substantiate its interest in the underlying security and may be
deemed an unsecured creditor of the other party to the agreement. The Funds
expect that these risks can be controlled through careful monitoring procedures.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Fund may purchase and
sell securities on a when-issued or delayed delivery basis. However, none of the
Funds currently intends to purchase or sell securities on a when-issued or
delayed delivery basis if as a result more than 5% of its total assets taken at
market value at the time of purchase would be invested in such securities.
When-issued or delayed delivery transactions arise when securities (normally,
obligations of issuers eligible for investment by a Fund) are purchased or sold
by the Fund with payment and delivery taking place in the future in order to
secure what is considered to be an advantageous price or yield. However, the
yield available on a comparable security when delivery takes place may vary from
the yield on the security at the time that the when-issued or delayed delivery
transaction was entered into. Any failure to consummate a when-issued or delayed
delivery transaction may result in a Fund missing the opportunity of obtaining a
price or yield considered to be advantageous. When-issued and delayed delivery
transactions may generally be expected to settle within one month from the date
the transactions are entered into but in no event later than 90 days. However,
no payment or delivery is made by a Fund until it receives delivery or payment
from the other party to the transaction.
When a Fund purchases securities on a when-issued basis, it will
maintain, in a segregated account with its custodian cash, U.S. government
securities or other liquid assets having an aggregate value equal to the amount
of such purchase commitments, until payment is made. If necessary, additional
assets will be placed in the account daily so that the value of the account will
equal or exceed the amount of the Fund's purchase commitments.
LENDING OF PORTFOLIO SECURITIES. Each Fund, except the Berger Growth
Fund and the Berger Large Cap Growth Fund, may lend their securities to
qualified institutional investors (such as brokers, dealers or other financial
organizations) who need to borrow securities in order to complete certain
transactions, such as
5
covering short sales, avoiding failures to deliver securities or completing
arbitrage operations. Loans of securities by a Fund will be collateralized by
cash, letters of credit, or securities issued or guaranteed by the U.S.
Government or its agencies. The collateral will equal at least 100% of the
current market value of the loaned securities, marked-to-market on a daily
basis. By lending its securities, a Fund will be attempting to generate income
through the receipt of interest on the loan, which, in turn, can be invested in
additional securities to pursue the Fund's investment objective. Any gain or
loss in the market price of the securities loaned that might occur during the
term of the loan would be for the account of the Fund.
Each Fund permitted to lend its portfolio securities may lend to
qualified brokers, dealers, banks or other financial institutions, so long as
the terms, the structure and the aggregate amount of such loans are not
inconsistent with the Investment Company Act of 1940 or the Rules and
Regulations or interpretations of the Securities and Exchange Commission (the
"Commission") thereunder, which currently require that (a) the borrower pledge
and maintain with the Fund collateral consisting of cash, an irrevocable letter
of credit or securities issued or guaranteed by the United States government
having a value at all times not less than 100% of the value of the securities
loaned, (b) the borrower add to such collateral whenever the price of the
securities loaned rises (i.e., the borrower "marks to the market" on a daily
basis), (c) the loan be made subject to termination by the Fund at any time and
(d) the Fund receives reasonable interest on the loan, which interest may
include the Fund's investing cash collateral in interest bearing short-term
investments, and (e) the Fund receives all dividends and distributions on the
loaned securities and any increase in the market value of the loaned securities.
A Fund lending securities bears risk of loss in the event that the
other party to a securities lending transaction defaults on its obligations and
the Fund is delayed in or prevented from exercising its rights to dispose of the
collateral, including the risk of a possible decline in the value of the
collateral securities during the period in which the Fund seeks to assert these
rights, the risk of incurring expenses associated with asserting these rights
and the risk of losing all or a part of the income from the transaction. None of
the Funds will lend its portfolio securities if, as a result, the aggregate
value of such loans would exceed 33-1/3% of the value of the Fund's total assets
(including the value of the collateral received to secure the loan). Loan
arrangements made by a Fund will comply with all other applicable regulatory
requirements, including the rules of the New York Stock Exchange, which rules
presently require the borrower, after notice, to redeliver the securities within
the normal settlement time of three business days. All relevant facts and
circumstances, including creditworthiness of the broker, dealer or institution,
will be considered in making decisions with respect to the lending of
securities, subject to review by the Fund's trustees.
Although voting rights with respect to loaned securities pass to the
borrower, lending Funds retain the right to recall a security (or terminate a
loan) for the purpose of exercising the security's voting rights. Efforts to
recall loaned securities in time to exercise voting rights may be unsuccessful,
especially for foreign securities or thinly traded securities. In addition, it
is expected that loaned securities will be recalled for voting only when the
items being voted on are, in the judgment of the lending Fund's adviser, either
material to the economic value of the security or threaten to materially impact
the issuing company's corporate governance policies or structure.
SHORT SALES. Each Fund is permitted to engage in short sales if, at the
time of the short sale, the Fund owns or has the right to acquire an equivalent
kind and amount of the security being sold short at no additional cost (i.e.,
short sales "against the box").
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. To make delivery to the purchaser, the executing broker borrows the
securities being sold short on behalf of the seller. While the short position is
maintained, the seller collateralizes its obligation to deliver the securities
sold short in an amount equal to the proceeds of the short sale plus an
additional margin amount established by the Board of Governors of the Federal
Reserve. If a Fund engages in a short sale, the collateral account will be
maintained by the Fund's custodian. While the short sale is open, the Fund will
maintain in a segregated custodial account an amount of securities convertible
into or exchangeable for such equivalent securities at no additional cost. These
securities would constitute the Fund's long position.
Under prior law, a Fund could have made a short sale, as described
above, when it wanted to sell a security it owned at a current attractive price
but also wished to defer recognition of gain or loss for Federal
6
income tax purposes and for purposes of satisfying certain tests applicable to
regulated investment companies under the Internal Revenue Code. However, federal
tax legislation has since eliminated the ability to defer recognition of gain or
loss in short sales against the box, and accordingly it is not anticipated that
any of the Funds will be engaging in these transactions unless there are further
legislative changes.
SPECIAL SITUATIONS. Each Fund may also invest in "special situations."
Special situations are companies that have recently experienced or are
anticipated to experience a significant change in structure, management,
products or services that may significantly affect the value of their
securities. Examples of special situations are companies being reorganized or
merged, companies emerging from bankruptcy, companies introducing unusual new
products or that enjoy particular tax advantages. Other examples are companies
experiencing changes in senior management, extraordinary corporate events,
significant changes in cost or capital structure or that are believed to be
probable takeover candidates. The opportunity to invest in special situations,
however, is limited and depends in part on the market's assessment of these
companies and their circumstances. By its nature, a "special situation" company
involves to some degree a break with the company's past experience. This creates
greater uncertainty and potential risk of loss than if the company were
operating according to long-established patterns. In addition, stocks of
companies in special situations may decline or not appreciate as expected if an
anticipated change or development does not occur or is not assessed by the
market as favorably as expected.
HEDGING TRANSACTIONS. Each Fund is authorized to make limited use of
certain types of futures, forwards and/or options, but only for the purpose of
hedging, that is, protecting against market risk caused by market movements that
may adversely affect the value of a Fund's securities or the price of securities
that a Fund is considering purchasing. The utilization of futures, forwards and
options is also subject to policies and procedures that may be established by
the directors or trustees from time to time. In addition, none of the Funds is
required to hedge. Decisions regarding hedging are subject to the adviser's or
sub-adviser's judgment of the cost of the hedge, its potential effectiveness and
other factors the adviser or sub-adviser considers pertinent.
A hedging transaction may partially protect a Fund from a decline in
the value of a particular security or its portfolio generally, although hedging
may also limit a Fund's opportunity to profit from favorable price movements,
and the cost of the transaction will reduce the potential return on the security
or the portfolio. In addition, hedging transactions do not eliminate
fluctuations in the prices of the underlying securities the Fund owns or intends
to acquire. Use of these instruments by a Fund involves the potential for a loss
that may exceed the amount of initial margin the Fund would be permitted to
commit to the contracts under its investment limitation or, in the case of a
call option written by the Fund, may exceed the premium received for the option.
However, a Fund is permitted to use such instruments for hedging purposes only,
and only if the aggregate amount of its obligations under these contracts does
not exceed the total market value of the assets the Fund is attempting to hedge,
such as a portion or all of its exposure to equity securities or its holding in
a specific foreign currency. To help ensure that the Fund will be able to meet
its obligations under its futures and forward contracts and its obligations
under options written by that Fund, the Fund will be required to maintain liquid
assets in a segregated account with its custodian bank or to set aside portfolio
securities to "cover" its position in these contracts.
The principal risks of a Fund utilizing futures transactions, forward
contracts and options are: (a) losses resulting from market movements not
anticipated by the Fund; (b) possible imperfect correlation between movements in
the prices of futures, forwards and options and movements in the prices of the
securities or currencies hedged or used to cover such positions; (c) lack of
assurance that a liquid secondary market will exist for any particular futures
or options at any particular time and possible exchange-imposed price
fluctuation limits, either of which may make it difficult or impossible to close
a position when so desired; (d) lack of assurance that the counterparty to a
forward contract would be willing to negotiate an offset or termination of the
contract when so desired; and (e) the need for additional information and skills
beyond those required for the management of a portfolio of traditional
securities. In addition, when the Fund enters into an over-the-counter contract
with a counterparty, the Fund will assume counterparty credit risk, that is, the
risk that the counterparty will fail to perform its obligations, in which case
the Fund could be worse off than if the contract had not been entered into.
Following is additional information concerning the futures, forwards
and options that each of the Funds may utilize, provided that no more than 5% of
the Fund's net assets at the time the contract is entered into
7
may be used for initial margins for financial futures transactions and premiums
paid for the purchase of options. In addition, those Funds may only write call
options that are covered and only up to 25% of the Fund's total assets.
Futures Contracts. Financial futures contracts are exchange-traded
contracts on financial instruments (such as securities and foreign currencies)
and securities indices that obligate the holder to take or make delivery of a
specified quantity of the underlying financial instrument, or the cash value of
an index, at a future date. Although futures contracts by their terms call for
the delivery or acquisition of the underlying instruments or a cash payment
based on the mark-to-market value of the underlying instruments, in most cases
the contractual obligation will be offset before the delivery date by buying (in
the case of an obligation to sell) or selling (in the case of an obligation to
buy) an identical futures contract. Such a transaction cancels the original
obligation to make or take delivery of the instruments.
Each Fund may enter into contracts for the purchase or sale for future
delivery of financial instruments, such as securities and foreign currencies, or
contracts based on financial indices including indices of U.S. Government
securities, foreign government securities or equity securities. U.S. futures
contracts are traded on exchanges that have been designated "contract markets"
by the Commodity Futures Trading Commission ("CFTC") and must be executed
through a futures commission merchant (an "FCM"), or brokerage firm, which is a
member of the relevant contract market. Through their clearing corporations, the
exchanges guarantee performance of the contracts as between the clearing members
of the exchange.
Both the buyer and seller are required to deposit "initial margin" for
the benefit of the FCM when a futures contract is entered into. Initial margin
deposits are equal to a percentage of the contract's value, as set by the
exchange on which the contract is traded and may be maintained in cash or other
liquid assets. If the value of either party's position declines, that party will
be required to make additional "variation margin" payments to the other party to
settle the change in value on a daily basis. Initial and variation margin
payments are similar to good faith deposits or performance bonds or
party-to-party payments resulting from daily changes in the value of the
contract, unlike margin extended by a securities broker, and would be released
or credited to the Funds upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Unlike margin extended by a
securities broker, initial and variation margin payments do not constitute
purchasing securities on margin for purposes of a Fund's investment limitations.
A Fund will incur brokerage fees when it buys or sells futures contracts.
In the event of the bankruptcy of the FCM that holds margin on behalf
of a Fund, the Fund may be entitled to return of margin owed to the Fund only in
proportion to the amount received by the FCM's other customers. A Fund will
attempt to minimize this risk by careful monitoring of the creditworthiness of
the FCMs with which the Fund does business and by depositing margin payments in
a segregated account with the Fund's custodian for the benefit of the FCM when
practical or otherwise required by law.
Where applicable, each Fund intends to comply with guidelines of
eligibility for exclusion from the definition of the term "commodity pool
operator" with the CFTC and the National Futures Association, which regulate
trading in the futures markets. Accordingly, a Fund will not enter into any
futures contract or option on a futures contract if, as a result, the aggregate
initial margin and premiums required to establish such positions would exceed 5%
of the Fund's net assets.
Although a Fund will hold cash and liquid assets in a segregated
account with a mark-to-market value sufficient to cover the Fund's open futures
obligations, the segregated assets will be available to the Fund immediately
upon closing out the futures position.
The acquisition or sale of a futures contract may occur, for example,
when a Fund is considering purchasing or holds equity securities and seeks to
protect itself from fluctuations in prices without buying or selling those
securities. For example, if prices were expected to decrease, the Fund might
sell equity index futures contracts, thereby hoping to offset a potential
decline in the value of equity securities in the portfolio by a corresponding
increase in the value of the futures contract position held by the Fund and
thereby prevent the Fund's net asset value from declining as much as it
otherwise would have. A Fund also could protect against potential price declines
by selling portfolio securities and investing in money market instruments.
However, the use
8
of futures contracts as a hedging technique allows a Fund to maintain a
defensive position without having to sell portfolio securities.
Similarly, when prices of equity securities are expected to increase,
futures contracts may be bought to attempt to hedge against the possibility of
having to buy equity securities at higher prices. This technique is sometimes
known as an anticipatory hedge. Since the fluctuations in the value of futures
contracts should be similar to those of equity securities, a Fund could take
advantage of the potential rise in the value of equity securities without buying
them until the market has stabilized. At that time, the futures contracts could
be liquidated, and the Fund could buy equity securities on the cash market.
The ordinary spreads between prices in the cash and futures markets,
due to differences in the nature of those markets are subject to distortions.
First, all participants in the futures market are subject to initial margin and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through offsetting
transactions that could distort the normal price relationship between the cash
and futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced and prices in the futures market
distorted. Third, from the point of view of speculators, the margin deposit
requirements in the futures market are less than margin requirements in the
securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
the foregoing distortions, a correct forecast of general price trends by a Fund
still may not result in a successful use of futures.
Futures contracts entail additional risks. Although a Fund will only
utilize futures contracts when it believes that use of such contracts will
benefit the Fund, if the Fund's investment judgment is incorrect, the Fund's
overall performance could be worse than if the Fund had not entered into futures
contracts. For example, if the Fund has hedged against the effects of a possible
decrease in prices of securities held in the Fund's portfolio and prices
increase instead, the Fund will lose part or all of the benefit of the increased
value of these securities because of offsetting losses in the Fund's futures
positions. In addition, if the Fund has insufficient cash, it may have to sell
securities from its portfolio to meet daily variation margin requirements. Those
sales may be, but will not necessarily be, at increased prices that reflect the
rising market and may occur at a time when the sales are disadvantageous to the
Fund. Although the buyer of an option cannot lose more than the amount of the
premium plus related transaction costs, a buyer or seller of futures contracts
could lose amounts substantially in excess of any initial margin deposits made,
due to the potential for adverse price movements resulting in additional
variation margin being required by such positions. However, each Fund utilizing
futures contracts intends to monitor its investments closely and will attempt to
close its positions when the risk of loss to the Fund becomes unacceptably high.
The prices of futures contracts depend primarily on the value of their
underlying instruments. Because there are a limited number of types of futures
contracts, it is possible that the standardized futures contracts available to a
Fund will not exactly match the Fund's current or potential investments. A Fund
may buy and sell futures contracts based on underlying instruments with
different characteristics from the securities in which it typically invests --
for example, by hedging investments in portfolio securities with a futures
contract based on a broad index of securities -- which involves a risk that the
futures position will not correlate precisely with the performance of the Fund's
investments.
Futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments closely correlate with a Fund's
investments. Futures prices are affected by such factors as current and
anticipated short-term interest rates, changes in volatility of the underlying
instruments and the time remaining until expiration of the contract. Those
factors may affect securities prices differently from futures prices. Imperfect
correlations between a Fund's investments and its futures positions may also
result from differing levels of demand in the futures markets and the securities
markets, from structural differences in how futures and securities are traded,
and from imposition of daily price fluctuation limits for futures contracts. A
Fund may buy or sell futures contracts with a value less than or equal to the
securities it wishes to hedge or is considering purchasing. If price changes in
a Fund's futures positions are poorly correlated with its other investments, its
futures positions may fail to produce desired gains or result in losses that are
not offset by the gains in the Fund's other investments.
9
Because futures contracts are generally settled within a day from the
date they are closed out, compared with a longer settlement period for most
types of securities, the futures markets can provide superior liquidity to the
securities markets. Nevertheless, there is no assurance a liquid secondary
market will exist for any particular futures contract at any particular time. In
addition, futures exchanges may establish daily price fluctuation limits for
futures contracts and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days when the
price fluctuation limit is reached, it may be impossible for a Fund to enter
into new positions or close out existing positions. If the secondary market for
a futures contract is not liquid because of price fluctuation limits or
otherwise, a Fund may not be able to promptly liquidate unfavorable futures
positions and potentially could be required to continue to hold a futures
position until the delivery date, regardless of changes in its value. As a
result, a Fund's access to other assets held to cover its futures positions
could also be impaired.
Options on Futures Contracts. Each Fund may buy and write options on
futures contracts for hedging purposes. An option on a futures contract gives a
Fund the right (but not the obligation) to buy or sell a futures contract at a
specified price on or before a specified date. The purchase of a call option on
a futures contract is similar in some respects to the purchase of a call option
on an individual security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based or the price of
the underlying instrument, ownership of the option may or may not be less risky
than ownership of the futures contract or the underlying instrument. As with the
purchase of futures contracts, a Fund may buy a call option on a futures
contract to hedge against a market advance, and a Fund might buy a put option on
a futures contract to hedge against a market decline.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency that
is deliverable under, or of the index comprising, the futures contract. If the
futures price at the expiration of the call option is below the exercise price,
a Fund will retain the full amount of the option premium that provides a partial
hedge against any decline that may have occurred in the Fund's portfolio
holdings. If a call option a Fund has written is exercised, the Fund will incur
a loss that will be reduced by the amount of the premium it received. Depending
on the degree of correlation between change in the value of its portfolio
securities and changes in the value of the futures positions, a Fund's losses
from existing options on futures may to some extent be reduced or increased by
changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Fund may buy a put option on a futures contract to hedge the Fund's
portfolio against the risk of falling prices.
The amount of risk a Fund assumes when it buys an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the options bought.
Forward Foreign Currency Exchange Contracts. A forward contract is a
privately negotiated agreement between two parties in which one party is
obligated to deliver a stated amount of a stated asset at a specified time in
the future and the other party is obligated to pay a specified invoice amount
for the assets at the time of delivery. The Funds authorized to utilize forward
contracts currently intend that they will only use forward contracts or
commitments for hedging purposes and will only use forward foreign currency
exchange contracts, although a Fund may enter into additional forms of forward
contracts or commitments in the future if they become available and advisable in
light of the Funds' objectives and investment policies. Forward contracts
generally are negotiated in an interbank market conducted directly between
traders (usually large commercial banks) and their customers. Unlike futures
contracts, which are standardized exchange-traded contracts, forward contracts
can be specifically drawn to meet the needs of the parties that enter into them.
The parties to a forward contract may agree to offset or terminate the contract
before its maturity or may hold the contract to maturity and complete the
contemplated exchange.
The following discussion summarizes the relevant Funds' principal uses
of forward foreign currency exchange contracts ("forward currency contracts"). A
Fund may enter into forward currency contracts with stated
10
contract values of up to the value of the Fund's assets. A forward currency
contract is an obligation to buy or sell an amount of a specified currency for
an agreed price (which may be in U.S. dollars or a foreign currency) on a
specified date. A Fund will exchange foreign currencies for U.S. dollars and for
other foreign currencies in the normal course of business and may buy and sell
currencies through forward currency contracts in order to fix a price (in terms
of a specified currency) for securities it has agreed to buy or sell
("transaction hedge"). A Fund also may hedge some or all of its investments
denominated in foreign currency against a decline in the value of that currency
(or a proxy currency whose price movements are expected to have a high degree of
correlation with the currency being hedged) relative to the U.S. dollar by
entering into forward currency contracts to sell an amount of that currency
approximating the value of some or all of its portfolio securities denominated
in that currency ("position hedge") or by participating in futures contracts (or
options on such futures) with respect to the currency. A Fund may also enter
into a forward currency contract with respect to a currency where the Fund is
considering the purchase or sale of investments denominated in that currency but
has not yet selected the specific investments ("anticipatory hedge").
These types of hedging minimize the effect of currency appreciation as
well as depreciation but do not eliminate fluctuations in the underlying U.S.
dollar equivalent value of the proceeds of or rates of return on a Fund's
foreign currency denominated portfolio securities. The matching of the increase
in value of a forward contract and the decline in the U.S. dollar equivalent
value of the foreign currency denominated asset that is the subject of the hedge
generally will not be precise. Shifting a Fund's currency exposure from one
foreign currency to another limits that Fund's opportunity to profit from
increases in the value of the original currency and involves a risk of increased
losses to such Fund if its investment manager's projection of future exchange
rates is inaccurate. Unforeseen changes in currency prices may result in poorer
overall performance for a Fund than if it had not entered into such contracts.
A Fund will cover outstanding forward currency contracts by maintaining
liquid portfolio securities denominated in the currency underlying the forward
contract or the currency being hedged. To the extent that a Fund is not able to
cover its forward currency positions with underlying portfolio securities, the
Funds' custodian will segregate cash or liquid assets having a value equal to
the aggregate amount of such Fund's commitments under forward contracts entered
into. If the value of the securities used to cover a position or the value of
segregated assets declines, the Fund must find alternative cover or segregate
additional cash or liquid assets on a daily basis so that the value of the
covered and segregated assets will be equal to the amount of a Fund's
commitments with respect to such contracts.
While forward contracts are not currently regulated by the CFTC, the
CFTC may in the future assert authority to regulate forward contracts. In such
event, the Funds' ability to utilize forward contracts may be restricted. A Fund
may not always be able to enter into forward contracts at attractive prices and
may be limited in its ability to use these contracts to hedge Fund assets. In
addition, when a Fund enters into a privately negotiated forward contract with a
counterparty, the Fund assumes counterparty credit risk, that is, the risk that
the counterparty will fail to perform its obligations, in which case the Fund
could be worse off than if the contract had not been entered into. Unlike many
exchange-traded futures contracts and options on futures, there are no daily
price fluctuation limits with respect to forward contracts and other negotiated
or over-the-counter instruments, and with respect to those contracts, adverse
market movements could therefore continue to an unlimited extent over a period
of time. However, each Fund utilizing forward contracts intends to monitor its
investments closely and will attempt to renegotiate or close its positions when
the risk of loss to the Fund becomes unacceptably high.
Options on Securities and Securities Indices. Each Fund may buy or sell
put or call options and write covered call options on securities that are traded
on United States or foreign securities exchanges or over-the-counter. Buying an
option involves the risk that, during the option period, the price of the
underlying security will not increase (in the case of a call) to above the
exercise price, or will not decrease (in the case of a put) to below the
exercise price in which case the option will expire without being exercised and
the holder would lose the amount of the premium. Writing a call option involves
the risk of an increase in the market value of the underlying security, in which
case the option could be exercised and the underlying security would then be
sold by a Fund to the option holder at a lower price than its current market
value and the Fund's potential for capital appreciation on the security would be
limited to the exercise price. Moreover, when a Fund writes a call option on a
securities index, the Fund bears the risk of loss resulting from imperfect
correlation between movements in the price of the index and the price of the
securities set aside to cover such position. Although they entitle the holder to
buy equity
11
securities, call options to purchase equity securities do not entitle the holder
to dividends or voting rights with respect to the underlying securities, nor do
they represent any rights in the assets of the issuer of those securities.
A call option written by a Fund is "covered" if the Fund owns the
underlying security covered by the call or has an absolute and immediate right
to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio. A call
option is also deemed to be covered if a Fund holds a call on the same security
and in the same principal amount as the call written and the exercise price of
the call held (a) is equal to or less than the exercise price of the call
written or (b) is greater than the exercise price of the call written if the
difference is maintained by the Fund in liquid assets in a segregated account
with its custodian.
The writer of a call option may have no control when the underlying
securities must be sold. Whether or not an option expires unexercised, the
writer retains the amount of the premium. This amount, of course, may, in the
case of a covered call option, be offset by a decline in the market value of the
underlying security during the option period.
The writer of an exchange-traded call option that wishes to terminate
its obligation may effect a "closing purchase transaction." This is accomplished
by buying an option of the same series as the option previously written. The
effect of the purchase is that the writer's position will be canceled by the
clearing corporation. If a Fund desires to sell a particular security from the
Fund's portfolio on which the Fund has written a call option, the Fund will
effect a closing transaction prior to or concurrent with the sale of the
security. However, a writer may not effect a closing purchase transaction after
being notified of the exercise of an option. An investor who is the holder of an
exchange-traded option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously bought. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
A Fund will realize a profit from a closing transaction if the price of
the purchase transaction is less than the premium received from writing the
option or the price received from a sale transaction is more than the premium
paid to buy the option; the Fund will realize a loss from a closing transaction
if the price of the purchase transaction is more than the premium received from
writing the option or the price received from a sale transaction is less than
the premium paid to buy the option. 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 repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by the Fund.
An option position may be closed out only when a secondary market
exists for an option of the same series. If a secondary market does not exist,
it might not be possible to effect closing transactions in particular options
with the result that a Fund would have to exercise the options in order to
realize any profit. If a Fund is unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell the underlying security until
the option expires or the Fund delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market may include the following:
(a) there may be insufficient trading interest in certain options, (b)
restrictions may be imposed by a national securities exchange on which the
option is traded ("Exchange") on opening or closing transactions or both, (c)
trading halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities, (d) unusual or
unforeseen circumstances may interrupt normal operations on an Exchange, (e) the
facilities of an Exchange or of the Options Clearing Corporation ("OCC") may not
at all times be adequate to handle current trading volume, or (f) one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the OCC as a result of trades
on that Exchange would continue to be exercisable in accordance with their
terms.
In addition, when a Fund enters into an over-the-counter option
contract with a counterparty, the Fund assumes counterparty credit risk, that
is, the risk that the counterparty will fail to perform its obligations, in
which case the Fund could be worse off than if the contract had not been entered
into.
An option on a securities index is similar to an option on a security
except that rather than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder the right
12
to receive, on exercise of the option, an amount of cash if the closing level of
the securities index on which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
A Fund may buy call options on securities or securities indices to
hedge against an increase in the price of a security or securities that the Fund
may buy in the future. The premium paid for the call option plus any transaction
costs will reduce the benefit, if any, realized by a Fund upon exercise of the
option, and, unless the price of the underlying security or index rises
sufficiently, the option may expire and become worthless to the Fund. A Fund may
buy put options to hedge against a decline in the value of a security or its
portfolio. The premium paid for the put option plus any transaction costs will
reduce the benefit, if any, realized by a Fund upon exercise of the option, and,
unless the price of the underlying security or index declines sufficiently, the
option may expire and become worthless to the Fund.
An example of a hedging transaction using an index option would be if a
Fund were to purchase a put on a stock index, in order to protect the Fund
against a decline in the value of all securities held by it to the extent that
the stock index moves in a similar pattern to the prices of the securities held.
While the correlation between stock indices and price movements of the stocks in
which the Funds will generally invest may be imperfect, the Funds utilizing put
options expect, nonetheless, that the use of put options that relate to such
indices will, in certain circumstances, protect against declines in values of
specific portfolio securities or the Fund's portfolio generally. Although the
purchase of a put option may partially protect a Fund from a decline in the
value of a particular security or its portfolio generally, the cost of a put
will reduce the potential return on the security or the portfolio.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Berger Balanced Fund
may invest in certain mortgage-backed and asset-backed securities.
Mortgage-backed securities are securities that directly or indirectly represent
a participation in, or are secured by and payable from, mortgage loans secured
by real property. Asset-backed securities are similar, except that they are
backed by assets other than mortgages, such as motor vehicle installment sales
contracts, installment loan contracts, leases of various types of real and
personal property and receivables from revolving credit agreements (credit
cards).
The primary risk of any mortgage-backed or asset-backed security is the
uncertainty of the timing of cash flows from the assets underlying the
securities. See the subheading "Special Risks of Mortgage-Backed Securities"
below for more information about prepayment and extension risks. Also, see the
subheading "Asset-Backed Securities" below for more information about
asset-backed securities.
There are currently three basic types of mortgage-backed securities:
(a) those issued or guaranteed by the United States Government or one of its
agencies or instrumentalities, such as the Government National Mortgage
Association (GNMA), the Federal National Mortgage Association (FNMA) and the
Federal Home Loan Mortgage Corporation (FHLMC); (b) those issued by private
issuers that represent an interest in or are collateralized by mortgage-backed
securities issued or guaranteed by the United States Government or one of its
agencies or instrumentalities; and (c) those issued by private issuers that
represent an interest in or are collateralized by whole mortgage loans or
mortgage-backed securities without a government guarantee but usually having
some form of private credit enhancement.
U.S. Government Mortgage-Backed Securities. The Fund may invest in
mortgage-backed securities issued or guaranteed by GNMA, FNMA and FHLMC. GNMA
certificates are backed by the "full faith and credit" of the United States.
FNMA and FHLMC certificates are not backed by the full faith and credit of the
United States, but the issuing agency or instrumentality has the right to
borrow, to meet its obligations, from an existing line of credit with the U.S.
Treasury. The U.S. Treasury has no legal obligation to provide such line of
credit and may choose not to do so. Each of GNMA, FNMA and FHLMC guarantee
timely distribution of interest to certificate holders. GNMA and FNMA also
guarantee timely distribution of scheduled principal payments. FHLMC generally
guarantees only the ultimate collection of principal of the underlying mortgage
loans.
Collateralized Mortgage Obligations and Multiclass Pass-Through
Securities. The Berger Balanced Fund may also invest in collateralized mortgage
obligations (CMOs). CMOs are debt obligations collateralized by mortgage loans
or mortgage pass-through securities. Typically, CMOs are collateralized by GNMA,
FNMA or FHLMC certificates, but also may be collateralized by whole loans or
private mortgage pass-
13
through securities (such collateral is referred to in this section as Mortgage
Assets). Multiclass pass-through securities are equity interests in a trust
composed of Mortgage Assets. Payments of principal of and interest on the
Mortgage Assets, and any reinvestment income thereon, provide the funds to pay
debt service on the CMOs or make scheduled distributions on the multiclass
pass-through securities. CMOs may be issued by agencies or instrumentalities of
the U. S. Government, or by private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose subsidiaries of the foregoing. The
Fund may invest in CMOs issued by private entities only if the CMOs are rated at
least investment grade (at least BBB by S&P or Baa by Moody's) or, if unrated,
are determined to be of comparable quality.
In a CMO, a series of bonds or certificates is issued in multiple
classes. Each class of CMOs, often referred to as a "tranche," is issued at a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Interest is paid or accrues on all classes of the CMOs on a
monthly, quarterly or semiannual basis. Certain CMOs may have variable or
floating interest rates. The principal of and interest on the Mortgage Assets
may be allocated among the several classes of a CMO series in a number of
different ways.
Generally, the purpose of the allocation of the cash flow of a CMO to
the various classes is to obtain a more predictable cash flow to the individual
tranches than exists with the underlying collateral of the CMO. As a general
rule, the more predictable the cash flow is on a CMO tranche, the lower the
anticipated yield will be on that tranche at the time of issuance relative to
prevailing market yields on mortgage-backed securities. As part of the process
of creating more predictable cash flows on most of the tranches in a series of
CMOs, one or more tranches generally must be created that absorb most of the
volatility in the cash flows on the underlying mortgage loans. The yields on
these tranches may be higher than prevailing market yields on mortgage-backed
securities with similar maturities. As a result of the uncertainty of the cash
flows of these tranches, the market prices of and yield on these tranches
generally are more volatile.
The Fund also may invest in parallel pay CMOs and Planned Amortization
Class CMOs (PAC Bonds). Parallel pay CMOs are structured to provide payments of
principal on each payment date to more than one class. These simultaneous
payments are taken into account in calculating the stated maturity date or final
distribution date of each class, which, as with other CMO structures, must be
retired by its stated maturity date or final distribution date but may be
retired earlier. PAC Bonds generally require payments of a specified amount of
principal on each payment date. PAC Bonds always are parallel pay CMOs with the
required principal payment on such securities having the highest priority after
interest has been paid to all classes.
The Fund may not invest in "stripped" mortgage-backed securities
(interest-only securities (IOs) or principal-only securities (POs)) or in
mortgage-backed securities known as "inverse floaters."
Adjustable Rate Mortgages. The Berger Balanced Fund may also invest in
adjustable rate mortgage securities (ARMs), which are pass-through mortgage
securities collateralized by mortgages with adjustable rather than fixed rates.
ARMs, like fixed rate mortgages, have a specified maturity date, and the
principal amount of the mortgage is repaid over the life of the mortgage. Unlike
fixed rate mortgages, the interest rate on ARMs is adjusted at regular intervals
based on a specified, published interest rate "index" such as a Treasury rate
index. The new rate is determined by adding a specific interest amount, the
"margin," to the interest rate of the index. Investment in ARM securities allows
the Fund to participate in changing interest rate levels through regular
adjustments in the coupons of the underlying mortgages, resulting in more
variable current income and lower price volatility than longer-term fixed rate
mortgage securities. ARM securities are a less effective means of locking in
long-term rates than fixed rate mortgages since the income from adjustable rate
mortgages will increase during periods of rising interest rates and decline
during periods of falling rates.
Private Mortgage Pass-Through Securities. Private mortgage pass-through
securities are structured similarly to the GNMA, FNMA and FHLMC mortgage
pass-through securities and are issued by originators of and investors in
mortgage loans, including depository institutions, mortgage banks, investment
banks and special purpose subsidiaries of the foregoing. These securities
usually are backed by a pool of conventional fixed rate or adjustable rate
mortgage loans. Since private mortgage pass-through securities typically are not
guaranteed by an entity having the credit status of GNMA, FNMA and FHLMC, these
securities generally are structured with one or more types of credit enhancement
to make them more secure, which may be through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
14
various means of structuring the transaction or through a combination of those
approaches. The Fund may invest in private mortgage pass-through securities only
if they are rated AA/Aa (S&P/Moody's) or above.
Special Risks of Mortgage-Backed Securities. Mortgage-backed securities
have certain different characteristics than traditional debt securities. As a
result of the risks associated with these securities, the Fund could realize a
loss by investing in them, regardless of their rating or their credit
enhancement features.
Among the major differences between mortgage-backed securities and
traditional debt securities are that on mortgage-backed securities, interest and
principal payments are made more frequently, usually monthly, and principal may
be prepaid at any time because the underlying mortgage loans or other assets
generally may be prepaid at any time, usually without penalty. Changes in the
rate of prepayments will generally affect the yield to maturity of the security.
Moreover, when the holder of the security attempts to reinvest prepayments of
principal and interest, it may receive a rate of interest that is higher or
lower than the rate on the mortgage-backed securities originally held. To the
extent that mortgage-backed securities are purchased at a premium, mortgage
foreclosures and principal prepayments may result in a loss to the extent of the
premium paid. If such securities are bought at a discount, both scheduled
payments of principal and unscheduled prepayments will increase current and
total returns and will accelerate the recognition of income which, when
distributed to investors, will be taxable as ordinary income.
Mortgage-backed securities, like all fixed-income securities, generally
decrease in value as a result of increases in interest rates. In addition,
although generally the value of fixed-income securities increases during periods
of falling interest rates and decreases during periods of rising interest rates,
as a result of prepayments and other factors, this is not always the case with
respect to mortgage-backed securities.
Although the extent of prepayments on a pool of mortgage loans depends
on various economic and other factors, as a general rule, prepayments on fixed
rate mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates (extension risk). Accordingly,
during a period of declining rates, the Fund is likely to have greater amounts
to reinvest as a result of prepayments and is likely to have to reinvest those
amounts at lower interest rates than during a period of rising interest rates.
Mortgage-backed securities generally decrease in value as a result of increases
in interest rates and may benefit less than other fixed-income securities from
declining interest rates because of the risk of prepayment.
The Fund may invest in mortgage derivative securities, such as CMOs,
the average life of which is determined using mathematical models that
incorporate prepayment assumptions and other factors that involve estimates of
future economic and market conditions. These estimates may vary from actual
future results, particularly during periods of extreme market volatility. In
addition, under certain market conditions, the average weighted life of mortgage
derivative securities may not accurately reflect the price volatility of such
securities. For example, in periods of supply and demand imbalances in the
market for such securities and/or in periods of sharp interest rate movements,
the prices of mortgage derivative securities may fluctuate to a greater extent
than would be expected from interest rate movements alone.
The Fund's investments in mortgage derivative securities also subject
the Fund to extension risk. Extension risk is the possibility that rising
interest rates may cause prepayments to occur at a slower than expected rate.
This particular risk may effectively change a security that was considered short
or intermediate-term at the time of purchase into a long-term security.
Long-term securities generally fluctuate more widely in response to changes in
interest rates than short or intermediate-term securities.
In addition, CMOs and other mortgage-backed securities issued by
private entities are not U.S. government securities and are not guaranteed by
any government agency, although the pool of securities underlying a privately
issued mortgage-backed security may be subject to a guarantee. Therefore, if the
collateral securing a privately issued mortgage-backed security held by the
Fund, in addition to any third party credit support or guarantees, is
insufficient to make payment, the Fund could sustain a loss on its investment in
that security. However, as stated above, the Fund will invest in CMOs and other
mortgage-backed securities issued by private entities only if they are rated
AA/Aa (S&P/Moody's) or above.
Asset-Backed Securities. The Berger Balanced Fund may also invest in
asset-backed securities. Asset-backed securities are securities that represent
direct or indirect participation in, or are secured by and
15
payable from, assets other than mortgage-backed assets, such as motor vehicle
installment sales contracts, installment loan contracts, leases of various types
of real and personal property and receivables from revolving credit agreements
(credit cards). Asset-backed securities have yield characteristics similar to
those of mortgage-backed securities and are subject to many of the same risks.
See the subheading "Special Risks of Mortgage-Backed Securities" above for a
discussion of those risks. In addition, asset-backed securities involve certain
risks that are not posed by mortgage-backed securities, since asset-backed
securities do not usually contain the complete benefit of a security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, including the bankruptcy laws, some of which
may reduce the ability to obtain full payment. In the case of automobile
receivables, due to various legal and economic factors, proceeds for repossessed
collateral may not always be sufficient to support payments on these securities.
New instruments and variations of existing mortgage-backed securities
and asset-backed securities continue to be developed. The Fund may invest in any
such instruments or variations as may be developed, to the extent consistent
with its investment objective and policies and applicable legal requirements.
TEMPORARY DEFENSIVE MEASURES. Although the Funds reserve the right to
take temporary defensive measures, it is the intention of the Funds to remain
fully invested at all times. Each Fund may increase its investment in government
securities, and other short-term, interest-bearing securities without regard to
the Fund's otherwise applicable percentage limits, policies or its normal
investment emphasis, when its adviser or sub-adviser believes market, economic
or political conditions warrant a temporary defensive position. In addition,
certain unusual circumstances may force a Fund to temporarily depart from the
investment requirement implied by its name. Taking larger positions in such
short-term investments may serve as a means of preserving capital in unfavorable
market conditions. When in a defensive position, a Fund could miss the
opportunity to participate in any stock or bond market advances that occur
during those periods, which the Fund might have been able to participate in if
it had remained more fully invested.
NON-DIVERSIFICATION. The Berger Select Fund is classified as a
"non-diversified" Fund under the Investment Company Act of 1940, which means
that the Fund is not limited by that Act in the proportion of its assets that it
may invest in the securities of a single issuer. The Fund's net asset value may
be more volatile than that of a more-widely diversified fund because the Fund
invests more of its assets in a smaller number of issuers. Consequently, the
Fund may be more vulnerable to any single economic, political or regulatory
occurrence, and the gains or losses on a single stock will have a greater impact
on the Fund's net asset value.
However, the Fund intends to conduct its operations so as to qualify to
be taxed as a "regulated investment company" under the Internal Revenue Code,
which will generally relieve the Fund of any liability for federal income tax to
the extent its earnings are distributed to investors. See Section 9--Income
Dividends, Capital Gains Distributions and Tax Treatment below. To qualify as a
regulated investment company, among other requirements, the Fund will limit its
investments so that, at the close of each quarter of the taxable year, (a) not
more than 25% of the market value of the Fund's total assets will be invested in
securities of a single issuer, and (b) with respect to 50% of the market value
of its total assets, not more than 5% of the market value of its total assets
will be invested in the securities of a single issuer and the Fund will not own
more than 10% of the outstanding voting securities of a single issuer. These
limitations do not apply to U.S. government securities.
PORTFOLIO TURNOVER. The portfolio turnover rates of each of the Funds
are shown in the Financial Highlights tables included in the Prospectus. The
annual portfolio turnover rates of some of the Funds at times have exceeded
100%. A 100% annual turnover rate results, for example, if the equivalent of all
of the securities in the Fund's portfolio are replaced in a period of one year.
The Funds anticipate that their portfolio turnover rates in future years may
exceed 100%, and investment changes will be made whenever management deems them
appropriate even if this results in a higher portfolio turnover rate. In
addition, portfolio turnover for all the Funds may increase as a result of large
amounts of purchases and redemptions of shares of the Funds due to economic,
market or other factors that are not within the control of management.
Higher portfolio turnover will necessarily result in correspondingly
higher brokerage costs for the Funds. The existence of a high portfolio turnover
rate has no direct relationship to the tax liability of a Fund, although sales
of certain stocks will lead to realization of gains and, possibly, increased
taxable distributions to investors. The Funds' brokerage policy is discussed
further under Section 6--Brokerage Policy, and additional
16
information concerning income taxes is located under Section 9--Income
Dividends, Capital Gains Distributions and Tax Treatment.
2. INVESTMENT RESTRICTIONS
As indicated in the Prospectus, the investment objective of each Fund
is as follows:
<Table>
<Caption>
FUND INVESTMENT OBJECTIVE
- ---- --------------------
Berger Growth Fund Long-term capital appreciation
Berger Large Cap Growth Fund Capital appreciation
Berger Mid Cap Growth Fund Capital appreciation
Berger Small Company Growth Fund Capital appreciation
Berger New Generation Fund Capital appreciation
Berger Select Fund Capital appreciation
Berger Information Technology Fund Capital appreciation
Berger Large Cap Value Fund Capital appreciation
Berger Mid Cap Value Fund Capital appreciation
Berger Balanced Fund Capital appreciation and current income
</Table>
The investment objectives of each of the Funds are considered
fundamental, meaning that they cannot be changed without an investor vote. There
can be no assurance that any of the Funds' investment objectives will be
realized.
Effective January 2001, the Trustees of the Berger Growth and Income
Fund approved a change in the name and non-fundamental investment strategies of
the Fund from that of a Growth and Income Fund to a Large Cap Growth Fund, and
in doing so eliminated the Fund's secondary investment objective.
Each Fund has also adopted certain investment policies, strategies,
guidelines and procedures in pursuing its objective. These may be changed
without an investor vote. The principal policies and strategies used by the
Funds are described in the Prospectus.
17
In addition, each Fund has adopted certain fundamental and
non-fundamental restrictions on its investments and other activities, which are
listed below. Fundamental restrictions may not be changed without the approval
of (a) 67% or more of the voting securities of the Fund present at a meeting of
investors thereof if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy or (b) more than 50% of the
outstanding voting securities of the Fund. Non-fundamental restrictions may be
changed in the future by action of the directors or trustees without investor
vote.
BERGER MID CAP GROWTH FUND, BERGER SMALL COMPANY GROWTH FUND, BERGER NEW
GENERATION FUND, BERGER SELECT FUND, BERGER INFORMATION TECHNOLOGY FUND, BERGER
LARGE CAP VALUE FUND, BERGER MID CAP VALUE FUND AND BERGER BALANCED FUND
Except as noted, the following fundamental restrictions apply to each
of the Berger Mid Cap Growth Fund, the Berger Small Company Growth Fund, the
Berger New Generation Fund, the Berger Select Fund, the Berger Information
Technology Fund, the Berger Mid Cap Value Fund and the Berger Balanced Fund. The
Fund may not:
1. (Does not apply to the Berger Select Fund) With respect to 75% of
the Fund's total assets, purchase the securities of any one issuer (except U.S.
government securities) if immediately after and as a result of such purchase (a)
the value of the holdings of the Fund in the securities of such issuer exceeds
5% of the value of the Fund's total assets or (b) the Fund owns more than 10% of
the outstanding voting securities of such issuer.
2. Invest in any one industry (other than U.S. government securities)
25% or more (more than 25%, in the case of the Berger Small Company Growth Fund)
of the value of its total assets at the time of such investment.
3. Borrow money, except from banks for temporary or emergency purposes
in amounts not to exceed 25% of the Fund's total assets (including the amount
borrowed) taken at market value, nor pledge, mortgage or hypothecate its assets,
except to secure permitted indebtedness and then only if such pledging,
mortgaging or hypothecating does not exceed 25% of the Fund's total assets taken
at market value. When borrowings exceed 5% of the Fund's total assets, the Fund
will not purchase portfolio securities.
4. Act as a securities underwriter (except to the extent the Fund may
be deemed an underwriter under the Securities Act of 1933 in disposing of a
security), issue senior securities (except to the extent permitted under the
Investment Company Act of 1940), invest in real estate (although it may purchase
shares of a real estate investment trust), or invest in commodities or commodity
contracts except financial futures transactions, futures contracts on securities
and securities indices and options on such futures, forward foreign currency
exchange contracts, forward commitments or securities index put or call options.
5. Make loans, except that the Fund may enter into repurchase
agreements and may lend portfolio securities in accordance with the Fund's
investment policies. The Fund does not, for this purpose, consider the purchase
of all or a portion of an issue of publicly distributed bonds, bank loan
participation agreements, bank certificates of deposit, bankers' acceptances,
debentures or other securities, whether or not the purchase is made upon the
original issuance of the securities, to be the making of a loan.
In applying the industry concentration investment restriction (no. 2
above), each Fund uses the industry groups used in the Data Monitor Portfolio
Monitoring System of William O'Neil & Co. Incorporated. Further, in implementing
that restriction, the Berger Small Company Growth Fund intends not to invest in
any one industry 25% or more of the value of its total assets at the time of
such investment.
The trustees have adopted additional non-fundamental investment
restrictions for the Berger Mid Cap Growth Fund, the Berger Small Company Growth
Fund, the Berger New Generation Fund, the Berger Select Fund, the Berger
Information Technology Fund, the Berger Large Cap Value Fund, the Berger Mid Cap
Value Fund and the Berger Balanced Fund. These limitations may be changed by the
trustees without an investor vote. The non-fundamental investment restrictions
include the following:
18
1. The Fund may not purchase securities on margin from a broker or
dealer, except that the Fund may obtain such short-term credits as may be
necessary for the clearance of transactions, and may not make short sales of
securities, except that the Fund may make short sales if, at the time of the
short sale, the Fund owns or has the right to acquire an equivalent kind and
amount of the security being sold short at no additional cost (i.e., short sales
"against the box"). This limitation shall not prohibit or restrict the Fund from
entering into futures, forwards and options contracts or from making margin
payments and other deposits in connection therewith.
2. The Fund may not purchase the securities of any other investment
company, except by purchase in the open market involving no commission or profit
to a sponsor or dealer (other than the customary broker's commission).
3. The Fund may not invest in companies for the purposes of exercising
control of management.
4. The Fund may not purchase any security, including any repurchase
agreement maturing in more than seven days, which is not readily marketable, if
more than 15% of the net assets of the Fund, taken at market value at the time
of purchase would be invested in such securities.
5. Only for the purpose of hedging, the Fund may purchase and sell
financial futures, forward foreign currency exchange contracts and put and call
options, but no more than 5% of the Fund's net assets at the time of purchase
may be invested in initial margins for financial futures transactions and
premiums for options. The Fund may only write call options that are covered and
only up to 25% of the Fund's total assets.
6. The Fund may not purchase or sell securities on a when-issued or
delayed delivery basis, if as a result more than 5% of its total assets taken at
market value at the time of purchase would be invested in such securities.
BERGER GROWTH FUND AND BERGER LARGE CAP GROWTH FUND
The following fundamental restrictions apply to the Berger Growth Fund
and the Berger Large Cap Growth Fund. The Funds may not:
1. Purchase the securities of any one issuer (except U.S. Government
securities) if immediately after and as a result of such purchase (a) the value
of the holdings of the Fund in the securities of such issuer exceeds 5% of the
value of the Fund's total assets or (b) the Fund owns more than 10% of the
outstanding voting securities or of any class of securities of such issuer.
2. Purchase securities of any company with a record of less than three
years' continuous operation (including that of predecessors) if such purchase
would cause the Fund's investments in all such companies taken at cost to exceed
5% of the value of the Fund's total assets.
3. Invest in any one industry more than 25% of the value of its total
assets at the time of such investment.
4. Make loans, except that the Fund may enter into repurchase
agreements in accordance with the Fund's investment policies. The Fund does not,
for this purpose, consider the purchase of all or a portion of an issue of
publicly distributed bonds, bank loan participation agreements, bank
certificates of deposit, bankers' acceptances, debentures or other securities,
whether or not the purchase is made upon the original issuance of the
securities, to be the making of a loan.
5. Borrow in excess of 5% of the value of its total assets, or pledge,
mortgage, or hypothecate its assets taken at market value to an extent greater
than 10% of the Fund's total assets taken at cost (and no borrowing may be
undertaken except from banks as a temporary measure for extraordinary or
emergency purposes). This limitation shall not prohibit or restrict short sales
or deposits of assets to margin or guarantee positions in futures, options or
forward contracts, or the segregation of assets in connection with any of such
transactions.
19
6. Purchase or retain the securities of any issuer if those officers
and directors of the Fund or its investment adviser owning individually more
than 1/2 of 1% of the securities of such issuer together own more than 5% of the
securities of such issuer.
7. Purchase the securities of any other investment company, except by
purchase in the open market involving no commission or profit to a sponsor or
dealer (other than the customary broker's commission).
8. Act as a securities underwriter (except to the extent the Fund may
be deemed an underwriter under the Securities Act of 1933 in disposing of a
security) or invest in real estate (although it may purchase shares of a real
estate investment trust), or invest in commodities or commodity contracts
except, only for the purpose of hedging, (a) financial futures transactions,
including futures contracts on securities, securities indices and foreign
currencies, and options on any such futures, (b) forward foreign currency
exchange contracts and other forward commitments and (c) securities index put or
call options.
9. Participate on a joint or joint and several basis in any securities
trading account.
10. Invest in companies for the purposes of exercising control of
management.
In applying the industry concentration investment restriction (no. 3
above), the Funds use the industry groups used in the Data Monitor Portfolio
Monitoring System of William O'Neil & Co. Incorporated. Further, in implementing
that restriction, each Fund intends not to invest in any one industry 25% or
more of the value of its total assets at the time of such investment.
The directors have adopted additional non-fundamental investment
restrictions for the Berger Growth Fund and the Berger Large Cap Growth Fund.
The directors may change these limitations without an investor vote. The
non-fundamental investment restrictions include the following:
1. Only for the purpose of hedging, the Fund may purchase and sell
financial futures, forward foreign currency exchange contracts and put and call
options, but no more than 5% of the Fund's net assets at the time of purchase
may be invested in initial margins for financial futures transactions and
premiums for options. The Fund may only write call options that are covered and
only up to 25% of the Fund's total assets.
2. The Fund may not purchase or sell securities on a when-issued or
delayed delivery basis, if as a result more than 5% of its total assets taken at
market value at the time of purchase would be invested in such securities.
3. The Fund may not purchase any security, including any repurchase
agreement maturing in more than seven days, which is not readily marketable, if
more than 15% of the net assets of the Fund, taken at market value at the time
of purchase would be invested in such securities.
4. The Fund may not purchase securities on margin from a broker or
dealer, except that the Fund may obtain such short-term credits as may be
necessary for the clearance of transactions, and may not make short sales of
securities, except that the Fund may make short sales if, at the time of the
short sale, the Fund owns or has the right to acquire an equivalent kind and
amount of the security being sold short at no additional cost (i.e., short sales
"against the box"). This limitation shall not prohibit or restrict the Fund from
entering into futures, forwards and options contracts or from making margin
payments and other deposits in connection therewith.
3. MANAGEMENT OF THE FUNDS
Each Fund is supervised by a board of directors or trustees who are
responsible for major decisions about the Funds' policies and overall Fund
oversight. Each Fund's board hires the companies that run day-to-day Fund
operations, such as the investment adviser, administrator, transfer agent and
custodian.
20
The directors or trustees and executive officers of each of the Funds
are listed below, together with information that includes their principal
occupations during the past five years and other principal business
affiliations.
MICHAEL OWEN, 210 University Boulevard, Suite 800, Denver, CO 80206, DOB:
1937. Dean of Zayed University (since September 2000). Formerly
self-employed as a financial and management consultant, and in real
estate development (from June 1999 to September 2000). Dean (from 1993
to June 1999), and a member of the Finance faculty (from 1989 to 1993),
of the College of Business, Montana State University. Formerly,
Chairman and Chief Executive Officer of Royal Gold, Inc. (mining) (1976
to 1989). Chairman of the Board of Berger Growth Fund and Berger Large
Cap Growth Fund. Chairman of the Trustees of Berger Investment
Portfolio Trust, Berger Institutional Products Trust, Berger Worldwide
Funds Trust, Berger Worldwide Portfolios Trust and Berger Omni
Investment Trust.
* JACK R. THOMPSON, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1949. President and a director since May 1999 (Executive
Vice President from February 1999 to May 1999) of Berger Growth Fund
and Berger Large Cap Growth Fund. President and a trustee since May
1999 (Executive Vice President from February 1999 to May 1999) of
Berger Investment Portfolio Trust, Berger Institutional Products Trust,
Berger Worldwide Funds Trust, Berger Worldwide Portfolios Trust and
Berger Omni Investment Trust. President and Director since June 1999
(Executive Vice President from February 1999 to June 1999) of Berger
Financial Group LLC (formerly Berger LLC). Audit Committee Member of
the Public Employees' Retirement Association of Colorado (pension plan)
since November 1997. Self-employed as a consultant from July 1995
through February 1999. Director of Wasatch Advisors (investment
management) from February 1997 to February 1999. Director of Janus
Capital Corporation (investment management) from June 1984 through June
1995, and Executive Vice President of the Corporation from April 1989
through June 1995. Treasurer of Janus Capital Corporation from November
1983 through October 1989. Trustee of the Janus Investment Funds from
December 1990 through June 1995, and Senior Vice President of the Trust
from May 1993 through June 1995. President and a director of Janus
Service Corporation (transfer agent) from January 1987 through June
1995. President and a director of Fillmore Agency, Inc. (advertising
agency), from January 1990 through June 1995. Executive Vice President
and a director of Janus Capital International, Ltd. (investment
adviser) from September 1994 through June 1995. President and a
director of Janus Distributors, Inc. (broker/dealer), from May 1991
through June 1995. Director of IDEX Management, Inc. (investment
management), from January 1985 through June 1995. Trustee and Senior
Vice President of the Janus Aspen Funds from May 1993 through June
1995.
DENNIS E. BALDWIN, 210 University Boulevard, Suite 800, Denver, CO 80206,
DOB: 1928. President, Baldwin Financial Counseling (since July 1991).
Formerly, Vice President and Denver Office Manager of Merrill Lynch
Capital Markets (1978 to 1990). Director of Berger Growth Fund and
Berger Large Cap Growth Fund. Trustee of Berger Investment Portfolio
Trust, Berger Institutional Products Trust, Berger Worldwide Funds
Trust, Berger Worldwide Portfolios Trust and Berger Omni Investment
Trust.
KATHERINE A. CATTANACH, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1945. Managing Principal (since September 1987), Sovereign
Financial Services, Inc. (investment consulting firm). Executive Vice
President (1981 to 1988), Captiva Corporation, Denver, Colorado
(private investment management firm). Ph.D. in Finance (Arizona State
University); Chartered Financial Analyst (CFA). Director of Berger
Growth Fund and Berger Large Cap Growth Fund. Trustee of Berger
Investment Portfolio Trust, Berger Institutional Products Trust, Berger
Worldwide Funds Trust, Berger Worldwide Portfolios Trust and Berger
Omni Investment Trust.
21
PAUL R. KNAPP, 210 University Boulevard, Suite 800, Denver, CO 80206, DOB:
1945. Executive Officer of DST Systems, Inc. ("DST"), a publicly traded
information and transaction processing company, which acts as the
Funds' transfer agent (since October 2000). President of Vermont
Western Assurance, Inc., a wholly owned subsidiary of DST Systems
(since December 2000). Director and Vice President (February 1998 to
November 2000) of West Side Investments, Inc. (investments), a wholly
owned subsidiary of DST Systems, Inc. President, Chief Executive
Officer and a director (September 1997 to October 2000) of DST
Catalyst, Inc., an international financial markets consulting, software
and computer services company, (now DST International, a subsidiary of
DST). Previously (1991 to October 2000), Chairman, President, Chief
Executive Officer and a director of Catalyst Institute (international
public policy research organization focused primarily on financial
markets and institutions); also (1991 to September 1997), Chairman,
President, Chief Executive Officer and a director of Catalyst
Consulting (international financial institutions business consulting
firm). Prior thereto (1988 to 1991), President, Chief Executive Officer
and a director of Kessler Asher Group (brokerage, clearing and trading
firm). Director of Berger Growth Fund and Berger Large Cap Growth Fund.
Trustee of Berger Investment Portfolio Trust, Berger Institutional
Products Trust, Berger Worldwide Funds Trust, Berger Worldwide
Portfolios Trust and Berger Omni Investment Trust.
HARRY T. LEWIS, JR., 210 University Boulevard, Suite 800, Denver, CO 80206,
DOB: 1933. Lewis Investments (since June 1988) (self-employed private
investor). Formerly, Senior Vice President, Rocky Mountain Region, of
Dain Bosworth Incorporated and member of that firm's Management
Committee (1981 to 1988). Director (1995 to March 2002) of J.D. Edwards
& Co. (computer software company). Director of Berger Growth Fund and
Berger Large Cap Growth Fund. Trustee of Berger Investment Portfolio
Trust, Berger Institutional Products Trust, Berger Worldwide Funds
Trust, Berger Worldwide Portfolios Trust and Berger Omni Investment
Trust.
WILLIAM SINCLAIRE, 210 University Boulevard, Suite 800, Denver, CO 80206,
DOB: 1928. President (since January 1998), Santa Clara LLC (privately
owned agriculture company). President (January 1963 to January 1998),
Sinclaire Cattle Co. (privately owned agriculture company). Director of
Berger Growth Fund and Berger Large Cap Growth Fund. Trustee of Berger
Investment Portfolio Trust, Berger Institutional Products Trust, Berger
Worldwide Funds Trust, Berger Worldwide Portfolios Trust and Berger
Omni Investment Trust.
ALBERT C. YATES, 210 University Boulevard, Suite 800, Denver, CO 80206, DOB:
1941. President (since 1990), Chancellor and Professor of Chemistry
Department of Chemistry, of Colorado State University. Formerly
Executive Vice President and Provost (1983 to 1990) Academic Vice
President and Provost (1981 to 1983) and Professor of Chemistry (1981
to 1990) of Washington State University. Vice President and University
Dean for Graduate Studies and Research and Professor of Chemistry of
the University of Cincinnati (1977 to 1981). Director of the Berger
Growth Fund and Berger Large Cap Growth Fund. Trustee of Berger
Investment Portfolio Trust, Berger Institutional Products Trust, Berger
Worldwide Funds Trust, Berger Worldwide Portfolios Trust and Berger
Omni Investment Trust.
* JAY W. TRACEY CFA, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1954. Executive Vice President of the Berger Funds (since
August 2000). Executive Vice President and Chief Investment Officer of
Berger Financial Group LLC (since June 2000). Portfolio manager of the
Berger Growth Fund (since August 2000); team portfolio manager of the
Berger Select Fund (since June 2000) and the Berger Large Cap Growth
Fund (from January 2001 through December 2001). Team portfolio manager
(since December 2001) of the Berger Mid Cap Growth Fund and team
interim portfolio manager (since December 2001) of the Berger New
Generation Fund. Formerly, Vice President and Portfolio Manager at
Oppenheimer Funds, Inc. (September 1994 to May 2000) and Managing
Director of Buckingham Capital Management (February 1994 to September
1994).
22
* PAUL A. LAROCCO, CFA, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1958. Vice President (since February 2001) and portfolio
manager (since January 2001) of the Berger Small Company Growth Fund.
Vice President (since February 2001) and team portfolio manager (since
January 2001) of the Berger Select Fund. Team portfolio manager (since
December 2001) of the Berger Mid Cap Growth Fund and interim team
portfolio manager (since December 2001) of the Berger New Generation
Fund. Vice President of Berger Financial Group LLC (since December
2000). Formerly, portfolio manager with Montgomery Asset Management
(from January 2000 through December 2000); senior portfolio manager
with Founders Asset Management (from March 1998 through December 1999);
and portfolio manager with Oppenheimer Funds (from January 1993 through
March 1998).
* STEVEN L. FOSSEL, CFA, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1968. Vice President (since August 2000) and portfolio
manager (since June 2000) of the Berger Balanced Fund. Vice President
(since August 2000) and team portfolio manager (since June 2000) of the
Berger Select Fund. Vice President (since February 2001); portfolio
manager (since December 2001) of the Berger Large Cap Growth Fund; and
team portfolio manager (from January 2001 through December 2001) of the
Berger Large Cap Growth Fund. Interim portfolio manager (from June 2000
to January 2001) of the Berger Large Cap Growth Fund. Vice President
and portfolio manager of Berger Financial Group LLC (since June 2000);
senior equity analyst with Berger Financial Group LLC (from March 1998
to June 2000). Formerly, Analyst and Assistant portfolio manager with
Salomon Brothers Asset Management (from August 1992 to February 1998).
* JANICE M. TEAGUE, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1954. Vice President and Secretary of Bay Isle Financial
LLC (since January 2002). Vice President (since November 1998) and
Assistant Secretary (since February 2000 and previously from September
1996 to November 1998) and Secretary (November 1998 to February 2000)
of the Berger Funds. Vice President (since October 1997), Secretary
(since November 1998) and Assistant Secretary (October 1996 through
November 1998) with Berger Financial Group LLC. Vice President and
Secretary with Berger Distributors LLC (since August 1998). Formerly,
self-employed as a business consultant (from June 1995 through
September 1996), Secretary of the Janus Funds (from January 1990 to May
1995) and Assistant Secretary of Janus Capital Corporation from
(October 1989 to May 1995).
* ANDREW J. ISEMAN, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1964. Vice President of the Berger Funds (since March
2001). Vice President (since September 1999) and Chief Operating
Officer (since November 2000) of Berger Financial Group LLC. Manager
(since September 1999) and Director (June 1999 to September 1999) of
Berger Distributors LLC. Vice President-Operations (February 1999 to
November 2000) of Berger Financial Group LLC. Associate (November 1998
to February 1999) with DeRemer & Associates (a consulting firm). Vice
President-Operations (February 1997 to November 1998) and Director of
Research and Development (May 1996 to February 1997) of Berger
Financial Group LLC.
* ANTHONY R. BOSCH, 210 University Boulevard, Suite 800, Denver, CO 80206,
DOB: 1965. Vice President of Bay Isle Financial LLC (since January
2002). Vice President of the Berger Funds (since February 2000). Vice
President (since June 1999) and Chief Legal Officer (since August 2000)
with Berger Financial Group LLC. Chief Compliance Officer with Berger
Distributors LLC (since September 2001). Formerly, Assistant Vice
President of Federated Investors, Inc. (December 1996 through May
1999), and Attorney with the U.S. Securities and Exchange Commission
(June 1990 through December 1996).
* BRIAN S. FERRIE, 210 University Boulevard, Suite 800, Denver, CO 80206, DOB:
1958. Vice President of the Berger Funds (since November 1998). Vice
President (since February 1997), Treasurer and Chief Financial Officer
(since March 2001) and Chief Compliance Officer (from August 1994 to
March 2001) with Berger Financial Group LLC. Vice President (since May
1996), Treasurer and Chief Financial Officer (since March 2001) and
Chief Compliance Officer (from May 1996 to September 2001) with Berger
Distributors LLC. Formerly, Compliance Officer with
23
United Services Advisor, Inc. (from January 1988 to July 1994) and
Director of Internal Audit of United Services Funds (from January 1987
to July 1994).
* JOHN PAGANELLI, 210 University Boulevard, Suite 800, Denver, CO 80206,
DOB: 1967. Vice President (since November 1998), Treasurer (since March
2001) and Assistant Treasurer (November 1998 to March 2001) of the
Berger Funds. Vice President (since November 1998) and Manager of
Accounting (January 1997 through November 1998) with Berger Financial
Group LLC. Formerly, Manager of Accounting (December 1994 through
October 1996) and Senior Accountant (November 1991 through December
1994) with Palmeri Fund Administrators, Inc.
* SUE VREELAND, 210 University Boulevard, Suite 800, Denver, CO 80206,
DOB: 1948. Secretary of the Berger Funds (since February 2000).
Assistant Secretary of Berger Financial Group LLC and Berger
Distributors LLC (since June 1999) and Bay Isle Financial LLC (since
December 2001). Formerly, Assistant Secretary of the Janus Funds (from
March 1994 to May 1999), Assistant Secretary of Janus Distributors,
Inc. (from June 1995 to May 1997) and Manager of Fund Administration
for Janus Capital Corporation (from February 1992 to May 1999).
- ----------
* Interested person (as defined in the Investment Company Act of 1940) of one or
more of the Funds and/or of the Funds' advisers or sub-advisers.
The directors or trustees of the Funds have adopted a director/trustee
retirement age of 75 years.
DIRECTOR/TRUSTEE COMPENSATION
The officers of the Funds received no compensation from the Funds
during the fiscal year ended September 30, 2001. However, directors and trustees
of the Funds who are not "interested persons" of the Funds or their advisers or
sub-advisers are compensated for their services according to a fee schedule,
allocated among the Funds. Neither the officers of the Funds nor the directors
or trustees receive any form of pension or retirement benefit compensation from
the Funds.
The following table sets forth information regarding compensation paid
or accrued during the fiscal year ended September 30, 2001, for each director or
trustee of the Funds:
24
<Table>
<Caption>
NAME AND POSITION WITH
BERGER FUNDS AGGREGATE COMPENSATION FROM
=================================================================================================================================
BERGER BERGER
LARGE BERGER SMALL BERGER BERGER
BERGER CAP MID CAP COMPANY NEW BERGER INFORMATION
GROWTH GROWTH GROWTH GROWTH GENERATION SELECT TECHNOLOGY
FUND FUND FUND FUND FUND FUND FUND
------ ------ ------- ------- ---------- ------ -----------
Dennis E. Baldwin(3) $10,924 $ 4,382 $ 584 $ 9,232 $ 3,291 $ 482 $ 694
Louis Bindner(6) $ 4,416 $ 1,675 $ 256 $ 3,486 $ 1,631 $ 218 $ 304
Katherine A. Cattanach(3) $10,983 $ 4,407 $ 587 $ 9,287 $ 3,304 $ 484 $ 698
Paul R. Knapp(3) $10,260 $ 4,110 $ 550 $ 8,653 $ 3,110 $ 454 $ 653
Harry T. Lewis(3) $10,260 $ 4,110 $ 550 $ 8,653 $ 3,110 $ 454 $ 653
Michael Owen(3) $12,740 $ 5,106 $ 682 $10,752 $ 3,853 $ 563 $ 811
William Sinclaire(3) $10,260 $ 4,110 $ 550 $ 8,653 $ 3,110 $ 454 $ 653
Albert C. Yates(3),(7) $ 5,844 $ 2,435 $ 294 $ 5,167 $ 1,479 $ 236 $ 350
Jack R. Thompson $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
(3),(4),(5)
<Caption>
NAME AND POSITION WITH
BERGER FUNDS AGGREGATE COMPENSATION FROM
================================================================================
BERGER BERGER
LARGE MID
CAP CAP BERGER ALL
VALUE VALUE BALANCED BERGER
FUND(1) FUND FUND FUNDS(2)
------- ------ -------- --------
Dennis E. Baldwin(3) $ 584 $ 909 $ 1,185 $57,984
Louis Bindner(6) $ 0 $ 137 $ 428 $19,234
Katherine A. Cattanach(3) $ 584 $ 968 $ 1,192 $58,400
Paul R. Knapp(3) $ 539 $ 885 $ 1,110 $54,234
Harry T. Lewis(3) $ 539 $ 885 $ 1,110 $54,234
Michael Owen(3) $ 674 $ 1,105 $ 1,380 $67,448
William Sinclaire(3) $ 539 $ 885 $ 1,110 $54,234
Albert C. Yates(3),(7) $ 539 $ 748 $ 682 $35,000
Jack R. Thompson $ 0 $ 0 $ 0 $ 0
(3),(4),(5)
</Table>
================================================================================
(1) The Fund was not added as a series of the Trust until September 28, 2001.
Figures are estimates for the first year of operations of the Fund as a
series of the Trust.
(2) Includes the Berger Growth Fund, the Berger Large Cap Growth Fund, the
Berger Investment Portfolio Trust (including the Berger Mid Cap Growth Fund,
the Berger Small Company Growth Fund, the Berger New Generation Fund, the
Berger Select Fund, the Berger Information Technology Fund, the Berger Mid
Cap Value Fund, and the Berger Balanced Fund), the Berger Institutional
Products Trust (five series), the Berger Worldwide Funds Trust (three
series, including the Berger International Fund), the Berger Worldwide
Portfolios Trust (one series) and the Berger Omni Investment Trust (one
series). Aggregate compensation figures do not include first-year estimates
for any Fund in existence for less than one year. Of the aggregate amounts
shown for each director/trustee, the following amounts were deferred under
applicable deferred compensation plans: Dennis E. Baldwin $31,960; Lou
Bindner $2,499; Katherine A. Cattanach $58,400; William Sinclaire $54,234;
Albert C. Yates $17,500.
(3) Director of Berger Growth Fund and Berger Large Cap Growth Fund and trustee
of Berger Investment Portfolio Trust, Berger Institutional Products Trust,
Berger Worldwide Portfolios Trust, Berger Worldwide Funds Trust and Berger
Omni Investment Trust.
(4) Interested person of Berger Financial Group LLC.
(5) President of Berger Growth Fund, Berger Large Cap Growth Fund, Berger
Investment Portfolio Trust, Berger Institutional Products Trust, Berger
Worldwide Portfolios Trust, Berger Worldwide Funds Trust and Berger Omni
Investment Trust.
(6) Resigned effective March 1, 2001.
(7) Appointed Trustee effective March 1, 2001.
25
Directors or trustees may elect to defer receipt of all or a portion of
their fees pursuant to a fee deferral plan adopted by each of the Funds. Under
the plan, deferred fees are credited to an account and adjusted thereafter to
reflect the investment experience of whichever of the Berger Funds (or approved
money market funds) is designated by the director or trustee for this purpose.
Pursuant to an SEC exemptive order, the Funds are permitted to purchase shares
of the designated funds in order to offset their obligation to the
directors/trustees participating in the plan. Purchases made pursuant to the
plan are excepted from any otherwise applicable investment restriction limiting
the purchase of securities of any other investment company. A Fund's obligation
to make payments of deferred fees under the plan is a general obligation of the
Fund.
As of December 31, 2001, the officers and directors/trustees of the
Funds as a group owned of record or beneficially an aggregate of less than 1% of
the outstanding shares of each class of each of the Funds except the Berger
Large Cap Value Fund Investor Shares, of which the officers and
directors/trustees of the Fund as a group owned of record 3.9% of the investor
shares class. When combined with the Institutional shares class of the Berger
Large Cap Value Fund, officers and directors/trustees of the Fund as a group
owned of record an aggregate of 1.9% of the outstanding shares of the total
outstanding shares of the Fund.
The Trust, the Funds' investment adviser, sub-advisers and principal
underwriter have adopted Codes of Ethics under Rule 17j-1 of the Investment
Company Act. The Codes of Ethics permit personnel subject to the Codes to invest
in securities, including securities that may be purchased or held by the Funds
in certain circumstances. The Codes of Ethics are described fully under
Restrictions on Personal Trading in Section 4 of this SAI.
4. INVESTMENT ADVISER AND SUB-ADVISERS
BERGER FINANCIAL GROUP LLC - INVESTMENT ADVISER
Berger Financial Group LLC ("BFG") (formerly Berger LLC), 210
University Boulevard, Suite 800, Denver, Colorado 80206, is the investment
adviser to all the Berger Funds. BFG is responsible for managing the investment
operations of these Funds and the composition of their investment portfolios.
BFG also acts as each Funds' administrator and is responsible for such functions
as monitoring compliance with all applicable federal and state laws.
BFG is a Nevada Limited Liability Company, and has been in the
investment advisory business since 1974. It serves as investment adviser or
sub-adviser to mutual funds and institutional investors and had assets under
management of approximately $8.7 billion as of December 31, 2001. BFG is a
subsidiary of Stilwell Management Inc. ("Stilwell"), which owns approximately
89.5% of BFG, and is an indirect subsidiary of Stilwell Financial Inc.
("Stilwell Financial"). Stilwell also owns approximately 33% of the outstanding
shares of DST Systems, Inc. ("DST"), a publicly traded information and
transaction processing company, which acts as the Funds' transfer agent. DST, in
turn, owns 100% of DST Securities, a registered broker-dealer, which executes
portfolio trades for the Funds.
Stilwell Financial was previously a wholly owned subsidiary of Kansas
City Southern Industries, Inc. ("KCSI"). On July 12, 2000, KCSI completed a
separation of its transportation and financial services segments through a
dividend of stock of Stilwell Financial. On that date, KCSI shareholders
received two shares of Stilwell Financial for every KCSI share held as of June
28, 2000. The separation resulted in no change in the management or control of
the Funds or the Adviser to the Funds.
PERKINS, WOLF, MCDONNELL & COMPANY - SUB-ADVISER
Perkins, Wolf, McDonnell & Company ("PWM"), 310 S. Michigan Avenue,
Suite 2600, Chicago, Illinois 60604, has been engaged as the investment
sub-adviser for the Berger Mid Cap Value Fund. PWM was organized in 1980 under
the name Mac-Per-Wolf Co. to operate as a securities broker-dealer. In September
1983, it changed its name to Perkins, Wolf, McDonnell & Company. PWM is a member
of the National Association of Securities Dealers, Inc. (the "NASD") and, in
1984, became registered as an investment adviser with the SEC.
26
PWM has been the investment sub-adviser to the Berger Mid Cap Value
Fund since it commenced operations in August 1998.
Thomas M. Perkins has been the lead investment manager for the Berger
Mid Cap Value Fund since its inception in August 1998. As lead manager, Tom
Perkins is responsible for the daily decisions on security selection for the
Fund's portfolio. Robert H. Perkins, brother of Thomas Perkins, has also served
as investment manager of the Berger Mid Cap Value Fund since its inception.
Robert Perkins has been an investment manager since 1970 and serves as President
and a director of PWM. Thomas Perkins has been an investment manager since 1974
and joined PWM as a portfolio manager in 1998. Robert Perkins owns 46% of PWM.
Gregory E. Wolf owns 21% of PWM and serves as its Treasurer and a director. Tom
Perkins owns 12% of PWM.
BAY ISLE FINANCIAL CORPORATION
Prior to December 31, 2001, Bay Isle Financial LLC (formerly Bay Isle
Financial Corporation), 160 Sansome Street, 17th Floor, San Francisco,
California 94104, served as the investment sub-adviser for the Berger
Information Technology Fund. Effective December 2001, BFG acquired all of the
outstanding shares of Bay Isle Financial Corporation. Bay Isle Financial LLC
("Bay Isle") is now a subsidiary of BFG. Bay Isle has been in the investment
advisory business since 1986. Bay Isle serves as investment adviser or
sub-adviser to mutual funds, institutional investors and individual separate
accounts. Previously, Bay Isle served as investment adviser to the Berger
Information Technology Fund (originally known as the InformationTech 100(R)
Fund) from its inception in April 1997 until July 1999, when the InformationTech
100(R) Fund was reorganized into the Berger Information Technology Fund with
investor approval. At that time, Bay Isle became the investment sub-adviser to
the Fund under a Sub-Advisory Agreement between BFG as adviser and Bay Isle as
sub-adviser. The Sub-Advisory Agreement was terminated effective December 31,
2001.
In addition to its other activities, Bay Isle maintains the
InformationWeek(R) 100 Index, an unmanaged index of the stocks of 100 companies
in the information technology industries. InformationWeek(R) is a registered
trademark of CMP Media, which is not affiliated with Bay Isle or the Fund. Mr.
Schaff, President of Bay Isle, also writes articles on investments for
InformationWeek magazine, a publication of CMP Media covering information
technology-related topics. CMP Media compensates Bay Isle for managing the Index
and for Mr. Schaff's articles.
INVESTMENT ADVISORY AGREEMENTS
Under the Investment Advisory Agreements between each Fund and its
adviser, the adviser is generally responsible for furnishing continuous advice
and making investment decisions as to the acquisition, holding or disposition of
securities or other assets that each Fund may own or contemplate acquiring from
time to time. Each Investment Advisory Agreement provides that the investment
adviser shall not be liable for any error of judgment or mistake of law or for
any loss arising out of any investment or for any act or omission taken with
respect to the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties thereunder and except to the extent otherwise
provided by law.
Under each Investment Advisory Agreement in effect, the adviser is
compensated for its services by the payment of a fee at an annual rate,
calculated as a percentage of the average daily net assets of the Fund.
The following schedule reflects the advisory fees charged to the Funds
for the fiscal year ended September 30, 2001:
27
<Table>
<Caption>
FUND ADVISER INVESTMENT ADVISORY FEE
---- ------- -----------------------
Berger Growth Fund BFG 0.71%(1)
Berger Large Cap Growth Fund BFG 0.75%(1)
Berger Mid Cap Growth Fund BFG 0.75%(2)
Berger Small Company Growth Fund BFG 0.82%(1)
Berger New Generation Fund BFG 0.85%(2)
Berger Select Fund BFG 0.75%
Berger Information Technology Fund BFG 0.85%(4)
Berger Large Cap Value Fund BFG 0.00%(5)
Berger Mid Cap Value Fund BFG 0.75%(3)
Berger Balanced Fund BFG 0.70%(2)
</Table>
(1) Under a written agreement, the Fund's investment adviser waives its fee to
the extent that the annual operating expenses for the Investor Shares class
of the Fund in any fiscal year, including the investment advisory fee, but
excluding the 12b-1 fee, brokerage commissions, interest, taxes and
extraordinary expenses, exceed 2-1/2% of the first $30,000,000 of average
daily net assets, plus 2% of the next $70,000,000, plus 1-1/2% of the
balance of the average daily net assets of the Fund attributable to the
Investor Shares for that fiscal year. The agreement may be terminated by the
adviser upon 90 days' prior written notice to the Fund. The investment
advisory fee is allocated among the Investor Shares and the other class of
the Fund on the basis of net assets attributable to each such class.
(2) Under a written contract, the Fund's investment adviser waives its fee to
the extent that, at any time during the life of the Fund, the Fund's annual
operating expenses (or, if applicable, for the Investor Shares class of the
Fund) in any fiscal year, including the investment advisory fee and the
12b-1 fee, but excluding brokerage commissions, interest, taxes and
extraordinary expenses, exceed 1.90% in the case of the Investor Shares
class of the Berger New Generation Fund, 2.00% in the case of the Berger Mid
Cap Growth Fund, and 1.50% in the case of the Berger Balanced Fund, of the
average daily net assets of the Fund (or applicable class) for that fiscal
year. The adviser's contract with the Berger Mid Cap Growth Fund and the
Berger Balanced Fund may not be terminated or amended except by a vote of
the Fund's Board of Trustees. The agreement with the Berger New Generation
Fund may be terminated by the adviser upon 90 days' prior written notice to
the Fund. For the Berger New Generation Fund, the investment advisory fee is
allocated among the Investor Shares and the other class of the Fund on the
basis of net assets attributable to each such class.
(3) Fund is sub-advised by PWM. See text preceding and following table.
(4) Under a written contract, the Fund's investment adviser waives its fee or
reimburses the Fund for expenses to the extent that, at any time during the
life of the Fund, the annual operating expenses for the Investor Shares
class of the Fund in any fiscal year, including the investment advisory fee
and the 12b-1 fee, but excluding brokerage commissions, interest, taxes and
extraordinary expenses, exceed 2.00% of the Fund's average daily net assets
attributable to the Investor Shares for that fiscal year. The contract also
provides that the adviser will waive an additional amount of its fees or
reimburse an additional amount of expenses to the extent necessary to keep
its fee waiver and reimbursement for the Investor Shares class proportionate
to its fee waiver and reimbursement for the Fund's other outstanding share
class. The contract may not be terminated or amended except by a vote of the
Fund's Board of Trustees. The investment advisory fee is allocated among the
Investor Shares and the other class of the Fund on the basis of net assets
attributable to each such class.
(5) The Fund paid no investment advisory fee for the one day of operations
during the period ended September 30, 2001.
Investment advisory fees are charged to the Berger Funds according to
the following schedule:
<Table>
<Caption>
FUND AVERAGE DAILY NET ASSETS ANNUAL RATE
---- ------------------------ -----------
Berger Small Company Growth Fund First $500 million .85%
Berger New Generation Fund Next $500 million .80%
Berger Information Technology Fund Over $1 billion .75%
Berger Growth Fund First $500 million .75%
Berger Large Cap Growth Fund Next $500 million .70%
Berger Mid Cap Growth Fund Over $1 billion .65%
Berger Select Fund
Berger Large Cap Value Fund
Berger Mid Cap Value Fund
Berger Balanced Fund First $1 billion .70%
Over $1 billion .65%
</Table>
28
Each Fund's current Investment Advisory Agreement will continue in
effect until the end of April 2002, with the exception of Berger Large Cap Value
which will continue in effect until the end of April 2003, and thereafter from
year to year if such continuation is specifically approved at least annually by
the directors or trustees or by vote of a majority of the outstanding shares of
the Fund and in either case by vote of a majority of the directors or trustees
who are not "interested persons" (as that term is defined in the 1940 Act) of
the Fund or the adviser. Each Agreement is subject to termination by the Fund or
the adviser on 60 days' written notice and terminates automatically in the event
of its assignment.
Under the Sub-Advisory Agreement between the advisers and the
sub-advisers for the Berger Mid Cap Value Fund and the Berger Information
Technology Fund, the sub-adviser is responsible for day-to-day investment
management. The sub-adviser manages the investments and determines what
securities and other investments will be acquired, held or disposed of,
consistent with the investment objective and policies established by the
trustees. Each Sub-Advisory Agreement provides that the sub-adviser shall not be
liable for any error of judgment or mistake of law or for any loss arising out
of any investment or for any act or omission taken with respect to the Fund,
except for willful misfeasance, bad faith or gross negligence in the performance
of its duties, or by reason of reckless disregard of its obligations and duties
thereunder and except to the extent otherwise provided by law.
No fees are paid directly to the sub-advisers by the Funds. As the
sub-adviser of the Berger Mid Cap Value Fund, PWM receives from the adviser a
fee at the annual rate of 0.375% of the first $500 million of average daily net
assets of the Fund, 0.35% of the next $500 million and 0.325% of any amount in
excess of $1 billion.
The Sub-Advisory Agreements will continue in effect until April 2002,
and thereafter from year to year if such continuation is specifically approved
at least annually by the trustees or by vote of a majority of the outstanding
shares of the Fund and in either case by vote of a majority of the trustees of
the Fund who are not "interested persons" (as that term is defined in the
Investment Company Act of 1940) of the Fund or the adviser or the sub-adviser.
The Sub-Advisory Agreements are subject to termination by the Fund or the
sub-adviser on 60 days' written notice, and terminate automatically in the event
of their assignment and in the event of termination of the related Investment
Advisory Agreement.
OTHER ARRANGEMENTS BETWEEN BFG AND PWM
BFG and PWM entered into an Agreement, dated November 18, 1996, as
amended January 27, 1997, April 8, 1998 and November 17, 1999 (the "November 18
Agreement"), under which, among other things, PWM agreed that, so long as BFG
acts as the adviser to the Berger Mid Cap Value Fund, and PWM provides
sub-advisory or other services in connection with the Fund, PWM will not manage
or provide advisory services to any registered investment company that is in
direct competition with the Fund.
OTHER ARRANGEMENTS BETWEEN BFG AND BAY ISLE
BFG and Bay Isle have formed a joint venture to provide asset
management services to certain private accounts. Mr. Schaff and Steve Block are
compensated as employees and portfolio managers of BFG.
TRADE ALLOCATIONS
While investment decisions for the Funds are made independently by the
adviser or sub-adviser, the same investment decision may be made for a Fund and
one or more accounts advised by the adviser or sub-adviser. In this
circumstance, should purchase and sell orders of the same class of security be
in effect on the same day, the orders for such transactions may be combined by
the adviser or sub-adviser in order to seek the best combination of net price
and execution for each. Client orders partially filled will, as a general
matter, be
29
allocated pro rata in proportion to each client's original order, although
exceptions may be made to avoid, among other things, odd lots and de minimus
allocations. Execution prices for a combined order will be averaged so that each
participating client receives the average price paid or received. Although in
some cases this policy might adversely affect the price paid or received by a
Fund or other participating accounts, or the size of the position obtained or
liquidated, the adviser or sub-adviser will aggregate orders if it believes that
coordination of orders and the ability to participate in volume transactions
will result in the best overall combination of net price and execution.
BFG has adopted procedures for allocating to its participating
accounts' securities purchased pursuant to a company's initial public offering
("IPO"). The procedures provide that such allocations must be effected in a
manner that is fair and equitable to all accounts. Generally, securities
received from participating in IPOs will be allocated to participating accounts
pro rata based on account size or total equity assets.
The key criterion for determining eligibility of the account to
participate in an offering is the suitability of the investment for the account.
An account may participate in an IPO allocation if BFG believes that, based on
the account's investment restrictions, risk profile, asset composition and cash
levels, the IPO is an appropriate investment. Accordingly, no account will
participate in every IPO allocation. In addition, an account generally will not
participate in an IPO if the securities available for allocation to the account
are insignificant relative to the account's net assets. As a result, any fund or
account whose assets are very large is not likely to participate in the
allocation of many IPOs.
RESTRICTIONS ON PERSONAL TRADING
BFG, the Berger Funds and Berger Distributors LLC each permits its
directors, officers and employees to purchase and sell securities for their own
accounts, including securities that may be purchased or held by the Funds, in
accordance with a policy regarding personal investing in each of the Codes of
Ethics for BFG, the Berger Funds and Berger Distributors LLC. The policy
requires all covered persons to conduct their personal securities transactions
in a manner that does not operate adversely to the interests of the Funds or
BFG's other advisory clients. Directors and officers of BFG and Berger
Distributors LLC, investment personnel and other designated persons deemed to
have access to current trading information ("access persons") are required to
pre-clear all transactions in securities not otherwise exempt under the policy.
Requests for authority to trade will be denied pre-clearance when, among other
reasons, the proposed personal transaction would be contrary to the provisions
of the policy or would be deemed to adversely affect any transaction then known
to be under consideration for or currently being effected on behalf of any
client account, including the Funds.
In addition to the pre-clearance requirements described here for BFG
and Berger Distributors LLC, the policy subjects directors and officers of BFG,
the Berger Funds and Berger Distributors LLC, investment personnel and other
access persons to various trading restrictions and reporting obligations. All
reportable transactions are reviewed for compliance with the policy. The policy
is administered by BFG and the provisions of the policy are subject to
interpretation by and exceptions authorized by its management.
PWM has adopted a Code of Ethics that is substantially similar to the
Code adopted by BFG.
Bay Isle Financial LLC has adopted a Code of Ethics that is
substantially similar to the Code adopted by BFG.
5. EXPENSES OF THE FUNDS
In addition to paying an investment advisory fee to its adviser, each
Fund pays all of its expenses not assumed by its adviser, including, but not
limited to, custodian and transfer agent fees, legal and accounting expenses,
administrative and record keeping expenses, interest charges, federal and state
taxes, expenses of investors' meetings, compensation of directors or trustees
who are not interested persons of BFG, expenses of printing and distributing
reports to investors and federal and state administrative agencies, and all
expenses incurred in connection with the execution of its portfolio
transactions, including brokerage commissions on purchases and sales of
portfolio securities, which are considered a cost of securities of each Fund.
Each Fund also pays all expenses incurred in complying with all federal and
state laws and the laws of any foreign country applicable to the
30
issue, offer or sale of shares of the Fund, including, but not limited to, all
costs involved in preparing and printing prospectuses for investors of the Fund.
Under a separate Administrative Services Agreement with respect to each
of such Funds, BFG performs certain administrative and recordkeeping services
not otherwise performed by the Fund's custodian and recordkeeper, including the
preparation of financial statements and reports to be filed with the Securities
and Exchange Commission and state regulatory authorities. For the fiscal year
ended September 30, 2001, BFG did not charge an administrative fee to the Funds.
The administrative services fees may be changed by the directors or trustees
without investor approval.
The following tables show the total dollar amounts of advisory fees and
administrative services fees paid by each of such Funds for the periods
indicated and the amount of such fees waived on account of excess expenses under
applicable expense limitations. For the Funds that have two classes of shares,
the Berger Small Company Growth Fund, Berger New Generation Fund, Berger Large
Cap Value Fund and the Berger Information Technology Fund, each class bears pro
rata its share of the Fund's investment advisory fee based on assets. Except
where noted, these amounts were paid to BFG.
BERGER GROWTH FUND
<Table>
<Caption>
FISCAL YEAR ENDED INVESTMENT ADMINISTRATIVE ADVISORY FEE
SEPTEMBER 30 ADVISORY FEE SERVICE FEE WAIVER TOTAL
----------------- ------------ -------------- ------------ -----------
2001 $ 8,512,000 $ 0 $ 0 $ 8,512,000
2000 $12,519,000 $ 0 $ 0 $12,519,000
1999 $10,835,000 $ 144,000 $ 0 $10,979,000
</Table>
BERGER LARGE CAP GROWTH FUND
<Table>
<Caption>
FISCAL YEAR ENDED INVESTMENT ADMINISTRATIVE ADVISORY FEE
SEPTEMBER 30 ADVISORY FEE SERVICE FEE WAIVER TOTAL
----------------- ------------ -------------- ------------ -----------
2001 $ 3,593,000 $ 0 $ 0 $ 3,593,000
2000 $ 4,362,000 $ 0 $ 0 $ 4,362,000
1999 $ 2,740,000 $ 37,000 $ 0 $ 2,777,000
</Table>
BERGER MID CAP GROWTH FUND
<Table>
<Caption>
FISCAL YEAR ENDED INVESTMENT ADMINISTRATIVE ADVISORY FEE
SEPTEMBER 30 ADVISORY FEE SERVICE FEE WAIVER TOTAL
----------------- ------------ -------------- ------------ -----------
2001 $ 473,000 $ 0 $ 0 $ 473,000
2000 $ 727,000 $ 0 $ 0 $ 727,000
1999 $ 88,000 $ 1,000 $ 0 $ 89,000
</Table>
31
BERGER SMALL COMPANY GROWTH FUND
<Table>
<Caption>
FISCAL YEAR ENDED INVESTMENT ADMINISTRATIVE EXPENSE
SEPTEMBER 30 ADVISORY FEE SERVICE FEE REIMBURSEMENT(4) TOTAL
----------------- ------------ -------------- ---------------- -----------
2001 $ 8,204,000 $ 0 $ (10,000) $ 8,194,000
2000 $10,140,000 $ 0 $ (14,000) $10,126,000
1999 $ 5,582,000 $ 62,000 $ 0 $ 5,644,000
</Table>
BERGER NEW GENERATION FUND
<Table>
<Caption>
FISCAL YEAR ENDED INVESTMENT ADMINISTRATIVE EXPENSE
SEPTEMBER 30 ADVISORY FEE SERVICE FEE REIMBURSEMENT(4) TOTAL
----------------- ------------ -------------- ---------------- -----------
2001 $3,100,000 $ 0 $(10,000) $3,090,000
2000 $6,069,000 $ 0 $(14,000) $6,055,000
1999 $1,714,000 $ 19,000 $ 0 $1,733,000
</Table>
BERGER SELECT FUND
<Table>
<Caption>
FISCAL YEAR ENDED INVESTMENT ADMINISTRATIVE ADVISORY FEE
SEPTEMBER 30 ADVISORY FEE SERVICE FEE WAIVER TOTAL
----------------- ------------ -------------- ------------ -----------
2001 $401,000 $ 0 $ 0 $401,000
2000 $999,000 $ 0 $ 0 $999,000
1999 $740,000 $ 10,000 $ 0 $750,000
</Table>
BERGER INFORMATION TECHNOLOGY FUND
<Table>
<Caption>
ADVISORY FEE
WAIVER AND
FISCAL YEAR ENDED INVESTMENT ADMINISTRATIVE EXPENSES
SEPTEMBER 30(1) ADVISORY FEE(2) SERVICE FEE(3) REIMBURSEMENT TOTAL
----------------- --------------- -------------- ------------- -----------
2001 $654,000 $ 0 $ 0 $654,000
2000 $849,000 $ 0 $ 0 $849,000
1999 $ 97,000 $ 11,000 $(47,000) $ 61,000
</Table>
32
BERGER MID CAP VALUE FUND
<Table>
<Caption>
FISCAL YEAR ENDED INVESTMENT ADMINISTRATIVE ADVISORY FEE
SEPTEMBER 30 ADVISORY FEE SERVICE FEE WAIVER TOTAL
----------------- ------------ -------------- ------------ -----------
2001 $754,000 $ 0 $ 0 $754,000
2000 $191,000 $ 0 $ 0 $191,000
1999 $176,000 $ 2,000 $ 0 $178,000
</Table>
BERGER BALANCED FUND
<Table>
<Caption>
FISCAL YEAR ENDED INVESTMENT ADMINISTRATIVE ADVISORY FEE
SEPTEMBER 30 ADVISORY FEE SERVICE FEE WAIVER TOTAL
----------------- ------------ -------------- ------------ -----------
2001 $ 908,000 $ 0 $ 0 $ 908,000
2000 $1,151,000 $ 0 $ 0 $1,151,000
1999 $ 616,000 $ 9,000 $ 0 $ 625,000
</Table>
(1) The Fund's fiscal year changed from February 28 to September 30 as part of a
reorganization effective July 1999.
(2) Under the advisory agreement in effect prior to the reorganization
referenced in note (1), the Fund's predecessor paid an advisory fee at an
annual rate of 0.95% of its average daily net assets to Bay Isle. As part of
the reorganization, the investment advisory fee of 0.90% payable to BFG came
into effect. Effective October 1, 1999, the investment advisory fee charged
to the Fund was reduced to 0.85% of the first $500 million of average net
assets; 0.80% on the next $500 million of average net assets; and 0.75% of
average net assets exceeding $1 billion.
(3) Under the administrative service agreement in effect prior to the
reorganization referenced in note (1), the Fund's predecessor paid to a
third party administrator an administrative services fee at the annual rate
of 0.20% of average net assets, subject to a $30,000 annual minimum. As part
of the reorganization, the administrative service fee of 0.01% payable to
BFG came into effect. Effective October 1, 1999, BFG eliminated the 0.01%
administrative fee charged to the Funds.
(4) For the institutional share class only, BFG reimburses the Fund to the
extent the normal transfer agency and registration expenses of the
Institutional Shares exceed .20%.
Each Fund has appointed State Street Bank and Trust Company ("State
Street"), One Heritage Drive, North Quincy, Massachusetts 02171, as its
recordkeeping and pricing agent. In addition, State Street also serves as the
Funds' custodian. Each of the Funds has appointed DST Systems, Inc. ("DST"),
P.O. Box 219958, Kansas City, Missouri 64121, as its transfer agent and
dividend-disbursing agent. Stilwell owns approximately 33% of the outstanding
shares of DST.
As recordkeeping and pricing agent, State Street calculates the daily
net asset value of each Fund and performs certain accounting and recordkeeping
functions required by the Funds. The Funds pay State Street a monthly
asset-based fee for such services. State Street is also reimbursed for certain
out-of-pocket expenses.
State Street, as custodian, and its subcustodians have custody and
provide for the safekeeping of the Funds' securities and cash, and receive and
remit the income thereon as directed by the management of the Funds. The
custodian and subcustodians do not perform any managerial or policy-making
functions for the Funds. For its services as custodian, State Street receives an
asset-based fee plus certain transaction fees and out-of-pocket expenses.
33
As transfer agent and dividend disbursing agent, DST maintains all
investor accounts of record; assists in mailing all reports, proxies and other
information to the Funds' investors; calculates the amount of, and delivers to
the Funds' investors, proceeds representing all dividends and distributions; and
performs other related services. For these services, DST receives a fee from the
Funds at an annual rate of $14.85 per open Fund investor account, subject to
preset volume discounts, plus certain transaction fees and fees for closed
accounts, and is reimbursed for out-of-pocket expenses.
All of State Street's fees are subject to reduction pursuant to an
agreed formula for certain earnings credits on the cash balances of the Funds.
Earnings credits received by each Fund can be found on the Fund's Statement of
Operations in the Annual Report incorporated by reference into this Statement of
Additional Information.
12b-1 PLANS
Each of the Funds has adopted a 12b-1 plan (the "Plan") pursuant to
Rule 12b-1 under the Investment Company Act of 1940, which provides for the
payment to BFG of a 12b-1 fee of 0.25% per annum of the Fund's average daily net
assets to finance activities primarily intended to result in the sale of Fund
shares. The Plans are intended to benefit the Funds by attracting new assets
into the Funds and thereby affording potential cost reductions due to economies
of scale.
The expenses paid by BFG may include, but are not limited to:
-- payments made to, and costs incurred by, a Fund's principal underwriter
in connection with the distribution of Fund shares, including payments
made to and expenses of officers and registered representatives of the
Distributor;
-- payments made to and expenses of other persons (including employees of
BFG) who are engaged in or provide support services in connection with
the distribution of Fund shares, such as answering routine telephone
inquiries and processing investor requests for information;
-- compensation (including incentive compensation and/or continuing
compensation based on the amount of customer assets maintained in a
Fund) paid to securities dealers, financial institutions and other
organizations that render distribution and administrative services in
connection with the distribution of Fund shares, including services to
holders of Fund shares and prospective investors;
-- costs related to the formulation and implementation of marketing and
promotional activities, including direct mail promotions and
television, radio, newspaper, magazine and other mass media
advertising;
-- costs of printing and distributing prospectuses and reports to
prospective investors of Fund shares;
-- costs involved in preparing, printing and distributing sales literature
for Fund shares;
-- costs involved in obtaining whatever information, analyses and reports
with respect to marketing and promotional activities on behalf of a
Fund relating to Fund shares that BFG deems advisable;
-- and such other costs relating to Fund shares as the Fund may from time
to time reasonably deem necessary or appropriate in order to finance
activities primarily intended to result in the sale of Fund shares.
Such 12b-1 fee payments are to be made by each Fund to BFG with respect
to each fiscal year of the Fund without regard to the actual distribution
expenses incurred by BFG in such year; that is, if the distribution expenditures
incurred by BFG are less than the total of such payments in such year, the
difference is not to be reimbursed to the Fund by BFG, and if the distribution
expenditures incurred by BFG are more than the total of such payments, the
excess is not to be reimbursed to BFG by the Fund.
34
From time to time a Fund may engage in activities that jointly promote
the sale of Fund shares and other funds that are or may in the future be advised
or administered by BFG, which costs are not readily identifiable as related to
any one fund. In such cases, a Fund's 12b-1 fees may be used to finance the
joint promotion of the shares of that Fund, along with the shares of the other
fund. BFG allocates the cost of such joint promotional activity among the funds
involved on the basis of their respective net assets, unless otherwise directed
by the directors or trustees.
The current 12b-1 Plans will continue in effect until the end of April
2002 and from year to year thereafter if approved at least annually by each
Fund's directors or trustees and those directors or trustees who are not
interested persons of the Fund and have no direct or indirect financial interest
in the operation of the Plan or any related agreements by votes cast in person
at a meeting called for such purpose. The Plans may not be amended to increase
materially the amount to be spent on distribution of Fund shares without
investor approval.
Following are the payments made to BFG pursuant to the Plans for the
fiscal year ended September 30, 2001:
<Table>
<Caption>
FUND 12B-1 PAYMENTS
---- --------------
Berger Growth Fund $2,990,000
Berger Large Cap Growth Fund $1,198,000
Berger Mid Cap Growth Fund $ 158,000
Berger Small Company Growth Fund(1) $2,481,000
Berger New Generation Fund(1) $ 903,000
Berger Select Fund $ 134,000
Berger Information Technology Fund(1) $ 110,000
Berger Large Cap Value Fund(1),(2) $ 0
Berger Mid Cap Value Fund $ 251,000
Berger Balanced Fund $ 324,000
</Table>
(1) The Berger Small Company Growth Fund, Berger New Generation Fund,
Berger Information Technology Fund and Berger Large Cap Value Fund
have adopted a 12b-1 Plan only with respect to the Investor Shares
class of shares, which is the class of shares of those Funds covered
by this SAI.
(2) The Fund was not added as a series of the Trust until September 28,
2001.
OTHER EXPENSE INFORMATION
The directors or trustees of each of the Funds have authorized
portfolio transactions to be placed on an agency basis through DST Securities,
Inc. ("DSTS"), a wholly owned broker-dealer subsidiary of DST. When transactions
are effected through DSTS, the commission received by DSTS is credited against,
and thereby reduces, certain operating expenses that the Fund would otherwise be
obligated to pay. No portion of the commission is retained by DSTS. See Section
6--Brokerage Policy for further information concerning the expenses reduced as a
result of these arrangements. DSTS may be considered an affiliate of BFG due to
the ownership interest of Stilwell in both DST and BFG.
The Funds and/or their advisers have entered into arrangements with
certain brokerage firms and other companies (such as recordkeepers and
administrators) to provide administrative services (such as sub-transfer agency,
recordkeeping, investor communications, sub-accounting and/or other services) to
investors purchasing shares of the Funds through those firms or companies. A
Fund's adviser or a Fund (if approved by its directors or trustees) may pay fees
to these companies for their services. These companies may also be appointed as
agents for or authorized by the Funds to accept on their behalf purchase and
redemption requests that are received in good order. Subject to Fund approval,
certain of these companies may be authorized to designate other entities to
accept purchase and redemption orders on behalf of the Funds.
The Fund's adviser may also enter into arrangements with organizations
that solicit clients for the adviser, which may include clients who purchase
shares of the Funds. While the specific terms of each
35
arrangement may differ, generally the fee paid by the adviser under such
arrangements is based on the value of the referred client's assets managed by
the adviser. None of the fees paid to such organizations will be borne by the
Funds.
DISTRIBUTOR
The distributor (principal underwriter) of each Fund's shares is Berger
Distributors LLC (the "Distributor"), 210 University Boulevard, Suite 800,
Denver, Colorado 80206. The Distributor may be reimbursed by BFG for its costs
in distributing the Funds' shares.
6. BROKERAGE POLICY
Although each Fund retains full control over its own investment
policies, under the terms of its Investment Advisory Agreement, the adviser is
directed to place the portfolio transactions of the Fund. Where applicable, the
adviser may delegate placement of brokerage to a Fund's sub-adviser. A report on
the placement of brokerage business is given to the directors or trustees of
each Fund every quarter, indicating the brokers with whom Fund portfolio
business was placed and the basis for such placement. The brokerage commissions
paid by the Funds during the past three fiscal years were as follows:
BROKERAGE COMMISSIONS
<Table>
<Caption>
FISCAL YEAR ENDED SEPTEMBER 30,
2001 2000 1999
---------- ---------- ----------
BERGER GROWTH FUND $2,732,000 $1,815,000 $6,010,000
BERGER LARGE CAP GROWTH FUND $ 730,000 $ 692,000 $ 805,000
BERGER MID CAP GROWTH FUND $ 131,000 $ 86,000 $ 27,000
BERGER SMALL COMPANY GROWTH FUND $1,267,000 $ 616,000 $ 807,000
BERGER NEW GENERATION FUND $ 768,000 $ 935,000 $ 349,000
BERGER SELECT FUND $ 124,000 $ 179,000 $ 972,000
BERGER INFORMATION TECHNOLOGY FUND(1) $ 61,000 $ 41,000 $ 4,000
BERGER LARGE CAP VALUE FUND(2) $ 0 $ 0 $ 0
BERGER MID CAP VALUE FUND $ 563,000 $ 141,000 $ 129,000
BERGER BALANCED FUND $ 169,000 $ 193,000 $ 291,000
</Table>
(1) The Fund's fiscal year changed from February 28 to September 30 as part of
a reorganization effective July 1999. Accordingly, the brokerage
commissions for 1998 were paid by the Fund's predecessor during its fiscal
year ended February 28, 1999. Brokerage commissions shown for 1999 were
paid by the Fund for the period from March 1, 1999 through September 30,
1999.
(2) The Fund was not added as a series of the Trust until September 28, 2001.
The Investment Advisory Agreement each Fund has with its adviser
authorizes and directs the adviser to place portfolio transactions for the Fund
only with brokers and dealers who render satisfactory service in the execution
of orders at the most favorable prices and at reasonable commission rates. Where
applicable, the Sub-Advisory Agreement for each sub-advised Fund similarly
directs the sub-adviser. However, each Agreement
36
specifically authorizes the adviser or sub-adviser to place such transactions
with a broker with whom it has negotiated a commission that is in excess of the
commission another broker or dealer would have charged for effecting that
transaction if the adviser or sub-adviser determines in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such broker viewed in terms of either that
particular transaction or the overall responsibilities of the adviser or
sub-adviser. Accordingly, the adviser or sub-adviser does not have an obligation
to seek the lowest available commission.
In accordance with this provision of the Agreement, portfolio brokerage
business of each Fund may be placed with brokers who provide useful brokerage
and research services to the adviser or, where applicable, the sub-adviser. The
Fund's adviser or sub-adviser may consider the value of research provided as a
factor in the choice of brokers. "Research" includes computerized on-line stock
quotation systems and related data feeds from stock exchanges, computerized
trade order entry, execution and confirmation systems, fundamental and technical
analysis data and software, computerized stock market and business news
services, economic research, account performance data and computer hardware used
for the receipt of electronic research services and broker and other third-party
equity research, such as publications or writings that furnish advice as to the
value of securities and advisability of investing, and analyses and reports
concerning issuers, industries, securities, market trends and portfolio
strategies. Research may be provided orally, in print or electronically. These
include a service used by the independent directors or trustees of the Funds in
reviewing the Investment Advisory Agreements.
In some cases, a product or services termed "research" may serve other
functions unrelated to the making of investment decisions. When a product has
such a mixed use, the adviser or sub-adviser will make a good faith allocation
of the cost of the product according to the use made of it. The portion of the
product that assists the adviser or sub-adviser in the investment
decision-making process may be paid for with a Fund's commission dollars. The
adviser or sub-adviser pays for the portion of the product that is not
"research" with its own funds. Accordingly, the decision whether and how to
allocate the costs of such a product presents a conflict of interest for the
adviser or sub-adviser.
The Funds' advisers and sub-advisers do not enter into formal
agreements with any brokers regarding the placement of securities transactions
because of any such brokerage or research services that they provide. An adviser
or sub-adviser may, however, make arrangements with and maintain internal
procedures for allocating transactions to brokers who provide such services to
encourage them to provide services expected to be useful to the adviser's or
sub-adviser's clients, including the Funds. Brokers may suggest a level of
business they would like to receive in return for the brokerage and research
they provide. The adviser or sub-adviser then determines whether to continue
receiving the research and brokerage provided and the approximate amount of
commissions it is willing to pay to continue the brokerage and research
arrangement with each broker. The actual amount of commissions a broker may
receive may be more or less than a broker's suggested allocations, depending on
the adviser's or sub-adviser's level of business, market conditions and other
relevant factors. Even under these arrangements, however, the placement of all
Fund transactions, must be consistent with the Funds' brokerage placement and
execution policies, and must be directed to a broker who renders satisfactory
service in the execution of orders at the most favorable prices and at
reasonable commission rates.
During the fiscal year ended September 30, 2001, of the brokerage
commissions paid by the Funds, the following amounts were paid to brokers who
provided to the Funds selected brokerage or research services prepared by the
broker or subscribed or paid for by the broker on behalf of the Funds:
37
<Table>
<Caption>
FUND AMOUNT OF TRANSACTIONS AMOUNT OF COMMISSIONS
---- ---------------------- ---------------------
Berger Growth Fund $580,339,000 $ 1,011,000
Berger Large Cap Growth Fund $227,541,000 $ 331,000
Berger Mid Cap Growth Fund $ 26,885,000 $ 49,000
Berger Small Company Growth Fund $116,072,000 $ 270,000
Berger New Generation Fund $125,909,000 $ 294,000
Berger Select Fund $ 24,582,000 $ 49,000
Berger Information Technology Fund $ 9,328,000 $ 16,000
Berger Large Cap Value Fund(1) $ 0 $ 0
Berger Mid Cap Value Fund $ 58,410,000 $ 128,000
Berger Balanced Fund $ 57,347,000 $ 93,000
</Table>
(1) The Fund was not added as a series of the Trust until September 28, 2001.
These brokerage and research services received from brokers are often
helpful to the adviser or sub-adviser in performing its investment advisory
responsibilities to the Funds, and the availability of such services from
brokers does not reduce the responsibility of the adviser's or sub-adviser's
advisory personnel to analyze and evaluate the securities in which the Funds
invest. The brokerage and research services obtained as a result of the Funds'
brokerage business also will be useful to the adviser or sub-adviser in making
investment decisions for its other advisory accounts, and, conversely,
information obtained by reason of placement of brokerage business of such other
accounts may be used by the adviser or sub-adviser in rendering investment
advice to the Funds. Although such brokerage and research services may be deemed
to be of value to the adviser or sub-adviser, they are not expected to decrease
the expenses that the adviser or sub-adviser would otherwise incur in performing
its investment advisory services for the Funds nor will the advisory fees that
are received by the adviser or sub-adviser from the Funds be reduced as a result
of the availability of such brokerage and research services from brokers.
The directors or trustees of each of the Funds have authorized
portfolio transactions to be placed on an agency basis through DSTS, a wholly
owned broker-dealer subsidiary of DST. When transactions are effected through
DSTS, the commission received by DSTS is credited against, and thereby reduces,
certain operating expenses that the Fund would otherwise be obligated to pay. No
portion of the commission is retained by DSTS. DSTS may be considered an
affiliate of BFG due to the ownership interest of Stillwell in both DST and BFG.
Included in the brokerage commissions paid by the Funds during the last
three fiscal years, as stated in the preceding Brokerage Commissions table, are
the following amounts paid to DSTS, which served to reduce each Fund's
out-of-pocket expenses as follows:
DSTS COMMISSIONS AND RELATED EXPENSE REDUCTIONS
<Table>
<Caption>
DSTS REDUCTION IN DSTS REDUCTION IN DSTS REDUCTION IN
COMMISSIONS EXPENSES COMMISSIONS EXPENSES COMMISSIONS EXPENSES
PAID FYE PAID FYE PAID FYE
FYE 9/30/01 9/30/01(1) FYE 9/30/00 9/30/00(1) FYE 9/30/99 9/30/99(1)
----------- ------------ ------------ ------------ ----------- ------------
Berger Growth Fund $ 0 $ 0 $ 35,000 $ 26,000 $399,000 $299,000
Berger Large Cap Growth Fund $ 0 $ 0 $ 9,000 $ 7,000 $ 32,000 $ 24,000
Berger Mid Cap Growth Fund $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Berger Small Company Growth Fund $ 0 $ 0 $ 0 $ 0 $ 6,000 $ 4,500
Berger New Generation Fund $ 0 $ 0 $ 2,000 $ 1,500 $ 6,000 $ 4,500
Berger Select Fund $ 0 $ 0 $ 16,000 $ 12,000 $ 61,000 $ 46,000
Berger Information Technology Fund $ 0 $ 0 $ 0 $ 0 $ 0(2) $ 0
Berger Large Cap Value Fund(3) $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Berger Mid Cap Value Fund $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Berger Balanced Fund $ 0 $ 0 $ 8,000 $ 6,000 $ 1,500 $ 1,000
======== ======== ======== ======== ======== ========
</Table>
(1) No portion of the commission is retained by DSTS. Difference between
commissions paid through DSTS and reduction in expenses constitute
commissions paid to an unaffiliated clearing broker.
38
(2) The Fund's fiscal year changed from February 28 to September 30 as part of a
reorganization effective July 2, 1999. Accordingly, amounts for the fiscal
year ended February 28, 1999 were paid by the Fund's predecessor. Amounts
shown for FYE 9/30/99 cover the period of March 1, 1998 to September 30,
1999.
(3) The Fund was not added as a series of the Trust until September 28, 2001.
Each Fund's adviser or sub-adviser places securities orders with a
limited number of major institutional brokerage firms chosen for the reliability
and quality of execution; commission rates; quality of research coverage of
major U.S. companies, the U.S. economy and the securities markets; promptness;
back office capabilities; capital strength and financial stability; prior
performance in serving the adviser and its clients; and knowledge of other
buyers and sellers. The adviser or sub-adviser selects the broker for each order
based on the factors stated, as well as the size, difficulty and other
characteristics of the order. The directors or trustees of the Funds have also
authorized sales of shares of the Funds by a broker-dealer and the
recommendations of a broker-dealer to its customers that they purchase Fund
shares to be considered as factors in the selection of broker-dealers to execute
portfolio transactions for the Funds. In addition, the adviser or sub-adviser
may also consider payments made by brokers to a Fund or to other persons on
behalf of a Fund for services provided to the Fund for which it would otherwise
be obligated to pay, such as transfer agency fees. In placing portfolio business
with any such broker or dealer, the adviser will seek the best execution of each
transaction.
During the fiscal year ended September 30, 2001, Berger Large Cap
Growth Fund and Berger Balanced Fund acquired securities of the Funds' regular
broker dealers. As of September 30, 2001, these Funds owned the following
securities of its regular broker-dealers with the following values:
<Table>
<Caption>
FUND BROKER/DEALER VALUE SECURITY
---- ------------- ----- --------
Berger Large Cap Growth Fund Morgan Stanley Dean Witter & Co. $ 3,475,000 Common Stock
The Bank of New York Co., Inc. 3,525,000 Common Stock
Citigroup, Inc. 8,343,000 Common Stock
Berger Balanced Fund Morgan Stanley Dean Witter & Co. $ 742,000 Common Stock
Morgan Stanley Dean Witter & Co. 2,075,000 Bonds
Citigroup, Inc. 1,484,000 Common Stock
Citigroup, Inc. 2,181,000 Bonds
The Bank of New York Co., Inc. 630,000 Common Stock
</Table>
HOW TO PURCHASE AND REDEEM SHARES IN THE FUNDS
<Table>
<Caption>
MINIMUM INITIAL INVESTMENTS:
Regular investment $2,500
Low Minimum Investment Plan $ 50
IRA $ 500
MINIMUM SUBSEQUENT INVESTMENTS:
Regular investment $ 50
Regular systematic investment $ 50
Low Minimum Investment Plan
(required monthly systematic investments) $ 50
</Table>
To purchase shares in any of the Funds, simply complete the application
form enclosed with the Prospectus. Then mail it with a check payable to "Berger
Funds" to the following address:
Berger Funds
P.O. Box 219958
Kansas City, MO 64121-9958
If an investor is adding to an existing account that has electronic
funds transfer privileges, shares may be purchased online at bergerfunds.com or
by telephone to the Funds at 1-800-551-5849. In addition, shares may be
purchased by placing an order by telephone to the Funds. In order to make sure
that payment for
39
telephone purchase orders is received on time, investors are encouraged to remit
payment by wire or by overnight delivery of a check.
In addition, Fund shares may be purchased through certain
broker-dealers that have established mutual fund programs and certain other
organizations connected with pension and retirement plans. These broker-dealers
and other organizations may charge investors a transaction or other fee for
their services, may require different minimum initial and subsequent investments
than the Funds and may impose other charges or restrictions different from those
applicable to investors who invest in the Funds directly. Fees charged by these
organizations will have the effect of reducing an investor's total return on an
investment in Fund shares. No such charge will apply to an investor who
purchases Fund shares directly from a Fund as described here.
Procedures for purchasing, selling (redeeming) and exchanging Fund
shares by telephone and on-line are described in the Prospectus. The Funds may
terminate or modify those procedures and related requirements at any time. BFG
may, at its own risk, waive certain of those procedures and related
requirements.
As described in the Prospectus, the Berger Information Technology Fund
will deduct a 1% redemption fee from an investor's redemption proceeds if the
investor redeems shares of that Fund held less than 6 months. This fee will not
be charged to reinvested dividends and capital gains, certain retirement plan
accounts (such as 401(k)s and 403(b)s) or in the case of redemptions resulting
from the death of the investor. These fees are paid to the Fund and are intended
to discourage investors from short-term trading of shares of the Fund, and to
offset the cost to the Fund of excess brokerage and other costs incurred as a
result of such trading. If the investor has purchased shares on different days,
shares held the longest will be redeemed first for purposes of determining if a
fee is applicable. The Fund may modify, terminate or waive these fees at any
time.
Also described in the Prospectus, all Funds other than the Berger
Growth Fund may involuntarily redeem the shares in an investor's account if the
account balance drops below $2,000 - but only if it drops below this amount
because shares have been redeemed, not because the share value has declined.
Investors will be given at least 60 days' notice before a Fund undertakes any
involuntary redemption. During that time, the investor may buy more shares to
bring the account to or above the minimum. Existing investors of the following
Funds have lower minimum balance requirements and must maintain these minimum
balances to avoid involuntary redemption:
<Table>
<Caption>
IF THE ACCOUNT WAS ESTABLISHED IF THE ACCOUNT WAS ESTABLISHED
ON OR BEFORE JANUARY 26, 1996, BETWEEN JANUARY 27, 1996 AND
THE REQUIRED MINIMUM ACCOUNT NOVEMBER 28, 1996, THE REQUIRED
FUND BALANCE IS: MINIMUM ACCOUNT BALANCE IS:
---- ------------------------------ -------------------------------
Berger Large Cap Growth Fund $ 250 $ 500
Berger Small Company Growth Fund $ 250 $ 500
Berger New Generation Fund -- $1,000
</Table>
8. HOW THE NET ASSET VALUE IS DETERMINED
The net asset value of each Fund is determined once daily, at the close
of the regular trading session of the New York Stock Exchange (the "Exchange")
(normally 4:00 p.m., Eastern time, Monday through Friday) each day that the
Exchange is open. The Exchange is closed and the net asset value of the Funds is
not determined on weekends and on New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day each year. The per share net asset value of
each Fund is determined by dividing the total value of its securities and other
assets, less liabilities, by the total number of shares outstanding.
For those Funds offering classes of shares, net asset value is
calculated by class, and since the Investor Shares and each other class of those
Funds has its own expenses, the per share net asset value of those Funds will
vary by class.
40
In determining net asset value for each of the Funds, securities listed
or traded primarily on national exchanges, The Nasdaq Stock Market and foreign
exchanges are valued at the last sale price on such markets, or, if such a price
is lacking for the trading period immediately preceding the time of
determination, such securities are valued at the mean of their current bid and
asked prices. Securities that are traded in the over-the-counter market are
valued at the mean between their current bid and asked prices. The market value
of individual securities held by each Fund will be determined by using prices
provided by pricing services that provide market prices to other mutual funds
or, as needed, by obtaining market quotations from independent broker/dealers.
Short-term money market securities maturing within 60 days are valued on the
amortized cost basis, which approximates market value. All assets and
liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers shortly before the close of the Exchange. Securities and
assets for which quotations are not readily available or are not representative
of market value may be valued at their fair value determined in good faith
pursuant to consistently applied procedures established by the directors or
trustees. Examples would be when events occur that materially affect the value
of a security at a time when the security is not trading or when the securities
are illiquid.
Generally, trading in foreign securities markets is substantially
completed each day at various times prior to the close of the Exchange. The
values of foreign securities used in computing the net asset value of the shares
of a Fund are determined as of the earlier of such market close or the closing
time of the Exchange. Occasionally, events affecting the value of such
securities may occur between the times at which they are determined and the
close of the Exchange, or when the foreign market on which such securities trade
is closed but the Exchange is open, which will not be reflected in the
computation of net asset value. If during such periods, events occur which
materially affect the value of such securities, the securities may be valued at
their fair value as determined in good faith pursuant to consistently applied
procedures established by the directors or trustees.
A Fund's securities may be listed primarily on foreign exchanges or
over-the-counter dealer markets that may trade on days when the Exchange is
closed (such as a customary U.S. holiday) and on which the Fund's net asset
value is not calculated. As a result, the net asset value of a Fund may be
significantly affected by such trading on days when investors cannot purchase or
redeem shares of the Fund.
9. INCOME DIVIDENDS, CAPITAL GAINS
DISTRIBUTIONS AND TAX TREATMENT
This discussion summarizes certain U.S. federal income tax issues
relating to the Funds. As a summary, it is not an exhaustive discussion of all
possible tax ramifications. Accordingly, investors are urged to consult with
their tax advisers with respect to their particular tax consequences.
TAX STATUS OF THE FUNDS. If a Fund meets certain investment and
distribution requirements, it will be treated as a "regulated investment
company" (a "RIC") under the Internal Revenue Code and will not be subject to
federal income tax on earnings that it distributes in a timely manner to
investors. It may be subject to an excise tax on undistributed income if it does
not meet certain timing requirements for distributions. Each of the Funds
intends to qualify as a RIC annually and to make timely distributions in order
to avoid income and excise tax liabilities.
TAX ON FUND DISTRIBUTIONS. With certain exceptions provided by law, the
Funds will report annually to the Internal Revenue Service, and to each
investor, information about the tax treatment of the investor's distributions.
Dividends paid by a Fund, whether received in cash or reinvested in additional
Fund shares, will be treated as ordinary income to the investors. Distributions
of net capital gain, whether received in cash or reinvested in Fund shares, will
be taxable to the investors, but the rate of tax will vary depending upon the
Fund's holding periods in the assets whose sale resulted in the capital gain.
Dividends and distributions that are declared in October, November or December
but not distributed until the following January will be considered to be
received by the investors on December 31.
In general, net capital gains from assets held by a Fund for more than
12 months will be subject to the applicable long term capital gains rate and net
capital gains from assets held for 12 months or less will be taxed as ordinary
income. Distributions will be subject to these capital gains rates, regardless
of how long an investor has held Fund shares. Assets contributed to a Fund in an
in-kind purchase of Fund shares may generate more
41
gain upon their sale than if the assets had been purchased by the Fund with cash
contributed to the Fund in a cash purchase of Fund shares.
If a Fund's distributions for a taxable year exceeds its tax earnings
and profits available for distribution, all or a portion of its distributions
may be treated as a return of capital. To the extent a distribution is treated
as a return of capital, an investor's basis in his or her Fund shares will be
reduced by that amount.
If an investor has elected to receive dividends and/or capital gain
distributions in cash and the U.S. Postal Service is unable to deliver checks to
the investor's address of record or if an investor's checks remain uncashed for
six months, the Funds reserve the right to reinvest the amount distributed in
shares of the applicable Fund at the NAV next computed after the check is
canceled, and to convert the investor's distribution option from receiving cash
to having all dividend and other distributions reinvested in additional shares.
In addition, no interest will accrue on amounts represented by uncashed
distribution or redemption checks.
Additionally, the Funds reserve the right to reinvest distributions of
less than $10 in shares of the applicable Fund at the next computed NAV.
TAX ON REDEMPTIONS OF FUND SHARES. Investors may be subject to tax on
the redemption of their Fund shares. In general, redemptions may give rise to a
capital gain or loss, the treatment of which will depend on the investor's
holding period in the Fund shares. Tax laws may prevent the deduction of a loss
on the sale of Fund shares if the investor reinvests in the Fund shortly before
or after the sale-giving rise to the loss. Any loss on the redemption or other
sale or exchange of Fund shares held for six months or less will be treated as a
long-term capital loss to the extent of any long-term capital gain distribution
received on the shares.
INCOME FROM FOREIGN SOURCES. Dividends and interest received by the
Funds on foreign securities may give rise to withholding and other taxes imposed
by foreign countries, although these taxes may be reduced by applicable tax
treaties. Foreign taxes will generally be treated as expenses of the Funds,
unless a Fund has more than 50% of its assets invested in foreign corporate
securities at the end of the Fund's taxable year. In that case, for the Funds
that make an election, investors of the Fund may be able to deduct (as an
itemized deduction) or claim a foreign tax credit for their share of foreign
taxes, subject to limitations prescribed in the tax law.
If a Fund invests in a foreign corporation that is a passive foreign
investment company (a "PFIC"), special rules apply that may affect the tax
treatment of gains from the sale of the stock and may cause a Fund to incur IRS
tax and interest charges. However, the Fund may be eligible to elect one of two
alternative tax treatments with respect to PFIC shares that would avoid these
taxes and charges but also may affect, among other things, the amount and
character of gain or loss and the timing of the recognition of income with
respect to PFIC shares. Accordingly, the amounts, character and timing of income
distributed to investors of a Fund holding PFIC shares may differ substantially
as compared with a fund that did not invest in PFIC shares.
INCOME FROM CERTAIN TRANSACTIONS. Some or all of the Funds' investments
may include transactions that are subject to special tax rules. Transactions
involving foreign currencies may give rise to a gain or loss that could affect a
Fund's ability to make ordinary dividend distributions. Investment in certain
financial instruments, such as options, futures contracts and forward contracts,
may require annual recognition of unrealized gains and losses. Transactions that
are treated as "straddles" may affect the character and/or timing of other gains
and losses of the Fund. If a Fund enters into a transaction (such as a "short
sale against the box") that reduces the risk of loss on an appreciated financial
position that it already holds, the entry into the transaction may constitute a
constructive sale and require immediate recognition of gain.
BACKUP WITHHOLDING. In general, if an investor is subject to backup
withholding, a Fund will be required to withhold federal income tax at the
applicable rate from distributions to that investor. These payments are
creditable against the investor's federal income tax liability.
FOREIGN INVESTORS. Foreign investors of a Fund generally will be
subject to the applicable U.S. withholding tax on dividends paid by a Fund from
ordinary income and short-term capital gain, although the rate
42
may be reduced by a tax treaty. If a foreign investor dies while owning Fund
shares, those shares may be subject to U.S. estate taxes.
10. SUSPENSION OF REDEMPTION RIGHTS
The Funds may not suspend the right of redemption, or postpone the date
of payment or satisfaction upon redemption of any redeemable shares for more
than seven days except for any period during which the New York Stock Exchange
is closed or the Securities and Exchange Commission determines that trading on
the Exchange is restricted or when there is an emergency as determined by the
Securities and Exchange Commission as a result of which it is not reasonably
practicable for a Fund to dispose of securities owned by it or to determine the
value of its net assets, or for such other period as the Securities and Exchange
Commission may by order permit for the protection of investors of a Fund.
Each Fund intends to redeem its shares only for cash, although it
retains the right to redeem its shares in-kind under unusual circumstances, in
order to protect the interests of the remaining investors, by the delivery of
securities selected from its assets at its discretion. Each Fund is, however,
governed by Rule 18f-1 under the Investment Company Act of 1940 pursuant to
which the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net assets of the Fund during any 90-day period for any
one investor. For purposes of this threshold, each underlying account holder
whose shares are held of record in certain omnibus accounts is treated as one
investor. Should redemptions by any investor during any 90-day period exceed
such limitation, the Fund will have the option of redeeming the excess in cash
or in-kind. If shares are redeemed in-kind, the redeeming investor generally
will incur brokerage costs in converting the assets to cash. The redeeming
investor may have difficulty selling the securities and recovering the amount of
the redemption if the securities are illiquid. The method of valuing securities
used to make redemption in-kind will be the same as the method of valuing
portfolio securities described under Section 8.
11. TAX-SHELTERED RETIREMENT PLANS
The Funds offer several tax-qualified retirement plans for individuals,
businesses and non-profit organizations, including a Profit-Sharing Plan, a
Money Purchase Pension Plan, an Individual Retirement Account (IRA), a Roth IRA,
a Coverdell Education Savings Account (formerly the Education IRA) and a 403(b)
Custodial Account, a SEP-IRA or SIMPLE IRA for adoption by employers and
individuals who wish to participate in such Plans. For information on other
types of retirement plans offered by the Funds, please call 1-800-333-1001, or
write to the Berger Funds, c/o Berger Financial Group LLC, P.O. Box 5005,
Denver, CO 80217-5005.
PROFIT SHARING AND MONEY PURCHASE PENSION PLANS
Employers, self-employed individuals and partnerships may make
tax-deductible contributions to the tax-qualified retirement plans offered by
the Funds. All income and capital gains accumulated in the Plans are tax free
until withdrawn. The amounts that are deductible depend upon the type of Plan or
Plans adopted.
If you, as an employer, self-employed person or partnership, adopt the
Profit-Sharing Plan, you may vary the amount of your contributions from year to
year and may elect to make no contribution at all for some years. If you adopt
the Money Purchase Pension Plan, you must commit yourself to make a contribution
each year according to a formula in the Plan that is based upon your employees'
compensation or your earned income. By adopting both the Profit Sharing and the
Money Purchase Pension Plan, you can increase the amount of contributions that
you may deduct in any one year.
If you wish to purchase shares of any Fund in conjunction with one or
both of these tax-qualified plans, you may use an Internal Revenue Service
approved prototype Trust Agreement and Retirement Plan available from the Funds.
State Street serves as trustee of the Plan, for which it charges an annual
trustee's fee for each Fund or Cash Account Trust Money Portfolio (discussed
below) in which the participant's account is invested. Contributions under the
Plans are invested exclusively in shares of the Funds or the Cash Account Trust
Money Market Portfolios, which are then held by the trustee under the terms of
the Plans to create a retirement fund in accordance with the tax code.
43
Distributions from the Profit Sharing and Money Purchase Pension Plans
generally may not be made without penalty until the participant reaches age 59
1/2 and must begin no later than April 1 of the calendar year following the year
in which the participant attains age 70 1/2. A participant who is not a 5% owner
of the employer may postpone such distributions to April 1 of the calendar year
following the year of retirement. This exception does not apply to distributions
from an individual retirement account (IRA). Except for required distributions
after age 70 1/2, periodic distributions over more than 10 years and the
distribution of any after-tax contributions, distributions are subject to 20%
federal income tax withholding unless those distributions are rolled directly to
another qualified plan or an IRA. Participants may not be able to receive
distributions immediately upon request because of certain requirements under
federal tax law. Since distributions that do not satisfy these requirements can
result in adverse tax consequences, consultation with an attorney or tax adviser
regarding the Plans is recommended. You should also consult with your tax
adviser regarding state tax law implications of participation in the Plans.
In order to receive the necessary materials to establish a Profit
Sharing or Money Purchase Pension Plan, please write to the Berger Funds, c/o
Berger Financial Group LLC, P.O. Box 5005, Denver, CO 80217-5005, or call
1-800-333-1001. Trustees for 401(k) or other existing plans interested in
utilizing Fund shares as an investment or investment alternative in their plans
should contact the Berger Funds at 1-800-333-1001.
INDIVIDUAL RETIREMENT ACCOUNT (IRA)
If you are an individual with compensation or earned income, whether or
not you are actively participating in an existing qualified retirement plan, you
may be able to provide for your own retirement by adopting an IRA. The Economic
Growth and Tax Relief Reconciliation Act of 2001 presents a number of changes
related to IRA's in general, including increases in contribution limits. As an
example, between 2002 and 2008, the individual limit on annual contributions to
traditional IRAs is scheduled to gradually rise from $2,000 to $5,000. After
2008, the limits may be adjusted annually for inflation. In addition,
individuals aged 50 and older may be able to take advantage of new "catch-up"
contributions to IRAs. Catch-up contributions to traditional IRAs may be tax
deductible, depending on whether the individual meets certain income
restrictions. For information regarding how these changes may impact you, you
should consult a qualified tax or financial professional.
Generally, if neither you nor your spouse is an active participant in
an existing qualified retirement plan or if your income does not exceed certain
amounts, the amounts contributed to your IRA can be deducted for federal income
tax purposes whether or not your deductions are itemized. If you or your spouse
are covered by an existing qualified retirement plan, the deductibility of your
IRA contributions will be phased out for federal income tax purposes if your
income exceeds specified amounts, although the income level at which your IRA
contributions will no longer be deductible is higher if only your spouse (but
not you) is an active participant. However, whether your contributions are
deductible or not, the income and capital gains accumulated in your IRA are not
taxed until the account is distributed.
If you wish to create an IRA to invest in shares of any Fund, you may
use the Fund's IRA custodial agreement form, which is an adaptation of the form
provided by the Internal Revenue Service. Under the IRA custodial agreement,
State Street will serve as custodian for the Fund and for each Fund or Cash
Account Trust Money Market Portfolio in which the IRA is invested.
Distributions from an IRA generally may not be made without penalty
until you reach age 59 1/2 and must begin no later than April 1 of the calendar
year following the year in which you attain age 70 1/2. Since distributions that
do not satisfy these requirements can result in adverse tax consequences,
consultation with an attorney or tax adviser is recommended. You should also
consult with your tax adviser about state taxation of your account.
In order to receive the necessary materials to establish an IRA
account, please write to the Berger Funds, c/o Berger Financial Group LLC, P.O.
Box 5005, Denver, CO 80217-5005, or call 1-800-333-1001.
44
ROTH IRA
If you are an individual with compensation or earned income, you may
contribute to a Roth IRA, as long as your income does not exceed specified
income levels. A Roth IRA is similar in many respects to a traditional IRA, as
described above. The Economic Growth and Tax Relief Reconciliation Act of 2001
presents a number of changes related to Roth IRAs, as well as traditional IRAs.
The maximum amount you may contribute to a Roth IRA is phased out between
specified income levels, and you may not make any contribution at all to a Roth
IRA if your income exceeds the maximum income amount. Generally, you can make
contributions to a Roth IRA even after you reach age 70 1/2, and you are not
required to take distributions from a Roth IRA prior to your death. For
information regarding how these changes may impact you, you should consult a
qualified tax or financial professional.
Contributions to a Roth IRA are not deductible for federal income tax
purposes. However, the income and capital gains accumulated in a Roth IRA are
not taxed while held in the IRA, and distributions can be taken tax-free if the
Roth IRA has been established for a minimum of five years and the distribution
is after age 59-1/2, for a first-time home purchase, or upon death or
disability.
An individual with a modified adjusted gross income (AGI) of $100,000
or less (single or joint filing status) may be eligible to roll his or her
existing IRA into a Roth IRA. However, the individual may have to pay taxes on
the fair market value of the existing IRA on the date of the rollover. Please
consult a qualified tax or financial professional concerning Roth IRA rollovers.
In order to receive the necessary materials to establish a Roth IRA
account, please write to the Berger Funds, c/o Berger Financial Group LLC, P.O.
Box 5005, Denver, CO 80217-5005, or call 1-800-333-1001.
COVERDELL EDUCATION SAVINGS ACCOUNT
A parent or legal guardian may open a Coverdell Education Savings
Account (formerly the Education IRA) as long as it is established on behalf of a
child who is less than 18 years of age at the time of contribution.
Contributions up to $2,000 may be made by anyone for the benefit of any one
student as long as the contributors' income does not exceed the specified income
levels. Like a Roth IRA, the maximum amount you may contribute to a Coverdell
Education Savings Account is phased out between specified income levels, and you
may not make any contribution at all to a Coverdell Education Savings Account if
your income exceeds the maximum income amount.
Contributions to a Coverdell Education Savings Account are not
deductible for federal income tax purposes, and any amount contributed to a
Coverdell Education Savings Account above the maximum of $2,000 for any one
student is considered "excess contribution", which is subject to an excise tax.
Withdrawals from a Coverdell Education Savings Account are tax free if
the amounts withdrawn are made to cover the cost of qualified education expenses
of a student who is attending an eligible educational institution, so long as
the amount withdrawn in a year does not exceed the qualified education expenses
for that year. If the withdrawal does not meet the tax-free requirements, the
portion of the account attributable to dividends or gains may be subject to a
withdrawal penalty. For more information on Coverdell Education Savings Account
withdrawals, please consult a qualified tax or financial professional.
403(b) CUSTODIAL ACCOUNTS
If you are employed by a public school system or certain federally
tax-exempt private schools, colleges, universities, hospitals, religious and
charitable or other nonprofit organizations, you may establish a 403(b)
Custodial Account. Your employer must participate in the establishment of the
account.
If your employer participates, it will automatically deduct the amount
you designate from your gross salary and contribute it to your 403(b) Custodial
Account. You should consult with a qualified tax or financial professional
regarding the amount you can contribute. There is a $50 minimum investment in
the 403(b) Custodial Account. Contributions made to the account reduce the
amount of your current income subject to federal income
45
tax. Federal income tax is not paid on your contribution until you begin making
withdrawals. In addition, all income and capital gains accumulated in the
account are tax-free until withdrawn.
Withdrawals from your 403(b) Custodial Agreement may begin as soon as
you reach age 59 1/2 and must begin no later than April 1 of the year following
the later of the calendar year in which you attain age 70 1/2 or the calendar
year in which you retire. Except for required distributions after age 70 1/2 and
periodic distributions over more than 10 years, distributions are subject to 20%
federal income tax withholding unless those distributions are rolled directly to
another 403(b) account or annuity or an individual retirement account (IRA). You
may not be able to receive distributions immediately upon request because of
certain notice requirements under federal tax law. Since distributions that do
not satisfy these requirements can result in adverse tax consequences,
consultation with an attorney or qualified tax or financial professional
regarding the 403(b) Custodial Account is recommended. You should also consult
with a qualified tax or financial professional about state taxation of your
account.
Individuals who wish to purchase shares of a Fund in conjunction with a
403(b) Custodial Account may use a Custodian Account Agreement and related forms
available from the Funds. State Street serves as custodian of the 403(b)
Custodial Account and for each Fund or Cash Account Trust Money Market Portfolio
in which the participant's account is invested.
In order to receive the necessary materials to establish a 403(b)
Custodial Account, please write to the Berger Funds, c/o Berger Financial Group
LLC, P.O. Box 5005, Denver, CO 80217-5005, or call 1-800-333-1001.
12. EXCHANGE PRIVILEGE AND SYSTEMATIC WITHDRAWAL PLAN
Any investor may exchange any or all of the investor's shares in any of
the Funds, subject to stated minimums, for shares of any of the other available
Berger Funds or for shares of the Money Market Portfolio, the Government
Securities Portfolio or the Tax-Exempt Portfolio of the Cash Account Trust ("CAT
Portfolios"), separately managed, unaffiliated money market funds, without
charge, after receiving a current prospectus of the other Fund or CAT Portfolio.
The exchange privilege with the CAT Portfolios does not constitute an offering
or recommendation of the shares of any such CAT Portfolio by any of the Funds or
BFG. BFG is compensated for administrative services it performs with respect to
the CAT Portfolios.
Exchanges into or out of the Funds are made at the net asset value per
share next determined after the exchange request is received. Each exchange
represents the sale of shares from one Fund and the purchase of shares in
another, which may produce a gain or loss for income tax purposes. As described
in the Prospectus, the Berger Information Technology Fund will deduct a 1%
exchange fee from an investor's exchange proceeds if the investor exchanges out
shares of that Fund held less than 6 months. This fee will not be charged to
reinvested dividends and capital gains, certain retirement plan accounts (such
as 401(k)s and 403(b)s) or in the case of redemptions resulting from the death
of the investor. These fees are paid to the Fund and are intended to discourage
investors from short-term trading of share of the Fund, and to offset the cost
to the Fund of excess brokerage and other costs incurred as a result of such
trading. If the investor has purchased shares on different days, shares held the
longest will be redeemed first for purposes of determining if a fee is
applicable. The Fund may modify, terminate or waive these fees at any time.
An exchange of shares may be made by written request, via on-line
access or simply by telephoning the Berger Funds at 1-800-551-5849. This
privilege may be terminated or amended by any of the Funds and is not available
in any state in which the shares of the Fund or CAT Portfolio being acquired in
the exchange are not eligible for sale. Investors automatically have telephone
and on-line privileges to authorize exchanges unless they specifically decline
this service in the account application or in writing.
An investor who owns shares of any of the Funds worth at least $5,000
at the current net asset value may establish a Systematic Withdrawal account
from which a fixed sum will be paid to the investor at regular intervals by the
Fund in which the investor is invested.
To establish a Systematic Withdrawal account, the investor deposits
Fund shares with the Fund and appoints the Fund as agent to redeem shares in the
investor's account in order to make monthly, quarterly,
46
semi-annual or annual withdrawal payments to the investor of a fixed amount. The
minimum withdrawal payment is $50.00. These payments generally will be made on
the 25th day of the month.
Withdrawal payments are not yield or income on the investor's
investment, since portions of each payment will normally consist of a return of
the investor's investment. Depending on the size of the disbursements requested
and the fluctuation in value of the Fund's portfolio, redemptions for the
purpose of making such disbursements may reduce or even exhaust the investor's
account.
The investor may vary the amount or frequency of withdrawal payments,
temporarily discontinue them, or change the designated payee or payee's address,
by notifying the Fund. The investor may, of course, make additional deposits of
Fund shares in the investor's account at any time.
Since redemption of shares to make withdrawal payments is a taxable
event, each investor should consult a tax adviser concerning proper tax
treatment of the redemption.
13. PERFORMANCE INFORMATION
From time to time in advertisements, the Funds may discuss their
performance ratings as published by recognized mutual fund statistical services,
such as Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.,
Morningstar, Inc. or Value Line Investment Survey or by publications of general
interest such as The Wall Street Journal, Investor's Business Daily, Money,
Barron's, Financial World or Kiplinger's Personal Finance Magazine. In addition,
the Funds may compare their performance to that of recognized broad-based
securities market indices, including the Standard & Poor's 500 Stock Index, the
Dow Jones Industrial Average, the Wilshire 5000 Index, the Russell 2000 Stock
Index, Russell 1000 Growth Index, Russell Mid Cap Growth, Russell 2000 Growth
Index, Russell 3000 Growth Index, Russell 2000 Value Index, Russell Mid Cap
Value Index, the Standard & Poor's 400 Mid-Cap Index, the Standard & Poor's 600
Small Cap Index, Morgan Stanley Capital International EAFE (Europe, Australasia,
Far East) Index, the Dow Jones World Index, the Standard & Poor's/BARRA Value
Index, the Nasdaq Composite Index, the Nasdaq 100, the Lehman Brothers
Intermediate Term Government/Corporate Bond Index or the InformationWeek 100
Index, or more narrowly based or blended indices that reflect the market sectors
in which that Fund invests.
The total return of each Fund is calculated for any specified period of
time by assuming the purchase of shares of the Fund at the net asset value at
the beginning of the period. Each dividend or other distribution paid by the
Fund is assumed to have been reinvested at the net asset value on the
reinvestment date. The total number of shares then owned as a result of this
process is valued at the net asset value at the end of the period. The
percentage increase is determined by subtracting the initial value of the
investment from the ending value and dividing the remainder by the initial
value.
Each Fund's total return reflects the Fund's performance over a stated
period of time. An average annual total return reflects the hypothetical
annually compounded return that would have produced the same total return if the
Fund's performance had been constant over the entire period. Total return
figures are based on the overall change in value of a hypothetical investment in
each Fund. Because average annual total returns for more than one year tend to
smooth out variations in a Fund's return, investors should recognize that such
figures are not the same as actual year-by-year results.
All performance figures for the Funds are based upon historical results
and do not assure future performance. The investment return and principal value
of an investment will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost.
Quotations of average annual total return for the Funds will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund over periods of 1, 3, 5 and 10 years, or for
the life of the Fund, if shorter. These are the rates of return that would
equate the initial amount invested to the ending redeemable value. These rates
of return are calculated pursuant to the following formula:
47
n
P(1 + T) = ERV
Where P = a hypothetical initial payment of $1,000
T = the average annual total return
n = the number of years
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at the
beginning of the period).
All total return figures reflect the deduction of a proportional share
of Fund expenses on an annual basis, and assume that all dividends and
distributions are reinvested when paid.
PREDECESSOR PERFORMANCE QUOTATIONS
BERGER INFORMATION TECHNOLOGY FUND. The Berger Information Technology
Fund is the accounting survivor and successor of a fund previously known as the
InformationTech 100(R) Fund, which was reorganized into the Fund effective July
2, 1999. As part of the reorganization, all of the then-existing shares of the
predecessor fund were exchanged for Institutional Shares of the Fund, and the
Fund commenced offering the Investor Shares covered in this Statement of
Additional Information.
The Fund quotes its historical performance track record for both of its
classes of shares based on its predecessor's only shares outstanding prior to
the reorganization. Accordingly, performance data for the Investor Shares for
periods prior to the date of the reorganization do not reflect the 0.25% per
year 12b-1 fee currently borne by the Investor Shares. Total return of the
Investor Shares and other classes of shares of the Fund will be calculated
separately. Because each class of shares is subject to different expenses, the
performance of each class for the same period will differ.
AVERAGE ANNUAL TOTAL RETURNS
The average annual total return for each of the Funds for various
periods ending September 30, 2001, are shown on the following table:
<Table>
<Caption>
FUND 1-YEAR 3-YEAR 5-YEAR 10-YEAR LIFE OF FUND
- ---- ------- ------- ------ ------- ------------
Berger Growth Fund(2) (59.38)% (3.15)% (0.73)% 6.15% 11.93%
(since 9/30/74)
Berger Large Cap Growth Fund(2) (47.79)% 4.16% 8.40% 10.25% 12.58%
(since 9/30/74)
Berger Mid Cap Growth Fund (68.35)% 7.93% N/A N/A 8.85%
(since 12/31/97)
Berger Small Company Growth
Fund - Investor Shares (59.36)% 6.83% 1.56% N/A 9.71%
(since 12/30/93)
Berger New Generation Fund -
Investor Shares (79.44)% (10.19)% (3.90)% N/A (0.58)%
(since 3/29/96)
Berger Select Fund (65.47)% (6.29)% N/A N/A 2.36%
(since 12/31/97)
</Table>
48
<Table>
Berger Information Technology
Fund - Investor Shares(1) (71.64)% 4.01% N/A N/A 13.33%
(since 4/8/97)
Berger Mid Cap Value Fund 9.70% N/A N/A N/A 19.72%
(since 8/12/98)
Berger Balanced Fund (25.82)% 10.39% N/A N/A 20.50%
(since 9/30/97)
</Table>
(1) Performance data for the Investor Shares include periods prior to the Fund's
adoption of share classes as part of its reorganization on July 2, 1999, and
therefore, for those periods, do not reflect the 0.25% per year 12b-1 fee
that has been paid by the Investor Shares since the inception of the class
on that date.
(2) Life of Fund covers the period from September 30, 1974 (immediately prior to
BFG assuming the duties as the investment adviser for those Funds) through
September 30, 2001. Since the 12b-1 fees for the Berger Growth Fund and the
Berger Large Cap Growth Fund did not take effect until June 19, 1990, the
performance figures on the table do not reflect the deduction of the 12b-1
fees for the full length of the life of fund period.
14. ADDITIONAL INFORMATION
FUND ORGANIZATION
BERGER GROWTH FUND AND BERGER LARGE CAP GROWTH FUND. The Berger Growth
Fund and Berger Large Cap Growth Fund are separate corporations that were
incorporated under the laws of the State of Maryland on March 10, 1966, as "The
One Hundred Fund, Inc." and "The One Hundred and One Fund, Inc.", respectively.
The names "Berger One Hundred Fund(R)", "Berger 100 Fund(SM)", "Berger One
Hundred and One Fund(R)" and "Berger 101 Fund(R)" were adopted by the respective
Funds as service marks and trade names in November 1989 and were registered as
service marks in December 1991. In 1990, the investors of the The One Hundred
and One Fund, Inc. approved changing its formal corporate name to "Berger One
Hundred and One Fund, Inc." and the Fund began doing business under the trade
name "Berger Growth and Income Fund, Inc." in January 1996. The name "Berger
Growth and Income Fund(R)" was registered as a service mark in August 1998. In
January 2000, The One Hundred Fund, Inc. and the Berger One Hundred and One
Fund, Inc. formally changed their corporate names to the "Berger Growth Fund,
Inc." and the "Berger Growth and Income Fund, Inc." respectively and the name
"Berger Growth Fund(SM)" was adopted as a trade name. In January 2001, the
Berger Growth and Income Fund formally changed its corporate name to the "Berger
Large Cap Growth Fund, Inc." and the name "Berger Large Cap Growth Fund(SM)" was
adopted as a trade name.
Each of the Berger Growth Fund and the Berger Large Cap Growth Fund has
only one class of securities, its Capital Stock, with a par value of one cent
per share, of which 200,000,000 shares are authorized for issue by the Berger
Growth Fund and 100,000,000 shares are authorized for issue by the Berger Large
Cap Growth Fund. Shares of the Funds are fully paid and nonassessable when
issued. All shares issued by a Fund participate equally in dividends and other
distributions by the Fund, and in the residual assets of the Fund in the event
of its liquidation.
BERGER MID CAP GROWTH FUND, BERGER SMALL COMPANY GROWTH FUND, BERGER
NEW GENERATION FUND, BERGER SELECT FUND, BERGER INFORMATION TECHNOLOGY FUND,
BERGER MID CAP VALUE FUND AND BERGER BALANCED FUND. The Berger Small Company
Growth Fund is a separate series established on August 23, 1993, under the
Berger Investment Portfolio Trust, a Delaware business trust established under
the Delaware Business Trust Act. The name "Berger Small Company Growth Fund(R)"
was registered as a service mark in September 1995. The Berger Small Company
Growth Fund had no class designations until July 6, 1999, when all of the
then-existing shares were designated as Investor Shares, which are covered in
this Statement of Additional Information, and the Fund commenced offering a
separate class known as Institutional Shares covered in a separate Prospectus
and Statement of Additional Information.
The Berger New Generation Fund was the second series created under the
Berger Investment Portfolio Trust, established on December 21, 1995. The name
"Berger New Generation Fund(R)" was registered as
49
a service mark in December 1996. The Berger Balanced Fund was the third series
created under the Berger Investment Portfolio Trust, established on August 22,
1997. The name "Berger Balanced Fund(R)" was registered as a service mark in
September 1998. The Berger New Generation Fund had no class designations until
July 6, 1999, when all of the then-existing shares were designated as Investor
Shares, which are covered in this Statement of Additional Information, and the
Fund commenced offering a separate class known as Institutional Shares covered
in a separate Prospectus and Statement of Additional Information.
The Berger Select Fund and the Berger Mid Cap Growth Fund were the
fourth and fifth series created under the Trust, established on November 13,
1997. The Berger Mid Cap Value Fund was the sixth series created under the
Berger Investment Portfolio Trust, established on May 21, 1998.
The Berger Information Technology Fund was the seventh series created
under the Berger Investment Portfolio Trust, established on February 18, 1999.
The Fund is the successor to the fund formerly known as the InformationTech
100(R) Fund. The InformationTech 100(R) Fund commenced operations on April 8,
1997, as a separate series of the Advisors Series Trust, a Delaware business
trust. The InformationTech 100(R) Fund was then reorganized into the Fund in a
transaction that became effective in July 1999. As part of the reorganization,
all of the then-existing shares of the predecessor fund were exchanged for
Institutional Shares of the Fund, and the Fund commenced offering the Investor
Shares covered in this Statement of Additional Information.
The Trust is authorized to issue an unlimited number of shares of
beneficial interest in series or portfolios. Currently, the Funds named above
are the only series established under the Trust, although others may be added in
the future. The Trust is also authorized to establish multiple classes of shares
representing differing interests in an existing or new series. Shares of the
Funds are fully paid and nonassessable when issued. Each share has a par value
of $.01. All shares issued by each Fund participate equally in dividends and
other distributions by the Fund, and in the residual assets of the Fund in the
event of its liquidation.
DELAWARE BUSINESS TRUST INFORMATION. Under Delaware law, investors of
the Funds organized as series of Delaware Business Trusts will enjoy the same
limitations on personal liability as extended to stockholders of a Delaware
corporation. Further, the Trust Instruments of those Trusts provides that no
investor shall be personally liable for the debts, liabilities, obligations and
expenses incurred by, contracted for or otherwise existing with respect to, the
Trusts or any particular series (fund) of the Trusts. However, the principles of
law governing the limitations of liability of beneficiaries of a business trust
have not been authoritatively established as to business trusts organized under
the laws of one jurisdiction but operating or owning property in other
jurisdictions. In states that have adopted legislation containing provisions
comparable to the Delaware Business Trust Act, it is believed that the
limitation of liability of beneficial owners provided by Delaware law should be
respected. In those jurisdictions that have not adopted similar legislative
provisions, it is possible that a court might hold that the investors of the
Trusts are not entitled to the limitations of liability set forth in Delaware
law or the Trust Instruments and, accordingly, that they may be personally
liable for the obligations of the Trusts.
In order to protect investors from such potential liability, the Trust
Instruments require that every written obligation of the Trusts or any series
thereof contain a statement to the effect that such obligation may only be
enforced against the assets of the Trusts or such series. The Trust Instruments
also provides for indemnification from the assets of the relevant series for all
losses and expenses incurred by any investor by reason of being or having been
an investor, and that the Trusts shall, upon request, assume the defense of any
such claim made against such investor for any act or obligation of the relevant
series and satisfy any judgment thereon from the assets of that series.
As a result, the risk of an investor of the Funds in those Trusts
incurring financial loss on account of investor liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
The Trusts believe that the risk of personal liability to investors of the Fund
is therefore remote. The trustees intend to conduct the operations of the Trusts
and the Funds so as to avoid, to the extent possible, liability of investors for
liabilities of the Trusts or the Funds.
CORPORATE GOVERNANCE AND OTHER INFORMATION PERTAINING TO ALL FUNDS.
None of the Funds is required to hold annual investor meetings unless required
by the Investment Company Act of 1940 or other
50
applicable law or unless called by the directors or trustees. If investors
owning at least 10% of the outstanding shares of the Berger Growth Fund, the
Berger Large Cap Growth Fund or any of the Trusts so request, a special
investors' meeting of that Fund or Trust will be held for the purpose of
considering the removal of a director or trustee, as the case may be. Special
meetings will be held for other purposes if the holders of at least 25% of the
outstanding shares of any of those Funds or Trusts so request. Subject to
certain limitations, the Funds/Trusts will facilitate appropriate communications
by investors desiring to call a special meeting for the purpose of considering
the removal of a director or trustee.
Investors of the Funds and, when applicable, the other series/classes
of the same business trust, generally vote separately on matters relating to
those respective series/classes, although they vote together and with the
holders of any other series/classes of the same business trust in the election
of trustees of the trust and on all matters relating to the trust as a whole.
Each full share of each Fund has one vote.
Shares of the Funds have non-cumulative voting rights, which means that
the holders of more than 50% of the shares voting for the election of directors
or trustees can elect 100% of the directors or trustees if they choose to do so,
and, in such event, the holders of the remaining less than 50% of the shares
voting for the election of directors or trustees will not be able to elect any
person or persons as directors or trustees.
Shares of the Funds have no preemptive rights. There are no sinking
funds or arrearage provisions that may affect the rights of the Fund shares.
Fund shares have no subscription rights or conversion rights, except that
investors of any class of the Berger Information Technology Fund may convert
their shares into shares of any other class of the Fund in the event and only in
the event the investor ceases to be eligible to purchase or hold shares of the
original class or becomes eligible to purchase shares of a different class, by
reason of a change in the investor's status under the conditions of eligibility
in effect for such class at that time. Shares of the Funds may be transferred by
endorsement, or other customary methods, but none of the Funds is bound to
recognize any transfer until it is recorded on its books.
Under governing corporate law, each Fund may enter into a variety of
corporate transactions, such as reorganizations, conversions, mergers and asset
transfers, or may be liquidated. Any such transaction would be subject to a
determination from the directors or trustees that the transaction was in the
best interests of the Fund and its investors, and may require obtaining investor
approval.
MORE INFORMATION ON SPECIAL FUND STRUCTURES
MULTI-CLASS. All of the Funds are permitted to divide their shares into
classes. However, currently only the Berger Small Company Growth Fund, the
Berger New Generation Fund and the Berger Information Technology Fund have
divided their shares into classes and have two classes of shares outstanding,
the Investor Shares covered by this SAI and the Institutional Shares offered
through a separate Prospectus and SAI. These Funds implemented their multi-class
structure by adopting Rule 18f-3 Plans under the 1940 Act permitting them to
issue shares in classes. The Rule 18f-3 Plans govern such matters as class
features, dividends, voting, allocation of income and expenses between classes,
exchange and trustee monitoring of the Plan. Each class is subject to such
investment minimums and other conditions of eligibility as are set forth in the
relevant prospectus for the class, as it may be amended from time to time.
Institutional Shares are designed for institutional, individual and other
investors willing to maintain a higher minimum account balance, currently set at
$250,000. Information concerning Institutional Shares is available from the
Funds at 1-800-259-2820.
Subject to the relevant Declaration of Trust or Trust Instrument and
any other applicable provisions, the trustees of those Funds have the authority
to create additional classes, or change existing classes, from time to time, in
accordance with Rule 18f-3 under the Act.
PRINCIPAL INVESTORS
Insofar as the management of the Funds is aware, as of December 31,
2001, no person owned, beneficially or of record, more than 5% of the
outstanding shares of any of the Funds, except for the following:
51
<Table>
<Caption>
OWNER FUND PERCENTAGE
- ----- ---- ----------
Charles Schwab & Co. Inc. ("Schwab") Berger Growth Fund 19.90%
101 Montgomery Street
San Francisco, CA 94104 Berger Large Cap Growth Fund 26.00%
Berger Mid Cap Growth Fund 25.39%
Berger Small Company Growth Fund (Investor Shares) 22.45%
Berger New Generation Fund (Investor Shares) 23.65%
Berger Select Fund 24.28%
Berger Information Technology Fund (Investor Shares) 18.83%
Berger Large Cap Value Fund 38.66%
Berger Mid Cap Value Fund 42.90%
Berger Balanced Fund 27.24%
National Financial Services Corporation Berger Growth Fund 7.01%
("Fidelity")
200 Liberty St., Fl. 5 Berger Mid Cap Growth Fund 12.44%
New York, NY 10281-5500
Berger Small Company Growth Fund (Investor Shares) 7.20%
Berger New Generation Fund (Investor Shares) 8.95%
Berger Select Fund 9.23%
Berger Mid Cap Value Fund 16.77%
Berger Balanced Fund 9.10%
Pan American Life Insurance Company Berger New Generation Fund (Investor Shares) 5.76%
601 Poydras St., Fl. 15
New Orleans, LA 70130-6029
</Table>
Any person owning more than 25% of the outstanding securities of a Fund
may be deemed to control it. Schwab is believed to hold its shares of the Funds
as nominees for the benefit of its clients.
In addition, Schwab owned of record 24.41% of all the outstanding
shares of the Berger Investment Portfolio Trust, of which the Berger New
Generation Fund, Berger Select Fund, Berger Mid Cap Growth Fund, Berger Small
Company Growth Fund, Berger Mid Cap Value Fund, Berger Large Cap Value Fund,
Berger Information Technology Fund and the Berger Balanced Fund are outstanding
series.
52
As of December 31, 2001, Schwab owned of record 39.58% of the
outstanding shares of the Berger Information Technology Fund, and 38.80% of the
Berger Large Cap Value Fund, both series of the Berger Investment Portfolio
Trust, when Schwab's record ownership of each of the Funds' Trust shares is
added together with record ownership of Institutional Shares of each Fund. In
addition, Bay Isle has advised the Trust that, as December 31, 2001, it had
voting discretion over approximately 14.02% of the Berger Information Technology
Fund's outstanding shares in accounts beneficially owned by various Bay Isle
advisory clients. Bay Isle may be deemed to beneficially own those shares as a
result of its voting discretion.
DISTRIBUTION
Berger Distributors LLC, as the Fund's Distributor, is the principal
underwriter of the Fund's shares. The Distributor is a wholly owned subsidiary
of BFG. The Distributor is a registered broker-dealer under the Securities
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc. The Distributor acts as the agent of the Fund in connection with
the sale of the Fund's shares in all states in which the shares are eligible for
sale and in which the Distributor is qualified as a broker-dealer. Janice M.
Teague, Vice President and Secretary of the Distributor, is also Vice President
and Assistant Secretary of the Fund. Brian Ferrie, Vice President and Chief
Financial Officer of the Distributor, is also Vice President of the Fund.
Anthony Bosch, Vice President and Chief Compliance Officer of the Distributor is
also Vice President of the Fund. Sue Vreeland, Assistant Secretary of the
Distributor, is also Secretary of the Fund.
Each of the Funds and the Distributor are parties to a Distribution
Agreement that continues through April 2002, and thereafter from year to year if
such continuation is specifically approved at least annually by the directors or
trustees or by vote of a majority of the outstanding shares of the Fund and in
either case by vote of a majority of the directors or trustees who are not
"interested persons" (as that term is defined in the Investment Company Act of
1940) of the Fund or the Distributor. The Distribution Agreement is subject to
termination by the Fund or the Distributor on 60 days' prior written notice and
terminates automatically in the event of its assignment. Under the Distribution
Agreement, the Distributor continuously offers shares of the Funds and solicits
orders to purchase Fund shares at net asset value. The Distributor is not
compensated for its services under the Distribution Agreement, but may be
reimbursed by BFG for its costs in distributing Fund shares.
OTHER INFORMATION
The Funds have each filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement under the Securities Act of 1933, as
amended, with respect to the securities of the Funds of which this Statement of
Additional Information is a part. If further information is desired with respect
to any of the Funds or such securities, reference is made to the Registration
Statements and the exhibits filed as a part thereof.
Davis Graham & Stubbs LLP, 1550 Seventeenth Street, Suite 500, Denver,
Colorado, acts as counsel to the Funds.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1670 Broadway, Suite 1000, Denver,
Colorado, acted as independent accountants for each of the Funds for the fiscal
year ended September 30, 2001. In that capacity, PricewaterhouseCoopers LLP
audited the financial statements of the Funds referenced below under "Financial
Information" and assisted the Funds in connection with the preparation of their
2000 tax returns.
PricewaterhouseCoopers LLP has been appointed to act as independent
accountants for the Funds for the fiscal year ended September 30, 2002. In that
capacity, PricewaterhouseCoopers LLP will audit the financial statements of the
Funds and assist the Funds in connection with the preparation of their 2001
income tax returns.
53
FINANCIAL INFORMATION
A copy of the Annual Report referenced below is enclosed with this SAI.
Additional copies of that Report may be obtained upon request without charge by
calling the Funds at 1-800-333-1001.
Year-End Financial Statements
The following financial statements for each of the named Funds are
incorporated herein by reference from the Annual Report to Shareholders of the
Berger Funds dated September 30, 2001, in each case along with the Report of
Independent Accountants thereon dated November 7, 2001.
FOR THE BERGER GROWTH FUND, BERGER LARGE CAP GROWTH FUND, BERGER MID CAP GROWTH
FUND, BERGER SMALL COMPANY GROWTH FUND, BERGER NEW GENERATION FUND, BERGER
SELECT FUND, BERGER INFORMATION TECHNOLOGY FUND, BERGER LARGE CAP VALUE FUND,
BERGER MID CAP VALUE FUND, AND BERGER BALANCED FUND:
Schedule of Investments as of September 30, 2001
Statements of Assets and Liabilities as of September 30, 2001
Statements of Operations for the Year Ended September 30, 2001
Statements of Changes in Net Assets for each of the periods indicated
Notes to Financial Statements, September 30, 2001
Financial Highlights for each of the periods indicated
54
APPENDIX A
HIGH-YIELD/HIGH-RISK SECURITIES
Each of the Funds may invest in convertible securities of any quality,
including unrated securities or securities rated below investment grade (Ba or
lower by Moody's, BB or lower by S&P). However, a Fund will not purchase any
security in default at the time of purchase. None of the Funds will invest more
than 20% of the market value of its assets at the time of purchase in
convertible securities rated below investment grade.
Securities rated below investment grade are subject to greater risk
that adverse changes in the financial condition of their issuers, or in general
economic conditions or an unanticipated rise in interest rates may impair the
ability of their issuers to make payments of interest and principal or
dividends. The market prices of lower grade securities are generally less
sensitive to interest rate changes than higher-rated investments, but more
sensitive to economic changes or individual corporate developments. Periods of
economic uncertainty and change can be expected to result in volatility of
prices of these securities. Lower rated securities may also have less liquid
markets than higher rated securities, and their liquidity as well as their value
may be adversely affected by poor economic conditions. Adverse publicity and
investor perceptions as well as new or proposed laws may also have a negative
impact on the market for high-yield/high-risk bonds. In the event of an
unanticipated default, a Fund will experience a reduction in its income and
could expect a decline in the market value of the securities affected. The
prices of these securities may be more volatile and the markets for them may be
less liquid than those for higher-rated securities.
Unrated securities, while not necessarily of lower quality than rated
securities, may not have as broad a market. Unrated securities will be included
in a Fund's percentage limits for investments rated below investment grade,
unless the Fund's adviser deems such securities to be the equivalent of
investment grade. If securities purchased by a Fund are downgraded following
purchase or if other circumstances cause the Fund to exceed its percentage
limits on assets invested in securities rated below investment grade, the
director or trustees of the Fund, in consultation with the Fund's adviser, will
determine what action, if any, is appropriate in light of all relevant
circumstances.
Relying in part on ratings assigned by credit agencies in making
investments will not protect a Fund from the risk that the securities will
decline in value, because credit ratings represent evaluations of the safety of
principal, dividend and/or interest payments and not the market values of such
securities. Moreover, such ratings may not be changed on a timely basis to
reflect subsequent events.
Although the market for high-yield debt securities has been in
existence for many years and from time to time has experienced economic
downturns, this market has involved a significant increase in the use of
high-yield debt securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not, therefore, provide an accurate
indication of future performance of the high-yield debt securities market,
particularly during periods of economic recession.
Expenses incurred in recovering an investment in a defaulted security
may adversely affect a Fund's net asset value. Moreover, the reduced liquidity
of the secondary market for such securities may adversely affect the market
price of, and the ability of a Fund to value, particular securities at certain
times, thereby making it difficult to make specific valuation determinations.
CORPORATE BOND RATINGS
The ratings of fixed-income securities by Moody's and Standard & Poor's
are a generally accepted measurement of credit risk. However, they are subject
to certain limitations. Ratings are generally based upon historical events and
do not necessarily reflect the future. In addition, there is a period of time
between the issuance of a rating and the update of the rating, during which time
a published rating may be inaccurate.
55
KEY TO MOODY'S CORPORATE RATINGS
Aaa-Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa-Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than in Aaa securities.
A-Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present that suggest a susceptibility to impairment sometime in the future.
Baa-Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba-Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds of this class.
B-Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa-Bonds that are rated Caa are of poor standing. Such issues may be
in default, or there may be present elements of danger with respect to principal
or interest.
Ca-Bonds that are rated Ca represent obligations that are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds that are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic category.
KEY TO STANDARD & POOR'S CORPORATE RATINGS
AAA-Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree.
A-Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
56
BB, B, CCC, CC AND C-Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation, and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by the large uncertainties or major risk exposures to adverse
conditions.
C1-The rating C1 is reserved for income bonds on which no interest is
being paid.
D-Debt rated D is in default, and payment of interest and/or repayment
of principal is in arrears.
PLUS (+) OR MINUS (-)-The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
57
BERGER SMALL COMPANY GROWTH FUND
(A SERIES OF BERGER INVESTMENT PORTFOLIO TRUST)
INSTITUTIONAL SHARES
STATEMENT OF ADDITIONAL INFORMATION
INVESTOR SERVICES: 1-800-960-8427
This Statement of Additional Information ("SAI") is not a
prospectus. It relates to the Prospectus for the Berger Small Company Growth
Fund (the "Fund") -- Institutional Shares, dated January 29, 2002, as it may be
amended or supplemented from time to time, which may be obtained by writing the
Fund at P.O. Box 5005, Denver, Colorado 80217-5005, or calling 1-800-259-2820.
This SAI is about the class of shares of the Fund designated
as Institutional Shares. Institutional Shares are designed for pension and
profit-sharing plans, employee benefit trusts, endowments, foundations and
corporations, as well as high net worth individuals, who are willing to maintain
a minimum account balance of $250,000. Shares of the Fund may be offered through
certain financial intermediaries that may charge their customers transaction or
other fees with respect to the customers' investment in the Fund.
The financial statements of the Fund for the fiscal year ended
September 30, 2001, and the related Report of Independent Accountants on those
statements, are incorporated into this SAI by reference from the Fund's 2001
Annual Report to Shareholders dated September 30, 2001.
A copy of that Annual Report is available, without charge,
upon request, by calling 1-800-259-2820.
DATED JANUARY 29, 2002
-1-
TABLE OF CONTENTS
&
CROSS-REFERENCES TO PROSPECTUS
<Table>
<Caption>
PAGE CROSS-REFERENCES TO RELATED
SECTION NO. DISCLOSURES IN PROSPECTUS
- ------- ---- ---------------------------
Introduction 3 Table of Contents
1. Investment Strategies and Risks of the Fund 3 Berger Small Company Growth Fund; The Fund's Goal and
Principal Investment Strategies; Principal Risks;
Investment Techniques, Securities and Associated Risks
2. Investment Restrictions 15 Berger Small Company Growth Fund; Investment Techniques,
Securities and Associated Risks
3. Management of the Fund 17 Berger Small Company Growth Fund; Organization of the Fund
4. Investment Adviser 21 Berger Small Company Growth Fund; Organization of the Fund
5. Expenses of the Fund 23 Berger Small Company Growth Fund; Financial Highlights
for the Fund; Organization of the Fund
6. Brokerage Policy 25 Berger Small Company Growth Fund; Organization of the Fund
7. How to Purchase and Redeem Shares in 27 To Open an Account and Purchase Shares; Selling
the Fund (Redeeming) Shares
8. How the Net Asset Value is Determined 28 Your Share Price
9. Income Dividends, Capital Gains, 29 Distributions and Taxes
Distributions and Tax Treatment
10. Suspension of Redemption Rights 30 Information About Your Account
11. Tax-Sheltered Retirement Plans 31 Tax-Sheltered Retirement Plans
12. Exchange Privilege 31 Exchanging Shares
13. Performance Information 31 Berger Small Company Growth Fund; Financial Highlights
for the Fund
14. Additional Information 32 Organization of the Fund; Special Fund Structure
Financial Information 36 Financial Highlights for the Fund
</Table>
-2-
INTRODUCTION
The Fund described in this SAI is a mutual fund, or open-end,
management investment company. The Fund is a diversified fund.
1. INVESTMENT STRATEGIES AND RISKS OF THE FUND
The Prospectus describes the investment objective of the Fund
and the principal investment policies and strategies used to achieve that
objective. It also describes the principal risks of investing in the Fund.
This section contains supplemental information concerning the
types of securities and other instruments in which the Fund may invest, the
investment policies and portfolio strategies that the Fund may utilize and
certain risks attendant to those investments, policies and strategies.
COMMON AND PREFERRED STOCKS. Stocks represent shares of
ownership in a company. Generally, preferred stock has a specified dividend and
ranks after bonds and before common stocks in its claim on income for dividend
payments and on assets should the company be liquidated. After other claims are
satisfied, common stockholders participate in company profits on a pro rata
basis. Profits may be paid out in dividends or reinvested in the company to help
it grow. Increases and decreases in earnings are usually reflected in a
company's stock price, so common stocks generally have the greatest appreciation
and depreciation potential of all corporate securities. While most preferred
stocks pay dividends, the Fund may purchase preferred stock where the issuer has
omitted, or is in danger of omitting, payment of its dividends. Such investments
would be made primarily for their capital appreciation potential. All
investments in stocks are subject to market risk, meaning that their prices may
move up and down with the general stock market, and that such movements might
reduce their value.
DEBT SECURITIES. Debt securities (such as bonds or debentures)
are fixed-income securities that bear interest and are issued by corporations or
governments. The issuer has a contractual obligation to pay interest at a stated
rate on specific dates and to repay principal on a specific maturity date. In
addition to market risk, debt securities are generally subject to two other
kinds of risk: credit risk and interest rate risk. Credit risk refers to the
ability of the issuer to meet interest or principal payments as they come due.
The lower the rating given a security by a rating service (such as Moody's
Investor Service ("Moody's") and Standard & Poor's ("S&P")), the greater the
credit risk the rating service perceives with respect to that security. The Fund
will not purchase any nonconvertible securities rated below investment grade (Ba
or lower by Moody's, BB or lower by S&P). In cases in which the ratings assigned
by more than one rating agency differ, the Fund will consider the security as
rated in the higher category. If nonconvertible securities purchased by the Fund
are downgraded to below investment grade following purchase, the trustees of the
Fund, in consultation with the Fund's adviser, will determine what action, if
any, is appropriate in light of all relevant circumstances. For a further
discussion of debt security ratings, see Appendix A to this SAI.
Interest rate risk refers to the fact that the value of
fixed-income securities (like debt securities) generally fluctuates in response
to changes in interest rates. A decrease in interest rates will generally result
in an increase in the price of fixed-income securities held by the Fund.
Conversely, during periods of rising interest rates, the value of fixed-income
securities held by the Fund will generally decline. Longer-term securities are
generally more sensitive to interest rate changes and are more volatile than
shorter-term securities, but they generally offer higher yields to compensate
investors for the associated risks.
Certain debt securities can also present prepayment risk. For
example, a security may contain redemption and call provisions. If an issuer
exercises these provisions when interest rates are declining, the Fund could
sustain investment losses as well as have to reinvest the proceeds from the
security at lower interest rates, resulting in a decreased return for the Fund.
CONVERTIBLE SECURITIES. The Fund may also purchase debt or
equity securities that are convertible into common stock when the Fund's adviser
believes they offer the potential for a higher total return than nonconvertible
securities. Although fixed-income securities generally have a priority claim on
a corporation's assets over that of common stock, some of the convertible
securities that the Fund may hold are high-yield/high-risk
-3-
securities that are subject to special risks, including the risk of default in
interest or principal payments, which could result in a loss of income to the
Fund or a decline in the market value of the securities. Convertible securities
often display a degree of market price volatility that is comparable to common
stocks. The credit risk associated with convertible securities generally is
reflected by their ratings by organizations such as Moody's or S&P or a similar
determination of creditworthiness by the Fund's adviser. The Fund has no
pre-established minimum quality standards for convertible securities and may
invest in convertible securities of any quality, including lower rated or
unrated securities. However, the Fund will not invest in any security in default
at the time of purchase, and the Fund will invest less than 20% of the market
value of its assets at the time of purchase in convertible securities rated
below investment grade. If convertible securities purchased by the Fund are
downgraded following purchase, or if other circumstances cause 20% or more of
the Fund's assets to be invested in convertible securities rated below
investment grade, the trustees of the Fund, in consultation with the Fund's
adviser, will determine what action, if any, is appropriate in light of all
relevant circumstances. For a further discussion of debt security ratings, see
Appendix A to this SAI.
SPECIAL SITUATIONS. The Fund may also invest in "special
situations." Special situations are companies that have recently experienced or
are anticipated to experience a significant change in structure, management,
products or services that may significantly affect the value of their
securities. Examples of special situations are companies being reorganized or
merged, companies emerging from bankruptcy, companies introducing unusual new
products or that enjoy particular tax advantages. Other examples are companies
experiencing changes in senior management, extraordinary corporate events,
significant changes in cost or capital structure or that are believed to be
probable takeover candidates. The opportunity to invest in special situations,
however, is limited and depends in part on the market's assessment of these
companies and their circumstances. By its nature, a "special situation" company
involves to some degree a break with the company's past experience. This creates
greater uncertainty and potential risk of loss than if the company were
operating according to long-established patterns. In addition, stocks of
companies in special situations may decline or not appreciate as expected if an
anticipated change or development does not occur or is not assessed by the
market as favorably as expected.
SECURITIES OF SMALLER COMPANIES. The Fund may invest in
securities of companies with small or mid-sized market capitalizations. Market
capitalization is defined as total current market value of a company's
outstanding common stock. Investments in companies with smaller market
capitalizations may involve greater risks and price volatility (that is, more
abrupt or erratic price movements) than investments in larger, more mature
companies because smaller companies may be at an earlier stage of development
and may have limited product lines, reduced market liquidity for their shares,
limited financial resources or less depth in management than larger or more
established companies. Smaller companies also may be less significant factors
within their industries and may have difficulty withstanding competition from
larger companies. While smaller companies may be subject to these additional
risks, they may also realize more substantial growth than larger or more
established companies.
SECURITIES OF COMPANIES WITH LIMITED OPERATING HISTORIES. The
Fund may invest in securities of companies with limited operating histories. The
Fund considers these to be securities of companies with a record of less than
three years' continuous operation, even including the operations of any
predecessors and parents. (These are sometimes referred to as "unseasoned
issuers.") These companies by their nature have only a limited operating history
that can be used for evaluating the company's growth prospects. As a result,
investment decisions for these securities may place a greater emphasis on
current or planned product lines and the reputation and experience of the
company's management and less emphasis on fundamental valuation factors than
would be the case for more mature companies. In addition, many of these
companies may also be small companies and involve the risks and price volatility
associated with smaller companies.
INITIAL PUBLIC OFFERINGS. The Fund may invest in a company's
securities at the time the company first offers securities to the public, that
is, at the time of the company's initial public offering or IPO. Although
companies can be any age or size at the time of their IPOs, they are often
smaller and have a limited operating history, which involves a greater potential
for the value of their securities to be impaired following the IPO. See
"Securities of Smaller Companies" and "Securities of Companies with Limited
Operating Histories".
Investors in IPOs can be adversely affected by substantial
dilution in the value of their shares, by sales of additional shares and by
concentration of control in existing management and principal investors. In
-4-
addition, all of the factors that affect stock market performance may have a
greater impact on the shares of IPO companies.
The price of a company's securities may be highly unstable at
the time of its IPO and for a period thereafter due to market psychology
prevailing at the time of the IPO, the absence of a prior public market, the
small number of shares available and limited availability of investor
information. As a result of this or other factors, the Fund's adviser might
decide to sell an IPO security more quickly than it would otherwise, which may
result in a significant gain or loss and greater transaction costs to the Fund.
Any gains from shares held for 12 months or less will be treated as short-term
gains, taxable as ordinary income to the Fund's investors. In addition, IPO
securities may be subject to varying patterns of trading volume and may, at
times, be difficult to sell without an unfavorable impact on prevailing prices.
The effect of an IPO investment can have a magnified impact on
the Fund's performance when the Fund's asset base is small. Consequently, IPOs
may constitute a significant portion of the Fund's returns particularly when the
Fund is small. Since the number of securities issued in an IPO is limited, it is
likely that IPO securities will represent a smaller component of the Fund's
assets as it increases in size and therefore have a more limited effect on the
Fund's performance.
There can be no assurance that IPOs will continue to be
available for the Fund to purchase. The number or quality of IPOs available for
purchase by the Fund may vary, decrease or entirely disappear. In some cases,
the Fund may not be able to purchase IPOs at the offering price, but may have to
purchase the shares in the aftermarket at a price greatly exceeding the offering
price, making it more difficult for the Fund to realize a profit.
The adviser's IPO trade allocation procedures govern which
funds and other advised accounts participate in the allocation of any IPO. See
the heading "Trade Allocations" under Section 4. Under the IPO allocation
procedures of Berger Financial Group LLC, the Fund generally will not
participate in an IPO if the securities available for allocation to the Fund are
insignificant relative to the Fund's net assets. As a result, any fund or
account whose assets are very large is not likely to participate in the
allocation of many IPOs.
FOREIGN SECURITIES. The Fund may invest in foreign securities,
which may be traded in foreign markets and denominated in foreign currency. The
Fund's investments may also include American Depositary Receipts (ADRs),
European Depositary Receipts (EDRs), which are similar to ADRs, in bearer form,
designed for use in the European securities markets, and in Global Depositary
Receipts (GDRs).
Investments in foreign securities involve some risks that are
different from the risks of investing in securities of U.S. issuers, such as the
risk of adverse political, social, diplomatic and economic developments and,
with respect to certain countries, the possibility of expropriation, taxes
imposed by foreign countries or limitations on the removal of monies or other
assets of the Fund. Moreover, the economies of individual foreign countries will
vary in comparison to the U.S. economy in such respects as growth of gross
domestic product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position. Securities of some foreign
companies, particularly those in developing countries, are less liquid and more
volatile than securities of comparable domestic companies. A developing country
generally is considered to be in the initial stages of its industrialization
cycle. Investing in the securities of developing countries may involve exposure
to economic structures that are less diverse and mature and to political systems
that can be expected to have less stability than developed countries.
There also may be less publicly available information about
foreign issuers and securities than domestic issuers and securities, and foreign
issuers generally are not subject to accounting, auditing and financial
reporting standards, requirements and practices comparable to those applicable
to domestic issuers. Also, there is generally less government supervision and
regulation of exchanges, brokers, financial institutions and issuers in foreign
countries than there is in the U.S. Foreign financial markets typically have
substantially less volume than U.S. markets. Foreign markets also have different
clearance and settlement procedures and, in certain markets, delays or other
factors could make it difficult to effect transactions, potentially causing the
Fund to experience losses or miss investment opportunities. The use of a foreign
securities depository may increase this risk. The Fund may maintain assets with
a foreign securities depository if certain conditions are met. A foreign
securities depository may maintain assets on behalf of the Fund if the
depository: (a) acts as or operates a system for the
-5-
central handling of securities that is regulated by a foreign financial
regulatory authority; (b) holds assets on behalf of the Fund under safekeeping
conditions no less favorable than those that apply to other participants; (c)
maintains records that identify the assets of participants, and keep its own
assets separated from the assets of participants; (d) provides periodic reports
to participants; and (e) undergoes periodic examination by regulatory
authorities or independent accountants. In addition, the Fund's primary
custodian provides the Fund with an analysis of the custodial risks of using a
depository, monitors the depository on a continuous basis and notifies the Fund
of any material changes in risks associated with using the depository. In
general, the analysis may include an analysis of a depository's expertise and
market reputation; the quality of its services, its financial strength, and
insurance or indemnification arrangements; the extent and quality of regulation
and independent examination of the depository; its standing in published
ratings; its internal controls and other procedures for safeguarding
investments; and any related legal proceedings.
Costs associated with transactions in foreign securities are
generally higher than with transactions in U.S. securities. The Fund will incur
greater costs in maintaining assets in foreign jurisdictions and in buying and
selling foreign securities generally, resulting in part from converting foreign
currencies into U.S. dollars. In addition, the Fund might have greater
difficulty taking appropriate legal action with respect to foreign investments
in non-U.S. courts than with respect to domestic issuers in U.S. courts, which
may heighten the risk of possible losses through the holding of securities by
custodians and securities depositories in foreign countries.
If the Fund is invested in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the value of the investments in its portfolio and the
unrealized appreciation or depreciation of investments insofar as U.S. investors
are concerned. If the foreign currency in which a security is denominated
appreciates against the U.S. dollar, the dollar value of the security will
increase. Conversely, a decline in the exchange rate of the foreign currency
against the U.S. dollar would adversely affect the dollar value of the foreign
securities. Foreign currency exchange rates are determined by forces of supply
and demand on the foreign exchange markets, which are in turn affected by the
international balance of payments and other economic and financial conditions,
government intervention, speculation and other factors.
PASSIVE FOREIGN INVESTMENT COMPANIES (PFICS). The Fund may
purchase the securities of certain companies considered Passive Foreign
Investment Companies (PFICs) under U.S. tax laws. For certain types of PFICs, in
addition to bearing their proportionate share of the Fund's expenses (management
fees and operating expenses), investors will also indirectly bear similar
expenses of such PFIC. PFIC investments also may be subject to less favorable
U.S. tax treatment, as discussed in Section 9.
ILLIQUID AND RESTRICTED SECURITIES. The Fund is authorized to
invest in securities that are illiquid or not readily marketable because they
are subject to restrictions on their resale ("restricted securities") or
because, based upon their nature or the market for such securities, no ready
market is available. However, the Fund will not purchase any such security, the
purchase of which would cause the Fund to invest more than 15% of its net
assets, measured at the time of purchase, in illiquid securities. Investments in
illiquid securities involve certain risks to the extent that the Fund may be
unable to dispose of such a security at the time desired or at a reasonable
price or, in some cases, may be unable to dispose of it at all. In addition, in
order to resell a restricted security, the Fund might have to incur the
potentially substantial expense and delay associated with effecting
registration. If securities become illiquid following purchase or other
circumstances cause more than 15% of the Fund's net assets to be invested in
illiquid securities, the trustees of the Fund, in consultation with the Fund's
adviser, will determine what action, if any, is appropriate in light of all
relevant circumstances.
Repurchase agreements maturing in more than seven days will be
considered as illiquid for purposes of this restriction. Pursuant to guidelines
established by the trustees, the Fund's adviser will determine whether
securities eligible for resale to qualified institutional buyers pursuant to SEC
Rule 144A under the Securities Act of 1933 should be treated as illiquid
investments considering, among other things, the following factors: (a) the
frequency of trades and quotes for the security; (b) the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers; (c) dealer undertakings to make a market in the security; and (d)
the nature of the security and the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). The liquidity of the Fund's investments in Rule 144A securities
could be impaired if qualified institutional buyers become uninterested in
purchasing these securities.
-6-
REPURCHASE AGREEMENTS. The Fund may invest in repurchase
agreements with various financial organizations, including commercial banks,
registered broker-dealers and registered government securities dealers. A
repurchase agreement is an agreement under which the Fund acquires a debt
security (generally a debt security issued or guaranteed by the U.S. government
or an agency thereof, a banker's acceptance or a certificate of deposit) from a
commercial bank, broker or dealer, subject to resale to the seller at an agreed
upon price and date (normally, the next business day). A repurchase agreement
may be considered a loan collateralized by securities. The resale price reflects
an agreed upon interest rate effective for the period the instrument is held by
the Fund and is unrelated to the interest rate on the underlying instrument. In
these transactions, the securities acquired by the Fund (including accrued
interest earned thereon) must have a total value equal to or in excess of the
value of the repurchase agreement and are held by the Fund's custodian bank
until repurchased. In addition, the trustees will establish guidelines and
standards for review by the investment adviser of the creditworthiness of any
bank, broker or dealer party to a repurchase agreement with the Fund. The Fund
will not enter into a repurchase agreement maturing in more than seven days if
as a result more than 15% of the Fund's net assets would be invested in such
repurchase agreements and other illiquid securities.
These transactions must be fully collateralized at all times
by debt securities (generally a security issued or guaranteed by the U.S.
Government or an agency thereof, a banker's acceptance or a certificate of
deposit) but involve certain risks, such as credit risk to the Fund if the other
party defaults on its obligation and the Fund is delayed or prevented from
liquidating the collateral. For example, if the other party to the agreement
defaults on its obligation to repurchase the underlying security at a time when
the value of the security has declined, the Fund may incur a loss upon
disposition of the security. If the other party to the agreement becomes
insolvent and subject to liquidation or reorganization under the Bankruptcy Code
or other laws, a court may determine that the underlying security is collateral
for a loan by the Fund not within the control of the Fund and therefore the
realization by the Fund on such collateral may automatically be stayed and
delayed. Further, it is possible that the Fund may not be able to substantiate
its interest in the underlying security and may be deemed an unsecured creditor
of the other party to the agreement. The Fund expects that these risks can be
controlled through careful monitoring procedures.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may
purchase and sell securities on a when-issued or delayed delivery basis.
However, the Fund currently does not intend to purchase or sell securities on a
when-issued or delayed delivery basis if as a result more than 5% of its total
assets taken at market value at the time of purchase would be invested in such
securities. When-issued or delayed delivery transactions arise when securities
(normally, obligations of issuers eligible for investment by the Fund) are
purchased or sold by the Fund with payment and delivery taking place in the
future in order to secure what is considered to be an advantageous price or
yield. However, the yield available on a comparable security when delivery takes
place may vary from the yield on the security at the time that the when-issued
or delayed delivery transaction was entered into. Any failure to consummate a
when-issued or delayed delivery transaction may result in the Fund missing the
opportunity of obtaining a price or yield considered to be advantageous.
When-issued and delayed delivery transactions may generally be expected to
settle within one month from the date the transactions are entered into but in
no event later than 90 days. However, no payment or delivery is made by the Fund
until it receives delivery or payment from the other party to the transaction.
When the Fund purchases securities on a when-issued basis, it
will maintain, in a segregated account with its custodian cash, U.S. government
securities or other liquid assets having an aggregate value equal to the amount
of such purchase commitments, until payment is made. If necessary, additional
assets will be placed in the account daily so that the value of the account will
equal or exceed the amount of the Fund's purchase commitments.
LENDING OF PORTFOLIO SECURITIES. The Fund may lend its
securities to qualified institutional investors (such as brokers, dealers or
other financial organizations) who need to borrow securities in order to
complete certain transactions, such as covering short sales, avoiding failures
to deliver securities or completing arbitrage operations. Loans of securities by
the Fund will be collateralized by cash, letters of credit, or securities issued
or guaranteed by the U.S. Government or its agencies. The collateral will equal
at least 100% of the current market value of the loaned securities,
marked-to-market on a daily basis. By lending its securities, the Fund will be
attempting to generate income through the receipt of interest on the loan,
which, in turn, can be invested in
-7-
additional securities to pursue the Fund's investment objective. Any gain or
loss in the market price of the securities loaned that might occur during the
term of the loan would be for the account of the Fund.
The Fund may lend its portfolio securities to qualified
brokers, dealers, banks or other financial institutions, so long as the terms,
the structure and the aggregate amount of such loans are not inconsistent with
the Investment Company Act of 1940 or the Rules and Regulations or
interpretations of the Securities and Exchange Commission (the "Commission")
thereunder, which currently require that (a) the borrower pledge and maintain
with the Fund collateral consisting of cash, an irrevocable letter of credit or
securities issued or guaranteed by the United States government having a value
at all times not less than 100% of the value of the securities loaned, (b) the
borrower add to such collateral whenever the price of the securities loaned
rises (i.e., the borrower "marks to the market" on a daily basis), (c) the loan
be made subject to termination by the Fund at any time and (d) the Fund receives
reasonable interest on the loan, which interest may include the Fund's investing
cash collateral in interest bearing short-term investments, and (e) the Fund
receives all dividends and distributions on the loaned securities and any
increase in the market value of the loaned securities.
The Fund bears risk of loss in the event that the other party
to a securities lending transaction defaults on its obligations and the Fund is
delayed in or prevented from exercising its rights to dispose of the collateral,
including the risk of a possible decline in the value of the collateral
securities during the period in which the Fund seeks to assert these rights, the
risk of incurring expenses associated with asserting these rights and the risk
of losing all or a part of the income from the transaction. The Fund will not
lend its portfolio securities if, as a result, the aggregate value of such loans
would exceed 33-1/3% of the value of the Fund's total assets (including the
value of the collateral received to secure the loan). Loan arrangements made by
the Fund will comply with all other applicable regulatory requirements,
including the rules of the New York Stock Exchange, which rules presently
require the borrower, after notice, to redeliver the securities within the
normal settlement time of three business days. All relevant facts and
circumstances, including creditworthiness of the broker, dealer or institution,
will be considered in making decisions with respect to the lending of
securities, subject to review by the Fund's trustees.
Although voting rights with respect to loaned securities pass
to the borrower, the Fund retains the right to recall a security (or terminate a
loan) for the purpose of exercising the security's voting rights. Efforts to
recall loaned securities in time to exercise voting rights may be unsuccessful,
especially for foreign securities or thinly traded securities. In addition, it
is expected that loaned securities will be recalled for voting only when the
items being voted on are, in the judgment of the Fund's adviser, either material
to the economic value of the security or threaten to materially impact the
issuing company's corporate governance policies or structure.
SHORT SALES. The Fund currently is permitted to engage in
short sales if, at the time of the short sale, the Fund owns or has the right to
acquire an equivalent kind and amount of the security being sold short at no
additional cost (i.e., short sales "against the box").
In a short sale, the seller does not immediately deliver the
securities sold and is said to have a short position in those securities until
delivery occurs. To make delivery to the purchaser, the executing broker borrows
the securities being sold short on behalf of the seller. While the short
position is maintained, the seller collateralizes its obligation to deliver the
securities sold short in an amount equal to the proceeds of the short sale plus
an additional margin amount established by the Board of Governors of the Federal
Reserve. If the Fund engages in a short sale, the collateral account will be
maintained by the Fund's custodian. While the short sale is open, the Fund will
maintain in a segregated custodial account an amount of securities convertible
into or exchangeable for such equivalent securities at no additional cost. These
securities would constitute the Fund's long position.
Under prior law, the Fund could have made a short sale, as
described above, when it wanted to sell a security it owned at a current
attractive price but also wished to defer recognition of gain or loss for
federal income tax purposes and for purposes of satisfying certain tests
applicable to regulated investment companies under the Internal Revenue Code.
However, federal tax legislation has eliminated the ability to defer recognition
of gain or loss in short sales against the box, and accordingly it is not
anticipated that the Fund will be engaging in these transactions unless there
are further legislative changes.
-8-
HEDGING TRANSACTIONS. The Fund is authorized to make limited
use of certain types of futures, forwards and/or options, but only for the
purpose of hedging, that is, protecting against market risk caused by market
movements that may adversely affect the value of the Fund's securities or the
price of securities that the Fund is considering purchasing. The utilization of
futures, forwards and options is also subject to policies and procedures that
may be established by the trustees from time to time. In addition, the Fund is
not required to hedge. Decisions regarding hedging are subject to the adviser's
judgment of the cost of the hedge, its potential effectiveness and other factors
the adviser considers pertinent.
A hedging transaction may partially protect the Fund from a
decline in the value of a particular security or its portfolio generally,
although hedging may also limit the Fund's opportunity to profit from favorable
price movements, and the cost of the transaction will reduce the potential
return on the security or the portfolio. In addition, hedging transactions do
not eliminate fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire. Use of these instruments by the Fund involves the
potential for a loss that may exceed the amount of initial margin the Fund would
be permitted to commit to the contracts under its investment limitation or, in
the case of a call option written by the Fund, may exceed the premium received
for the option. However, the Fund is permitted to use such instruments for
hedging purposes only, and only if the aggregate amount of its obligations under
these contracts does not exceed the total market value of the assets the Fund is
attempting to hedge, such as a portion or all of its exposure to equity
securities or its holding in a specific foreign currency. To help ensure that
the Fund will be able to meet its obligations under its futures and forward
contracts and its obligations under options written by the Fund, the Fund will
be required to maintain liquid assets in a segregated account with its custodian
bank or to set aside portfolio securities to "cover" its position in these
contracts.
The principal risks of the Fund utilizing futures
transactions, forward contracts and options are: (a) losses resulting from
market movements not anticipated by the Fund; (b) possible imperfect correlation
between movements in the prices of futures, forwards and options and movements
in the prices of the securities or currencies hedged or used to cover such
positions; (c) lack of assurance that a liquid secondary market will exist for
any particular futures or options at any particular time and possible
exchange-imposed price fluctuation limits, either of which may make it difficult
or impossible to close a position when so desired; (d) lack of assurance that
the counterparty to a forward contract would be willing to negotiate an offset
or termination of the contract when so desired; and (e) the need for additional
information and skills beyond those required for the management of a portfolio
of traditional securities. In addition, when the Fund enters into an
over-the-counter contract with a counterparty, the Fund will assume counterparty
credit risk, that is, the risk that the counterparty will fail to perform its
obligations, in which case the Fund could be worse off than if the contract had
not been entered into.
Following is additional information concerning the futures,
forwards and options that the Fund may utilize, provided that no more than 5% of
the Fund's net assets at the time the contract is entered into may be used for
initial margins for financial futures transactions and premiums paid for the
purchase of options. In addition, the Fund may only write call options that are
covered and only up to 25% of the Fund's total assets.
Futures Contracts Financial futures contracts are
exchange-traded contracts on financial instruments (such as securities and
foreign currencies) and securities indices that obligate the holder to take or
make delivery of a specified quantity of the underlying financial instrument, or
the cash value of an index, at a future date. Although futures contracts by
their terms call for the delivery or acquisition of the underlying instruments
or a cash payment based on the mark-to-market value of the underlying
instruments, in most cases the contractual obligation will be offset before the
delivery date by buying (in the case of an obligation to sell) or selling (in
the case of an obligation to buy) an identical futures contract. Such a
transaction cancels the original obligation to make or take delivery of the
instruments.
The Fund may enter into contracts for the purchase or sale for
future delivery of financial instruments, such as securities and foreign
currencies, or contracts based on financial indices including indices of U.S.
Government securities, foreign government securities or equity securities. U.S.
futures contracts are traded on exchanges that have been designated "contract
markets" by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant (an "FCM"), or brokerage firm,
which is a member of the relevant contract market. Through their clearing
corporations, the exchanges guarantee performance of the contracts as between
the clearing members of the exchange.
-9-
Both the buyer and seller are required to deposit "initial
margin" for the benefit of the FCM when a futures contract is entered into.
Initial margin deposits are equal to a percentage of the contract's value, as
set by the exchange on which the contract is traded and may be maintained in
cash or other liquid assets. If the value of either party's position declines,
that party will be required to make additional "variation margin" payments to
the other party to settle the change in value on a daily basis. Initial and
variation margin payments are similar to good faith deposits or performance
bonds or party-to-party payments resulting from daily changes in the value of
the contract, unlike margin extended by a securities broker, and would be
released or credited to the Fund upon termination of the futures contract,
assuming all contractual obligations have been satisfied. Unlike margin extended
by a securities broker, initial and variation margin payments do not constitute
purchasing securities on margin for purposes of the Fund's investment
limitations. The Fund will incur brokerage fees when it buys or sells futures
contracts.
In the event of the bankruptcy of the FCM that holds margin on
behalf of the Fund, the Fund may be entitled to return of margin owed to the
Fund only in proportion to the amount received by the FCM's other customers. The
Fund will attempt to minimize the risk by careful monitoring of the
creditworthiness of the FCMs with which the Fund does business and by depositing
margin payments in a segregated account with the Fund's custodian for the
benefit of the FCM when practical or otherwise required by law.
The Fund intends to comply with guidelines of eligibility for
exclusion from the definition of the term "commodity pool operator" with the
CFTC and the National Futures Association, which regulate trading in the futures
markets. Accordingly, the Fund will not enter into any futures contract or
option on a futures contract if, as a result, the aggregate initial margin and
premiums required to establish such positions would exceed 5% of the Fund's net
assets.
Although the Fund would hold cash and liquid assets in a
segregated account with a mark-to-market value sufficient to cover the Fund's
open futures obligations, the segregated assets would be available to the Fund
immediately upon closing out the futures position.
The acquisition or sale of a futures contract may occur, for
example, when the Fund is considering purchasing or holds equity securities and
seeks to protect itself from fluctuations in prices without buying or selling
those securities. For example, if prices were expected to decrease, the Fund
might sell equity index futures contracts, thereby hoping to offset a potential
decline in the value of equity securities in the portfolio by a corresponding
increase in the value of the futures contract position held by the Fund and
thereby prevent the Fund's net asset value from declining as much as it
otherwise would have. The Fund also could protect against potential price
declines by selling portfolio securities and investing in money market
instruments. However, the use of futures contracts as a hedging technique allows
the Fund to maintain a defensive position without having to sell portfolio
securities.
Similarly, when prices of equity securities are expected to
increase, futures contracts may be bought to attempt to hedge against the
possibility of having to buy equity securities at higher prices. This technique
is sometimes known as an anticipatory hedge. Since the fluctuations in the value
of futures contracts should be similar to those of equity securities, the Fund
could take advantage of the potential rise in the value of equity securities
without buying them until the market has stabilized. At that time, the futures
contracts could be liquidated, and the Fund could buy equity securities on the
cash market.
The ordinary spreads between prices in the cash and futures
markets, due to differences in the nature of those markets are subject to
distortions. First, all participants in the futures market are subject to
initial margin and variation margin requirements. Rather than meeting additional
variation margin requirements, investors may close out futures contracts through
offsetting transactions that could distort the normal price relationship between
the cash and futures markets. Second, the liquidity of the futures market
depends on participants entering into offsetting transactions rather than making
or taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced and prices in the futures
market distorted. Third, from the point of view of speculators, the margin
deposit requirements in the futures market are less than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
the foregoing distortions, a correct forecast of general price trends by the
Fund still may not result in a successful use of futures.
-10-
Futures contracts entail additional risks. Although the Fund
will only utilize futures contracts when it believes that use of such contracts
will benefit the Fund, if the Fund's investment judgment is incorrect, the
Fund's overall performance could be worse than if the Fund had not entered into
futures contracts. For example, if the Fund has hedged against the effects of a
possible decrease in prices of securities held in the Fund's portfolio and
prices increase instead, the Fund will lose part or all of the benefit of the
increased value of these securities because of offsetting losses in the Fund's
futures positions. In addition, if the Fund has insufficient cash, it may have
to sell securities from its portfolio to meet daily variation margin
requirements. Those sales may be, but will not necessarily be, at increased
prices that reflect the rising market and may occur at a time when the sales are
disadvantageous to the Fund. Although the buyer of an option cannot lose more
than the amount of the premium plus related transaction costs, a buyer or seller
of futures contracts could lose amounts substantially in excess of any initial
margin deposits made, due to the potential for adverse price movements resulting
in additional variation margin being required by such positions. However, the
Fund intends to monitor its investments closely and will attempt to close its
positions when the risk of loss to the Fund becomes unacceptably high.
The prices of futures contracts depend primarily on the value
of their underlying instruments. Because there are a limited number of types of
futures contracts, it is possible that the standardized futures contracts
available to the Fund will not exactly match the Fund's current or potential
investments. The Fund may buy and sell futures contracts based on underlying
instruments with different characteristics from the securities in which it
typically invests -- for example, by hedging investments in portfolio securities
with a futures contract based on a broad index of securities -- which involves a
risk that the futures position will not correlate precisely with the performance
of the Fund's investments.
Futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments closely correlate
with the Fund's investments. Futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instruments and the time remaining until expiration of the contract.
Those factors may affect securities prices differently from futures prices.
Imperfect correlations between the Fund's investments and its futures positions
may also result from differing levels of demand in the futures markets and the
securities markets, from structural differences in how futures and securities
are traded, and from imposition of daily price fluctuation limits for futures
contracts. The Fund may buy or sell futures contracts with a value less than or
equal to the securities it wishes to hedge or is considering purchasing. If
price changes in the Fund's futures positions are poorly correlated with its
other investments, its futures positions may fail to produce desired gains or
result in losses that are not offset by the gains in the Fund's other
investments.
Because futures contracts are generally settled within a day
from the date they are closed out, compared with a longer settlement period for
most types of securities, the futures markets can provide superior liquidity to
the securities markets. Nevertheless, there is no assurance a liquid secondary
market will exist for any particular futures contract at any particular time. In
addition, futures exchanges may establish daily price fluctuation limits for
futures contracts and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days when the
price fluctuation limit is reached, it may be impossible for the Fund to enter
into new positions or close out existing positions. If the secondary market for
a futures contract is not liquid because of price fluctuation limits or
otherwise, the Fund may not be able to promptly liquidate unfavorable futures
positions and potentially could be required to continue to hold a futures
position until the delivery date, regardless of changes in its value. As a
result, the Fund's access to other assets held to cover its futures positions
could also be impaired.
Options on Futures Contracts. The Fund may buy and write
options on futures contracts for hedging purposes. An option on a futures
contract gives the Fund the right (but not the obligation) to buy or sell a
futures contract at a specified price on or before a specified date. The
purchase of a call option on a futures contract is similar in some respects to
the purchase of a call option on an individual security. Depending on the
pricing of the option compared to either the price of the futures contract upon
which it is based or the price of the underlying instrument, ownership of the
option may or may not be less risky than ownership of the futures contract or
the underlying instrument. As with the purchase of futures contracts, the Fund
may buy a call option on a futures contract to hedge against a market advance,
and the Fund might buy a put option on a futures contract to hedge against a
market decline.
-11-
The writing of a call option on a futures contract constitutes
a partial hedge against declining prices of the security or foreign currency
that is deliverable under, or of the index comprising, the futures contract. If
the futures price at the expiration of the call option is below the exercise
price, the Fund will retain the full amount of the option premium that provides
a partial hedge against any decline that may have occurred in the Fund's
portfolio holdings. If a call option the Fund has written is exercised, the Fund
will incur a loss that will be reduced by the amount of the premium it received.
Depending on the degree of correlation between change in the value of its
portfolio securities and changes in the value of the futures positions, the
Fund's losses from existing options on futures may to some extent be reduced or
increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar
in some respects to the purchase of protective put options on portfolio
securities. For example, the Fund may buy a put option on a futures contract to
hedge the Fund's portfolio against the risk of falling prices.
The amount of risk the Fund assumes when it buys an option on
a futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the options bought.
Forward Foreign Currency Exchange Contracts. A forward
contract is a privately negotiated agreement between two parties in which one
party is obligated to deliver a stated amount of a stated asset at a specified
time in the future and the other party is obligated to pay a specified invoice
amount for the assets at the time of delivery. The Fund currently intends that
it will only use forward contracts or commitments for hedging purposes and will
only use forward foreign currency exchange contracts, although the Fund may
enter into additional forms of forward contracts or commitments in the future if
they become available and advisable in light of the Fund's objectives and
investment policies. Forward contracts generally are negotiated in an interbank
market conducted directly between traders (usually large commercial banks) and
their customers. Unlike futures contracts, which are standardized
exchange-traded contracts, forward contracts can be specifically drawn to meet
the needs of the parties that enter into them. The parties to a forward contract
may agree to offset or terminate the contract before its maturity or may hold
the contract to maturity and complete the contemplated exchange.
The following discussion summarizes the Fund's principal uses
of forward foreign currency exchange contracts ("forward currency contracts").
The Fund may enter into forward currency contracts with stated contract values
of up to the value of the Fund's assets. A forward currency contract is an
obligation to buy or sell an amount of a specified currency for an agreed price
(which may be in U.S. dollars or a foreign currency) on a specified date. The
Fund will exchange foreign currencies for U.S. dollars and for other foreign
currencies in the normal course of business and may buy and sell currencies
through forward currency contracts in order to fix a price (in terms of a
specified currency) for securities it has agreed to buy or sell ("transaction
hedge"). The Fund also may hedge some or all of its investments denominated in
foreign currency against a decline in the value of that currency (or a proxy
currency whose price movements are expected to have a high degree of correlation
with the currency being hedged) relative to the U.S. dollar by entering into
forward currency contracts to sell an amount of that currency approximating the
value of some or all of its portfolio securities denominated in that currency
("position hedge") or by participating in futures contracts (or options on such
futures) with respect to the currency. The Fund may also enter into a forward
currency contract with respect to a currency where the Fund is considering the
purchase or sale of investments denominated in that currency but has not yet
selected the specific investments ("anticipatory hedge").
These types of hedging minimize the effect of currency
appreciation as well as depreciation but do not eliminate fluctuations in the
underlying U.S. dollar equivalent value of the proceeds of or rates of return on
the Fund's foreign currency denominated portfolio securities. The matching of
the increase in value of a forward contract and the decline in the U.S. dollar
equivalent value of the foreign currency denominated asset that is the subject
of the hedge generally will not be precise. Shifting the Fund's currency
exposure from one foreign currency to another limits the Fund's opportunity to
profit from increases in the value of the original currency and involves a risk
of increased losses to the Fund if its investment manager's projection of future
exchange rates is inaccurate. Unforeseen changes in currency prices may result
in poorer overall performance for the Fund than if it had not entered into such
contracts.
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The Fund will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated in the currency underlying
the forward contract or the currency being hedged. To the extent that the Fund
is not able to cover its forward currency positions with underlying portfolio
securities, the Fund's custodian will segregate cash or liquid assets having a
value equal to the aggregate amount of the Fund's commitments under forward
contracts entered into. If the value of the securities used to cover a position
or the value of segregated assets declines, the Fund must find alternative cover
or segregate additional cash or liquid assets on a daily basis so that the value
of the covered and segregated assets will be equal to the amount of the Fund's
commitments with respect to such contracts.
While forward contracts are not currently regulated by the
CFTC, the CFTC may in the future assert authority to regulate forward contracts.
In such event, the Fund's ability to utilize forward contracts may be
restricted. The Fund may not always be able to enter into forward contracts at
attractive prices and may be limited in its ability to use these contracts to
hedge Fund assets. In addition, when the Fund enters into a privately negotiated
forward contract with a counterparty, the Fund assumes counterparty credit risk,
that is, the risk that the counterparty will fail to perform its obligations, in
which case the Fund could be worse off than if the contract had not been entered
into. Unlike many exchange-traded futures contracts and options on futures,
there are no daily price fluctuation limits with respect to forward contracts
and other negotiated or over-the-counter instruments, and with respect to those
contracts, adverse market movements could therefore continue to an unlimited
extent over a period of time. However, the Fund intends to monitor its
investments closely and will attempt to renegotiate or close its positions when
the risk of loss to the Fund becomes unacceptably high.
Options on Securities and Securities Indices. The Fund may buy
or sell put or call options and write covered call options on securities that
are traded on United States or foreign securities exchanges or over-the-counter.
Buying an option involves the risk that, during the option period, the price of
the underlying security will not increase (in the case of a call) to above the
exercise price or will not decrease (in the case of a put) to below the exercise
price, in which case the option will expire without being exercised and the
holder would lose the amount of the premium. Writing a call option involves the
risk of an increase in the market value of the underlying security, in which
case the option could be exercised and the underlying security would then be
sold by the Fund to the option holder at a lower price than its current market
value and the Fund's potential for capital appreciation on the security would be
limited to the exercise price. Moreover, when the Fund writes a call option on a
securities index, the Fund bears the risk of loss resulting from imperfect
correlation between movements in the price of the index and the price of the
securities set aside to cover such position. Although they entitle the holder to
buy equity securities, call options to purchase equity securities do not entitle
the holder to dividends or voting rights with respect to the underlying
securities, nor do they represent any rights in the assets of the issuer of
those securities.
A call option written by the Fund is "covered" if the Fund
owns the underlying security covered by the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or for additional cash consideration held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also deemed to be covered if the Fund holds a call
on the same security and in the same principal amount as the call written and
the exercise price of the call held (a) is equal to or less than the exercise
price of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Fund in liquid assets in a
segregated account with its custodian.
The writer of a call option may have no control when the
underlying securities must be sold. Whether or not an option expires
unexercised, the writer retains the amount of the premium. This amount, of
course, may, in the case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period.
The writer of an exchange-traded call option that wishes to
terminate its obligation may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option previously
written. The effect of the purchase is that the writer's position will be
canceled by the clearing corporation. If the Fund desires to sell a particular
security from the Fund's portfolio on which the Fund has written a call option,
the Fund will effect a closing transaction prior to or concurrent with the sale
of the security. However, a writer may not effect a closing purchase transaction
after being notified of the exercise of an option. An investor who is the holder
of an exchange-traded option may liquidate its position by effecting a "closing
sale transaction."
-13-
This is accomplished by selling an option of the same series as the option
previously bought. There is no guarantee that either a closing purchase or a
closing sale transaction can be effected.
The Fund will realize a profit from a closing transaction if
the price of the purchase transaction is less than the premium received from
writing the option or the price received from a sale transaction is more than
the premium paid to buy the option; the Fund will realize a loss from a closing
transaction if the price of the purchase transaction is more than the premium
received from writing the option or the price received from a sale transaction
is less than the premium paid to buy the option. 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 repurchase of a call option
is likely to be offset in whole or in part by appreciation of the underlying
security owned by the Fund.
An option position may be closed out only when a secondary
market exists for an option of the same series. If a secondary market does not
exist, it might not be possible to effect closing transactions in particular
options with the result that the Fund would have to exercise the options in
order to realize any profit. If the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or the Fund delivers the underlying security
upon exercise. Reasons for the absence of a liquid secondary market may include
the following: (a) there may be insufficient trading interest in certain
options, (b) restrictions may be imposed by a national securities exchange on
which the option is traded ("Exchange") on opening or closing transactions or
both, (c) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities, (d)
unusual or unforeseen circumstances may interrupt normal operations on an
Exchange, (e) the facilities of an Exchange or of the Options Clearing
Corporation ("OCC") may not at all times be adequate to handle current trading
volume, or (f) one or more Exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that Exchange (or in that class or series of options) would cease to
exist, although outstanding options on that Exchange that had been issued by the
OCC as a result of trades on that Exchange would continue to be exercisable in
accordance with their terms.
In addition, when the Fund enters into an over-the-counter
option contract with a counterparty, the Fund assumes counterparty credit risk,
that is, the risk that the counterparty will fail to perform its obligations, in
which case the Fund could be worse off than if the contract had not been entered
into.
An option on a securities index is similar to an option on a
security except that rather than the right to take or make delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, on exercise of the option, an amount of cash if the
closing level of the securities index on which the option is based is greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option.
The Fund may buy call options on securities or securities
indices to hedge against an increase in the price of a security or securities
that the Fund may buy in the future. The premium paid for the call option plus
any transaction costs will reduce the benefit, if any, realized by the Fund upon
exercise of the option, and, unless the price of the underlying security or
index rises sufficiently, the option may expire and become worthless to the
Fund. The Fund may buy put options to hedge against a decline in the value of a
security or its portfolio. The premium paid for the put option plus any
transaction costs will reduce the benefit, if any, realized by the Fund upon
exercise of the option, and, unless the price of the underlying security or
index declines sufficiently, the option may expire and become worthless to the
Fund.
An example of a hedging transaction using an index option
would be if the Fund were to purchase a put on a stock index, in order to
protect the Fund against a decline in the value of all securities held by it to
the extent that the stock index moves in a similar pattern to the prices of the
securities held. While the correlation between stock indices and price movements
of the stocks in which the Fund will generally invest may be imperfect, the Fund
expects, nonetheless, that the use of put options that relate to such indices
will, in certain circumstances, protect against declines in values of specific
portfolio securities or the Fund's portfolio generally. Although the purchase of
a put option may partially protect the Fund from a decline in the value of a
particular security or its portfolio generally, the cost of a put will reduce
the potential return on the security or the portfolio.
-14-
TEMPORARY DEFENSIVE MEASURES. Although the Fund reserves the
right to take temporary defensive measures, it is the intention of the Fund to
remain fully invested at all times. The Fund may increase its investment in
government securities, and other short-term, interest-bearing securities without
regard to the Fund's otherwise applicable percentage limits, policies or its
normal investment emphasis, when its adviser or sub-adviser believes market,
economic or political conditions warrant a temporary defensive position. In
addition, certain unusual circumstances may force the Fund to temporarily depart
from the investment requirement implied by its name. Taking larger positions in
such short-term investments may serve as a means of preserving capital in
unfavorable market conditions. When in a defensive position, the Fund could miss
the opportunity to participate in any stock or bond market advances that occur
during those periods, which the Fund might have been able to participate in if
it had remained more fully invested.
PORTFOLIO TURNOVER. The portfolio turnover rates of the Fund
are shown in the Financial Highlights table included in the Prospectus. The
annual portfolio turnover rates of the Fund have exceeded 100%. A 100% annual
turnover rate results, for example, if the equivalent of all of the securities
in the Fund's portfolio are replaced in a period of one year. The Fund
anticipates that its portfolio turnover rate may exceed 100%, and investment
changes in the Fund will be made whenever the investment manager deems them
appropriate even if this results in a higher portfolio turnover rate. In
addition, portfolio turnover for the Fund may increase as a result of large
amounts of purchases and redemptions of shares of the Fund due to economic,
market or other factors that are not within the control of management.
Higher portfolio turnover will necessarily result in
correspondingly higher brokerage costs for the Fund. The existence of a high
portfolio turnover rate has no direct relationship to the tax liability of the
Fund, although sales of certain stocks will lead to realization of gains and,
possibly, increased taxable distributions to investors. The Fund's brokerage
policy is discussed further under Section 6--Brokerage Policy, and additional
information concerning income taxes is located under Section 9--Income
Dividends, Capital Gains Distributions and Tax Treatment.
2. INVESTMENT RESTRICTIONS
The investment objective of the Fund is capital appreciation.
The investment objective of the Fund is considered fundamental, meaning that it
cannot be changed without an investor vote. There can be no assurance that the
Fund's investment objective will be realized.
The Fund has also adopted certain investment policies,
strategies, guidelines and procedures in pursuing its objective. These may be
changed without an investor vote. The principal policies and strategies used by
the Fund are described in the Prospectus.
In addition, the Fund has adopted certain fundamental and
non-fundamental restrictions on its investments and other activities, which are
listed below. Fundamental restrictions may not be changed without the approval
of (a) 67% or more of the voting securities of the Fund present at a meeting of
investors thereof if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy or (b) more than 50% of the
outstanding voting securities of the Fund. Non-fundamental restrictions may be
changed in the future by action of the trustees without investor vote.
The following fundamental restrictions apply to the Berger
Small Company Growth Fund. The Fund may not:
1. With respect to 75% of the Fund's total assets, purchase
the securities of any one issuer (except U.S. government securities) if
immediately after and as a result of such purchase (a) the value of the holdings
of the Fund in the securities of such issuer exceeds 5% of the value of the
Fund's total assets or (b) the Fund owns more than 10% of the outstanding voting
securities of such issuer.
2. Invest in any one industry (other than U.S. government
securities) 25% or more of the value of its total assets at the time of such
investment.
-15-
3. Borrow money, except from banks for temporary or emergency
purposes in amounts not to exceed 25% of the Fund's total assets (including the
amount borrowed) taken at market value, nor pledge, mortgage or hypothecate its
assets, except to secure permitted indebtedness and then only if such pledging,
mortgaging or hypothecating does not exceed 25% of the Fund's total assets taken
at market value. When borrowings exceed 5% of the Fund's total assets, the Fund
will not purchase portfolio securities.
4. Act as a securities underwriter (except to the extent the
Fund may be deemed an underwriter under the Securities Act of 1933 in disposing
of a security), issue senior securities (except to the extent permitted under
the Investment Company Act of 1940), invest in real estate (although it may
purchase shares of a real estate investment trust), or invest in commodities or
commodity contracts except financial futures transactions, futures contracts on
securities and securities indices and options on such futures, forward foreign
currency exchange contracts, forward commitments or securities index put or call
options.
5. Make loans, except that the Fund may enter into repurchase
agreements and may lend portfolio securities in accordance with the Fund's
investment policies. The Fund does not, for this purpose, consider the purchase
of all or a portion of an issue of publicly distributed bonds, bank loan
participation agreements, bank certificates of deposit, bankers' acceptances,
debentures or other securities, whether or not the purchase is made upon the
original issuance of the securities, to be the making of a loan.
In applying the industry concentration investment restriction
(no. 2 above), the Fund uses the industry groups used in the Data Monitor
Portfolio Monitoring System of William O'Neil & Co. Incorporated. Further, the
Fund intends not to invest in any one industry 25% or more of the value of its
total assets at the time of such investments.
The trustees have adopted additional non-fundamental
investment restrictions for the Fund. These limitations may be changed by the
trustees without an investor vote. The non-fundamental investment restrictions
include the following:
1. The Fund may not purchase securities on margin from a
broker or dealer, except that the Fund may obtain such short-term credits as may
be necessary for the clearance of transactions, and may not make short sales of
securities, except that the Fund may make short sales if, at the time of the
short sale, the Fund owns or has the right to acquire an equivalent kind and
amount of the security being sold short at no additional cost (i.e., short sales
"against the box"). This limitation shall not prohibit or restrict the Fund from
entering into futures, forwards and options contracts or from making margin
payments and other deposits in connection therewith.
2. The Fund may not purchase the securities of any other
investment company, except by purchase in the open market involving no
commission or profit to a sponsor or dealer (other than the customary broker's
commission).
3. The Fund may not invest in companies for the purposes of
exercising control of management.
4. The Fund may not purchase any security, including any
repurchase agreement maturing in more than seven days, which is not readily
marketable, if more than 15% of the net assets of the Fund, taken at market
value at the time of purchase would be invested in such securities.
5. Only for the purpose of hedging, the Fund may purchase and
sell financial futures, forward foreign currency exchange contracts and put and
call options, but no more than 5% of the Fund's net assets at the time of
purchase may be invested in initial margins for financial futures transactions
and premiums for options. The Fund may only write call options that are covered
and only up to 25% of the Fund's total assets.
6. The Fund may not purchase or sell securities on a
when-issued or delayed delivery basis, if as a result more than 5% of its total
assets taken at market value at the time of purchase would be invested in such
securities.
-16-
3. MANAGEMENT OF THE FUND
The Fund is supervised by trustees who are responsible for
major decisions about the Fund's policies and overall Fund oversight. The Fund's
trustees hire the companies that run day-to-day Fund operations, such as the
investment adviser, administrator, transfer agent and custodian.
The trustees and executive officers of the Fund are listed
below, together with information that includes their principal occupations
during the past five years and other principal business affiliations.
MICHAEL OWEN, 210 University Boulevard, Suite 800, Denver, CO 80206,
DOB: 1937. Dean of Zayed University (since September 2000).
Formerly self-employed as a financial and management
consultant, and in real estate development (from June 1999 to
September 2000). Dean (from 1993 to June 1999), and a member
of the Finance faculty (from 1989 to 1993), of the College of
Business, Montana State University. Formerly, Chairman and
Chief Executive Officer of Royal Gold, Inc. (mining) (1976 to
1989). Chairman of the Board of Berger Growth Fund and Berger
Large Cap Growth Fund. Chairman of the Trustees of Berger
Investment Portfolio Trust, Berger Institutional Products
Trust, Berger Worldwide Funds Trust, Berger Worldwide
Portfolios Trust and Berger Omni Investment Trust.
* JACK R. THOMPSON, 210 University Boulevard, Suite 800, Denver,
CO 80206, DOB: 1949. President and a director since May 1999
(Executive Vice President from February 1999 to May 1999) of
Berger Growth Fund and Berger Large Cap Growth Fund. President
and a trustee since May 1999 (Executive Vice President from
February 1999 to May 1999) of Berger Investment Portfolio
Trust, Berger Institutional Products Trust, Berger Worldwide
Funds Trust, Berger Worldwide Portfolios Trust and Berger Omni
Investment Trust. President and Director since June 1999
(Executive Vice President from February 1999 to June 1999) of
Berger Financial Group LLC (formerly Berger LLC). Audit
Committee Member of the Public Employees' Retirement
Association of Colorado (pension plan) since November 1997.
Self-employed as a consultant from July 1995 through February
1999. Director of Wasatch Advisors (investment management)
from February 1997 to February 1999. Director of Janus Capital
Corporation (investment management) from June 1984 through
June 1995, and Executive Vice President of the Corporation
from April 1989 through June 1995. Treasurer of Janus Capital
Corporation from November 1983 through October 1989. Trustee
of the Janus Investment Funds from December 1990 through June
1995, and Senior Vice President of the Trust from May 1993
through June 1995. President and a director of Janus Service
Corporation (transfer agent) from January 1987 through June
1995. President and a director of Fillmore Agency, Inc.
(advertising agency), from January 1990 through June 1995.
Executive Vice President and a director of Janus Capital
International, Ltd. (investment adviser) from September 1994
through June 1995. President and a director of Janus
Distributors, Inc. (broker/dealer), from May 1991 through June
1995. Director of IDEX Management, Inc. (investment
management), from January 1985 through June 1995. Trustee and
Senior Vice President of the Janus Aspen Funds from May 1993
through June 1995.
DENNIS E. BALDWIN, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1928. President, Baldwin Financial Counseling
(since July 1991). Formerly, Vice President and Denver Office
Manager of Merrill Lynch Capital Markets (1978 to 1990).
Director of Berger Growth Fund and Berger Large Cap Growth
Fund. Trustee of Berger Investment Portfolio Trust, Berger
Institutional Products Trust, Berger Worldwide Funds Trust,
Berger Worldwide Portfolios Trust and Berger Omni Investment
Trust.
KATHERINE A. CATTANACH, 210 University Boulevard, Suite 800, Denver,
CO 80206, DOB: 1945. Managing Principal (since September
1987), Sovereign Financial Services, Inc. (investment
consulting firm). Executive Vice President (1981 to 1988),
Captiva Corporation, Denver, Colorado (private investment
management firm). Ph.D. in Finance (Arizona State University);
Chartered Financial Analyst (CFA). Director of Berger Growth
Fund and Berger Large Cap Growth Fund. Trustee of Berger
Investment Portfolio Trust, Berger Institutional
-17-
Products Trust, Berger Worldwide Funds Trust, Berger Worldwide
Portfolios Trust and Berger Omni Investment Trust.
PAUL R. KNAPP, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1945. Executive Officer of DST Systems, Inc.
("DST"), a publicly traded information and transaction
processing company, which acts as the Funds' transfer agent
(since October 2000). President of Vermont Western Assurance,
Inc., a wholly owned subsidiary of DST Systems (since December
2000). Director and Vice President (February 1998 to November
2000) of West Side Investments, Inc. (investments), a wholly
owned subsidiary of DST Systems, Inc. President, Chief
Executive Officer and a director (September 1997 to October
2000) of DST Catalyst, Inc., an international financial
markets consulting, software and computer services company,
(now DST International, a subsidiary of DST). Previously (1991
to October 2000), Chairman, President, Chief Executive Officer
and a director of Catalyst Institute (international public
policy research organization focused primarily on financial
markets and institutions); also (1991 to September 1997),
Chairman, President, Chief Executive Officer and a director of
Catalyst Consulting (international financial institutions
business consulting firm). Prior thereto (1988 to 1991),
President, Chief Executive Officer and a director of Kessler
Asher Group (brokerage, clearing and trading firm). Director
of Berger Growth Fund and Berger Large Cap Growth Fund.
Trustee of Berger Investment Portfolio Trust, Berger
Institutional Products Trust, Berger Worldwide Funds Trust,
Berger Worldwide Portfolios Trust and Berger Omni Investment
Trust.
HARRY T. LEWIS, JR., 210 University Boulevard, Suite 800, Denver,
CO 80206, DOB: 1933. Lewis Investments (since June 1988)
(self-employed private investor). Formerly, Senior Vice
President, Rocky Mountain Region, of Dain Bosworth
Incorporated and member of that firm's Management Committee
(1981 to 1988). Director (1995 to March 2002) of J.D. Edwards
& Co. (computer software company). Director of Berger Growth
Fund and Berger Large Cap Growth Fund. Trustee of Berger
Investment Portfolio Trust, Berger Institutional Products
Trust, Berger Worldwide Funds Trust, Berger Worldwide
Portfolios Trust and Berger Omni Investment Trust.
WILLIAM SINCLAIRE, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1928. President (since January 1998), Santa Clara
LLC (privately owned agriculture company). President (January
1963 to January 1998), Sinclaire Cattle Co. (privately owned
agriculture company). Director of Berger Growth Fund and
Berger Large Cap Growth Fund. Trustee of Berger Investment
Portfolio Trust, Berger Institutional Products Trust, Berger
Worldwide Funds Trust, Berger Worldwide Portfolios Trust and
Berger Omni Investment Trust.
ALBERT C. YATES, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1941. President (since 1990), Chancellor and
Professor of Chemistry Department of Chemistry, of Colorado
State University. Formerly Executive Vice President and
Provost (1983 to 1990) Academic Vice President and Provost
(1981 to 1983) and Professor of Chemistry (1981 to 1990) of
Washington State University. Vice President and University
Dean for Graduate Studies and Research and Professor of
Chemistry of the University of Cincinnati (1977 to 1981).
Director of the Berger Growth Fund and Berger Large Cap Growth
Fund. Trustee of Berger Investment Portfolio Trust, Berger
Institutional Products Trust, Berger Worldwide Funds Trust,
Berger Worldwide Portfolios Trust and Berger Omni Investment
Trust.
* JAY W. TRACEY CFA, 210 University Boulevard, Suite 800,
Denver, CO 80206, DOB: 1954. Executive Vice President of the
Berger Funds (since August 2000). Executive Vice President and
Chief Investment Officer of Berger Financial Group LLC (since
June 2000). Portfolio manager of the Berger Growth Fund (since
August 2000); team portfolio manager of the Berger Select Fund
(since June 2000) and the Berger Large Cap Growth Fund (from
January 2001 through December 2001). Team portfolio manager
(since December 2001) of the Berger Mid Cap Growth Fund and
team interim portfolio manager (since December 2001) of the
Berger New Generation Fund. Formerly, Vice President and
Portfolio Manager at Oppenheimer Funds, Inc. (September 1994
to May 2000) and Managing Director of Buckingham Capital
Management (February 1994 to September 1994).
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* PAUL A. LAROCCO, CFA, 210 University Boulevard, Suite 800,
Denver, CO 80206, DOB: 1958. Vice President (since February
2001) and portfolio manager (since January 2001) of the Berger
Small Company Growth Fund. Vice President (since February
2001) and team portfolio manager (since January 2001) of the
Berger Select Fund. Team portfolio manager (since December
2001) of the Berger Mid Cap Growth Fund and interim team
portfolio manager (since December 2001) of the Berger New
Generation Fund. Vice President of Berger Financial Group LLC
(since December 2000). Formerly, portfolio manager with
Montgomery Asset Management (from January 2000 through
December 2000); senior portfolio manager with Founders Asset
Management (from March 1998 through December 1999); and
portfolio manager with Oppenheimer Funds (from January 1993
through March 1998).
* STEVEN L. FOSSEL, CFA, 210 University Boulevard, Suite 800,
Denver, CO 80206, DOB: 1968. Vice President (since August
2000) and portfolio manager (since June 2000) of the Berger
Balanced Fund. Vice President (since August 2000) and team
portfolio manager (since June 2000) of the Berger Select Fund.
Vice President (since February 2001); portfolio manager (since
December 2001) of the Berger Large Cap Growth Fund; and team
portfolio manager (from January 2001 through December 2001) of
the Berger Large Cap Growth Fund. Interim portfolio manager
(from June 2000 to January 2001) of the Berger Large Cap
Growth Fund. Vice President and portfolio manager of Berger
Financial Group LLC (since June 2000); senior equity analyst
with Berger Financial Group LLC (from March 1998 to June
2000). Formerly, Analyst and Assistant portfolio manager with
Salomon Brothers Asset Management (from August 1992 to
February 1998).
* JANICE M. TEAGUE, 210 University Boulevard, Suite 800, Denver,
CO 80206, DOB: 1954. Vice President and Secretary of Bay Isle
Financial LLC (since January 2002). Vice President (since
November 1998) and Assistant Secretary (since February 2000
and previously from September 1996 to November 1998) and
Secretary (November 1998 to February 2000) of the Berger
Funds. Vice President (since October 1997), Secretary (since
November 1998) and Assistant Secretary (October 1996 through
November 1998) with Berger Financial Group LLC. Vice President
and Secretary with Berger Distributors LLC (since August
1998). Formerly, self-employed as a business consultant (from
June 1995 through September 1996), Secretary of the Janus
Funds (from January 1990 to May 1995) and Assistant Secretary
of Janus Capital Corporation from (October 1989 to May 1995).
* ANDREW J. ISEMAN, 210 University Boulevard, Suite 800, Denver,
CO 80206, DOB: 1964. Vice President of the Berger Funds (since
March 2001). Vice President (since September 1999) and Chief
Operating Officer (since November 2000) of Berger Financial
Group LLC. Manager (since September 1999) and Director (June
1999 to September 1999) of Berger Distributors LLC. Vice
President-Operations (February 1999 to November 2000) of
Berger Financial Group LLC. Associate (November 1998 to
February 1999) with DeRemer & Associates (a consulting firm).
Vice President-Operations (February 1997 to November 1998) and
Director of Research and Development (May 1996 to February
1997) of Berger Financial Group LLC.
* ANTHONY R. BOSCH, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1965. Vice President of Bay Isle Financial LLC
(since January 2002). Vice President of the Berger Funds
(since February 2000). Vice President (since June 1999) and
Chief Legal Officer (since August 2000) with Berger Financial
Group LLC. Chief Compliance Officer with Berger Distributors
LLC (since September 2001). Formerly, Assistant Vice President
of Federated Investors, Inc. (December 1996 through May 1999),
and Attorney with the U.S. Securities and Exchange Commission
(June 1990 through December 1996).
* BRIAN S. FERRIE, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1958. Vice President of the Berger Funds (since
November 1998). Vice President (since February 1997),
Treasurer and Chief Financial Officer (since March 2001) and
Chief Compliance Officer (from August 1994 to March 2001) with
Berger Financial Group LLC. Vice President (since May
-19-
1996), Treasurer and Chief Financial Officer (since March
2001) and Chief Compliance Officer (from May 1996 to September
2001) with Berger Distributors LLC. Formerly, Compliance
Officer with United Services Advisor, Inc. (from January 1988
to July 1994) and Director of Internal Audit of United
Services Funds (from January 1987 to July 1994).
* JOHN PAGANELLI, 210 University Boulevard, Suite 800, Denver,
CO 80206, DOB: 1967. Vice President (since November 1998),
Treasurer (since March 2001) and Assistant Treasurer (November
1998 to March 2001) of the Berger Funds. Vice President (since
November 1998) and Manager of Accounting (January 1997 through
November 1998) with Berger Financial Group LLC. Formerly,
Manager of Accounting (December 1994 through October 1996) and
Senior Accountant (November 1991 through December 1994) with
Palmeri Fund Administrators, Inc.
* SUE VREELAND, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1948. Secretary of the Berger Funds (since
February 2000). Assistant Secretary of Berger Financial Group
LLC and Berger Distributors LLC (since June 1999) and Bay Isle
Financial LLC (since December 2001). Formerly, Assistant
Secretary of the Janus Funds (from March 1994 to May 1999),
Assistant Secretary of Janus Distributors, Inc. (from June
1995 to May 1997) and Manager of Fund Administration for Janus
Capital Corporation (from February 1992 to May 1999).
* Interested person (as defined in the Investment Company Act of 1940) of the
Fund and/or of the Fund's adviser.
The trustees of the Fund have adopted a trustee retirement
age of 75 years.
TRUSTEE COMPENSATION
The officers of the Fund received no compensation from the
Fund during the fiscal year ended September 30, 2001. However, trustees of the
Fund who are not "interested persons" of the Fund or its adviser are compensated
for their services according to a fee schedule, allocated among the Berger
Funds. Neither the officers of the Fund nor the trustees receive any form of
pension or retirement benefit compensation from the Fund.
The following table sets forth information regarding
compensation paid or accrued during the fiscal year ended September 30, 2001,
for each trustee of the Fund:
<Table>
<Caption>
AGGREGATE COMPENSATION FROM
NAME AND POSITION --------------------------------------------------------
WITH BERGER FUNDS BERGER SMALL COMPANY GROWTH FUND ALL BERGER FUNDS(1)
----------------- -------------------------------- -------------------
Dennis E. Baldwin(2) $ 9,232 $ 57,984
Louis Bindner(5) $ 3,486 $ 19,234
Katherine A. Cattanach(2) $ 9,287 $ 58,400
Paul R. Knapp(2) $ 8,653 $ 54,234
Harry T. Lewis(2) $ 8,653 $ 54,234
Michael Owen(2) $10,752 $ 67,448
William Sinclaire(2) $ 8,653 $ 54,234
Albert C. Yates(2),(6) $ 5,167 $ 35,000
Jack R. Thompson(2),(3),(4) $ 0 $ 0
</Table>
-20-
(1) Includes the Berger Growth Fund, the Berger Large Cap Growth Fund, the
Berger Investment Portfolio Trust (including the Berger Mid Cap Growth
Fund, the Berger Small Company Growth Fund, the Berger New Generation Fund,
the Berger Select Fund, the Berger Information Technology Fund, the Berger
Mid Cap Value Fund, and the Berger Balanced Fund), the Berger Institutional
Products Trust (five series), the Berger Worldwide Funds Trust (three
series, including the Berger International Fund), the Berger Worldwide
Portfolios Trust (one series) and the Berger Omni Investment Trust (one
series). Aggregate compensation figures do not include first-year estimates
for any Fund in existence for less than one year. Of the aggregate amounts
shown for each director/trustee, the following amounts were deferred under
applicable deferred compensation plans: Dennis E. Baldwin $31,960; Lou
Bindner $2,499; Katherine A. Cattanach $58,400; William Sinclaire $54,234;
Albert C. Yates $17,500.
(2) Director of Berger Growth Fund and Berger Large Cap Growth Fund and trustee
of Berger Investment Portfolio Trust, Berger Institutional Products Trust,
Berger Worldwide Portfolios Trust, Berger Worldwide Funds Trust and Berger
Omni Investment Trust.
(3) Interested person of Berger Financial Group LLC.
(4) President of Berger Growth Fund, Berger Large Cap Growth Fund, Berger
Investment Portfolio Trust, Berger Institutional Products Trust, Berger
Worldwide Portfolios Trust, Berger Worldwide Funds Trust and Berger Omni
Investment Trust.
(5) Resigned effective March 1, 2001.
(6) Appointed Trustee effective March 1, 2001.
Trustees may elect to defer receipt of all or a portion of
their fees pursuant to a fee deferral plan adopted by the Fund. Under the plan,
deferred fees are credited to an account and adjusted thereafter to reflect the
investment experience of whichever of the Berger Funds (or approved money market
funds) is designated by the trustee for this purpose. Pursuant to an SEC
exemptive order, the Fund is permitted to purchase shares of the designated
funds in order to offset its obligation to the trustees participating in the
plan. Purchases made pursuant to the plan are excepted from any otherwise
applicable investment restriction limiting the purchase of securities of any
other investment company. The Fund's obligation to make payments of deferred
fees under the plan is a general obligation of the Fund.
As of December 31, 2001, the officers and trustees of the
Fund as a group owned, of record or beneficially, an aggregate of less than 1%
of the outstanding shares of the Institutional Shares class and the Fund.
The Trust, the Funds' investment adviser and principal
underwriter have adopted Codes of Ethics under Rule 17j-1 of the Investment
Company Act. The Codes of Ethics permit personnel subject to the Codes to invest
in securities, including securities that may be purchased or held by the Funds
in certain circumstances. The Codes of Ethics are described fully under
Restrictions on Personal Trading in Section 4 of this SAI.
4. INVESTMENT ADVISER
BERGER FINANCIAL GROUP LLC - INVESTMENT ADVISER
Berger Financial Group LLC ("BFG") (formerly Berger LLC), 210
University Boulevard, Suite 800, Denver, Colorado 80206, is the investment
adviser to the Fund. BFG is responsible for managing the investment operations
of the Fund and the composition of its investment portfolio. BFG also acts as
the Fund's administrator and is responsible for such functions as monitoring
compliance with all applicable federal and state laws.
BFG is a Nevada Limited Liability Company, and has been in
the investment advisory business since 1974. It serves as investment adviser or
sub-adviser to mutual funds and institutional investors and had assets under
management of approximately $8.7 billion as of December 31, 2001. BFG is a
subsidiary of Stilwell Management Inc. ("Stilwell"), which owns approximately
89.5% of BFG, and is an indirect subsidiary of Stilwell Financial Inc.
("Stilwell Financial"). Stilwell also owns approximately 33% of the outstanding
shares of DST Systems, Inc. ("DST"), a publicly traded information and
transaction processing company, which acts as the Funds' transfer agent. DST, in
turn, owns 100% of DST Securities, a registered broker-dealer, which executes
portfolio trades for the Funds.
Stilwell Financial was previously a wholly owned subsidiary
of Kansas City Southern Industries, Inc. ("KCSI"). On July 12, 2000, KCSI
completed a separation of its transportation and financial services segments
-21-
through a dividend of stock of Stilwell Financial. On that date, KCSI
shareholders received two shares of Stilwell Financial for every KCSI share held
as of June 28, 2000. The separation resulted in no change in the management or
control of the Funds or the adviser to the Funds.
INVESTMENT ADVISORY AGREEMENT
Under the Investment Advisory Agreement between the Fund and
its adviser, the adviser is generally responsible for furnishing continuous
advice and making investment decisions as to the acquisition, holding or
disposition of securities or other assets that the Fund may own or contemplate
acquiring from time to time. The Investment Advisory Agreement provides that the
investment adviser shall not be liable for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or omission
taken with respect to the Fund, except for willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties thereunder and except to the extent
otherwise provided by law.
Under the Agreement the adviser is compensated for its
services by the payment of a fee at an annual rate, calculated as a percentage
of the average daily net assets of the Fund.
The following schedule reflects the advisory fees charged to
the Fund for the fiscal year ended September 30, 2001:
<Table>
<Caption>
FUND ADVISER INVESTMENT ADVISORY FEE
- ------------------------------------------------- -------------------------- ---------------------------------------
Berger Small Company Growth Fund BFG 0.82%
</Table>
Investment advisory fees are charged to the Fund according to
the following schedule:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL RATE
First $500 million .85%
Berger Small Company Growth Fund Next $500 million .80%
Over $1 billion .75%
</Table>
The Fund's Investment Advisory Agreement will continue in
effect until the last day of April 2002, and thereafter from year to year if
such continuation is specifically approved at least annually by the trustees or
by vote of a majority of the outstanding shares of the Fund and in either case
by vote of a majority of the trustees who are not "interested persons" (as that
term is defined in the 1940 Act) of the Fund or the adviser. The Agreement is
subject to termination by the Fund or the adviser on 60 days' written notice and
terminates automatically in the event of its assignment.
TRADE ALLOCATIONS
While investment decisions for the Fund are made
independently by the adviser, the same investment decision may be made for the
Fund and one or more accounts advised by the adviser. In this circumstance,
should purchase and sell orders of the same class of security be in effect on
the same day, the orders for such transactions may be combined by the adviser in
order to seek the best combination of net price and execution for each. Client
orders partially filled will, as a general matter, be allocated pro rata in
proportion to each client's original order, although exceptions may be made to
avoid, among other things, odd lots and de minimus allocations. Execution prices
for a combined order will be averaged so that each participating client receives
the average price paid or received. Although in some cases this policy might
adversely affect the price paid or received by the Fund or other participating
accounts, or the size of the position obtained or liquidated, the adviser will
-22-
aggregate orders if it believes that coordination of orders and the ability to
participate in volume transactions will result in the best overall combination
of net price and execution.
BFG has adopted procedures for allocating to its participating
accounts' securities purchased pursuant to a company's initial public offering
("IPO"). The procedures provide that such allocations must be effected in a
manner that is fair and equitable to all accounts. Generally, securities
received from participating in IPOs will be allocated to participating accounts
pro rata based on account size or total equity assets.
The key criterion for determining eligibility of the account
to participate in an offering is the suitability of the investment for the
account. An account may participate in an IPO allocation if BFG believes that,
based on the account's investment restrictions, risk profile, asset composition
and cash levels, the IPO is an appropriate investment. Accordingly, no account
will participate in every IPO allocation. In addition, an account generally will
not participate in an IPO if the securities available for allocation to the
account are insignificant relative to the account's net assets. As a result, any
fund or account whose assets are very large is not likely to participate in the
allocation of many IPOs.
RESTRICTIONS ON PERSONAL TRADING
BFG, the Berger Funds and Berger Distributors LLC each permits
its directors, officers and employees to purchase and sell securities for their
own accounts, including securities that may be purchased or held by the Funds,
in accordance with a policy regarding personal investing in each of the Codes of
Ethics for BFG, the Berger Funds and Berger Distributors LLC. The policy
requires all covered persons to conduct their personal securities transactions
in a manner that does not operate adversely to the interests of the Funds or
BFG's other advisory clients. Directors and officers of BFG and Berger
Distributors LLC, investment personnel and other designated persons deemed to
have access to current trading information ("access persons") are required to
pre-clear all transactions in securities not otherwise exempt under the policy.
Requests for authority to trade will be denied pre-clearance when, among other
reasons, the proposed personal transaction would be contrary to the provisions
of the policy or would be deemed to adversely affect any transaction then known
to be under consideration for or currently being effected on behalf of any
client account, including the Funds.
In addition to the pre-clearance requirements described here
for BFG and Berger Distributors LLC, the policy subjects directors and officers
of BFG, the Berger Funds and Berger Distributors LLC, investment personnel and
other access persons to various trading restrictions and reporting obligations.
All reportable transactions are reviewed for compliance with the policy. The
policy is administered by BFG and the provisions of the policy are subject to
interpretation by and exceptions authorized by its management.
5. EXPENSES OF THE FUND
In addition to paying an investment advisory fee to its
adviser, the Fund pays all of its expenses not assumed by its adviser,
including, but not limited to, custodian and transfer agent fees, legal and
accounting expenses, administrative and record keeping expenses, interest
charges, federal and state taxes, expenses of investor meetings, compensation of
trustees who are not interested persons of BFG, expenses of printing and
distributing reports to investors and federal and state administrative agencies,
and all expenses incurred in connection with the execution of its portfolio
transactions, including brokerage commissions on purchases and sales of
portfolio securities, which are considered a cost of securities of the Fund. The
Fund also pays all expenses incurred in complying with all federal and state
laws and the laws of any foreign country applicable to the issue, offer or sale
of shares of the Fund, including, but not limited to, all costs involved in
preparing and printing prospectuses for investors of the Fund.
Under a separate Administrative Services Agreement with
respect to the Fund, BFG performs certain administrative and recordkeeping
services not otherwise performed by the Fund's custodian and recordkeeper,
including the preparation of financial statements and reports to be filed with
the Securities and Exchange Commission and state regulatory authorities. For the
fiscal year ended September 30, 2001, BFG did not charge an administrative fee
to the Fund. The administrative services fee may be changed by the trustees
without investor approval.
-23-
The following table shows the cost to the Fund of the
previously applicable advisory fee and administrative services fee for the years
shown and the amount of such fees waived on account of excess expenses under
applicable expense limitations.
BERGER SMALL COMPANY GROWTH FUND
<Table>
<Caption>
FISCAL YEAR ENDED INVESTMENT ADMINISTRATIVE EXPENSE TOTAL
SEPTEMBER 30, ADVISORY FEE(1) SERVICE FEE(2) REIMBURSEMENT(3)
- ---------------------------- --------------------- --------------------- ----------------------- -------------------
2001 $ 8,204,000 $ 0 $ (10,000) $ 8,194,000
2000 $ 10,140,000 $ 0 $ (14,000) $ 10,126,000
1999 $ 5,582,000 $ 62,000 $ 0 $ 5,644,000
</Table>
(1) Effective October 1, 1999, the investment advisory fee charged to the Fund
was reduced from .90% to the following rates of average daily net assets:
0.85% of the first $500 million; 0.80% of the next $500 million and 0.75%
in excess of $1 billion.
(2) Effective October 1, 1999, the 0.01% administrative services fee was
eliminated.
(3) For the Institutional Share class only, BFG reimburses the Fund to the
extent the normal transfer agency and registration expenses of the
Institutional Shares exceed .20%.
The Fund has appointed State Street Bank and Trust Company
("State Street"), One Heritage Drive, North Quincy, Massachusetts 02171, as its
recordkeeping and pricing agent. In addition, State Street also serves as the
Funds' custodian. Each of the Funds has appointed DST Systems, Inc. ("DST"),
P.O. Box 219958, Kansas City, Missouri 64121, as its transfer agent and
dividend-disbursing agent. Stilwell owns approximately 33% of the outstanding
shares of DST.
As recordkeeping and pricing agent, State Street calculates
the daily net asset value of the Fund and performs certain accounting and
recordkeeping functions required by the Fund. The Fund pays State Street a
monthly asset-based fee for such services. State Street is also reimbursed for
certain out-of-pocket expenses.
State Street, as custodian, and its subcustodians have
custody and provide for the safekeeping of the Fund's securities and cash, and
receive and remit the income thereon as directed by the management of the Fund.
The custodian and subcustodians do not perform any managerial or policy-making
functions for the Fund. For its services as custodian, State Street receives an
asset-based fee plus certain transaction fees and out-of-pocket expenses.
As transfer agent and dividend disbursing agent, DST
maintains all investor accounts of record; assists in mailing all reports,
proxies and other information to the Fund's investors; calculates the amount of,
and delivers to the Fund's investors, proceeds representing all dividends and
distributions; and performs other related services. For these services, DST
receives a fee from the Fund at an annual rate of $14.85 per open Fund investor
account, subject to preset volume discounts, plus certain transaction fees and
fees for closed accounts, and is reimbursed for out-of-pocket expenses.
All of State Street's fees are subject to reduction pursuant
to an agreed formula for certain earnings credits on the cash balances of the
Fund. Earnings credits received by the Fund can be found on the Fund's Statement
of Operations in the Annual Report incorporated by reference into this Statement
of Additional Information.
OTHER EXPENSE INFORMATION
The trustees of the Fund have authorized portfolio
transactions to be placed on an agency basis through DST Securities, Inc.
("DSTS"), a wholly owned broker-dealer subsidiary of DST. When transactions are
effected through DSTS, the commission received by DSTS is credited against, and
thereby reduces, certain operating expenses that the Fund would otherwise be
obligated to pay. No portion of the commission is retained by
-24-
DSTS. See Section 6--Brokerage Policy for further information concerning the
expenses reduced as a result of these arrangements. DSTS may be considered an
affiliate of BFG due to the ownership interest of Stilwell in both DST and BFG.
The Fund and/or its adviser have entered into arrangements
with certain brokerage firms and other companies (such as recordkeepers and
administrators) to provide administrative services (such as sub-transfer agency,
recordkeeping, investor communications, sub-accounting and/or other services) to
investors purchasing shares of the Fund through those firms or companies. The
Fund's adviser or the Fund (if approved by its trustees) may pay fees to these
companies for their services. These companies may also be appointed as agents
for or authorized by the Fund to accept on its behalf purchase and redemption
requests that are received in good order. Subject to Fund approval, certain of
these companies may be authorized to designate other entities to accept purchase
and redemption orders on behalf of the Fund.
The Fund's adviser may also enter into arrangements with
organizations that solicit clients for the adviser, which may include clients
who purchase shares of the Fund. While the specific terms of each arrangement
may differ, generally the fee paid by the adviser under such arrangements is
based on the value of the referred client's assets managed by the adviser. None
of the fees paid to such organizations will be borne by the Fund.
DISTRIBUTOR
The distributor (principal underwriter) of the Fund's shares
is Berger Distributors LLC (the "Distributor"), 210 University Boulevard, Suite
800, Denver, Colorado 80206. The Distributor may be reimbursed by BFG for its
costs in distributing the Fund's Institutional Shares.
6. BROKERAGE POLICY
Although the Fund retains full control over its own
investment policies, under the terms of its Investment Advisory Agreement, BFG
as the Fund's adviser is directed to place the portfolio transactions of the
Fund. A report on the placement of brokerage business is given to the trustees
of the Fund every quarter, indicating the brokers with whom Fund portfolio
business was placed and the basis for such placement. The brokerage commissions
paid by the Fund during the past three fiscal years were as follows:
BROKERAGE COMMISSIONS
<Table>
<Caption>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
- --------------------------------------------- ---------------------------- -------------------------- --------------------------
Berger Small Company Growth Fund $ 1,267,000 $ 616,000 $ 807,000
</Table>
The Investment Advisory Agreement authorizes and directs the
adviser to place portfolio transactions for the Fund only with brokers and
dealers who render satisfactory service in the execution of orders at the most
favorable prices and at reasonable commission rates. However, the Agreement
specifically authorizes the adviser to place such transactions with a broker
with whom it has negotiated a commission that is in excess of the commission
another broker or dealer would have charged for effecting that transaction if
the adviser determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker viewed in terms of either that particular transaction or
the overall responsibilities of the adviser. Accordingly, the adviser does not
have an obligation to seek the lowest available commission.
In accordance with this provision of the Agreement, portfolio
brokerage business of the Fund may be placed with brokers who provide useful
brokerage and research services to the adviser. The Fund's adviser may consider
the value of research provided as a factor in the choice of brokers. "Research"
includes computerized on-line stock quotation systems and related data feeds
from stock exchanges, computerized trade order entry, execution and confirmation
systems, fundamental and technical analysis data and software,
-25-
computerized stock market and business news services, economic research, account
performance data and computer hardware used for the receipt of electronic
research services and broker and other third-party equity research, such as
publications or writings that furnish advice as to the value of securities and
advisability of investing, and analyses and reports concerning issuers,
industries, securities, market trends and portfolio strategies. Research may be
provided orally, in print or electronically. These include a service used by the
independent trustees of the Fund in reviewing the Investment Advisory Agreement.
In some cases, a product or services termed "research" may
serve other functions unrelated to the making of investment decisions. When a
product has such a mixed use, the adviser will make a good faith allocation of
the cost of the product according to the use made of it. The portion of the
product that assists the adviser in the investment decision-making process may
be paid for with the Fund's commission dollars. The adviser pays for the portion
of the product that is not "research" with its own funds. Accordingly, the
decision whether and how to allocate the costs of such a product presents a
conflict of interest for BFG.
BFG does not enter into formal agreements with any brokers
regarding the placement of securities transactions because of any such brokerage
or research services that they provide. BFG may, however, make arrangements with
and maintain internal procedures for allocating transactions to brokers who
provide such services to encourage them to provide services expected to be
useful to BFG's clients, including the Fund. Brokers may suggest a level of
business they would like to receive in return for the brokerage and research
they provide. BFG then determines whether to continue receiving the research and
brokerage provided and the approximate amount of commissions it is willing to
pay to continue the brokerage and research arrangement with each broker. The
actual amount of commissions a broker may receive may be more or less than a
broker's suggested allocations, depending on BFG's level of business, market
conditions and other relevant factors. Even under these arrangements, however,
the placement of all Fund transactions, must be consistent with the Fund's
brokerage placement and execution policies, and must be directed to a broker who
renders satisfactory service in the execution of orders at the most favorable
prices and at reasonable commission rates.
During the fiscal year ended September 30, 2001, of the
brokerage commissions paid by the Fund, the following amounts were paid to
brokers who provided to the Fund selected brokerage or research services
prepared by the broker or subscribed or paid for by the broker on behalf of the
Fund:
<Table>
<Caption>
FUND AMOUNT OF TRANSACTIONS AMOUNT OF COMMISSIONS
- ------------------------------------------------ -------------------------------- -----------------------------------
Berger Small Company Growth Fund $ 116,072,000 $ 270,000
</Table>
These brokerage and research services received from brokers
are often helpful to BFG in performing its investment advisory responsibilities
to the Fund, and the availability of such services from brokers does not reduce
the responsibility of BFG's advisory personnel to analyze and evaluate the
securities in which the Fund invests. The brokerage and research services
obtained as a result of the Fund's brokerage business also will be useful to BFG
in making investment decisions for its other advisory accounts, and, conversely,
information obtained by reason of placement of brokerage business of such other
accounts may be used by BFG in rendering investment advice to the Fund. Although
such brokerage and research services may be deemed to be of value to BFG, they
are not expected to decrease the expenses that BFG would otherwise incur in
performing its investment advisory services for the Fund nor will the advisory
fees that are received by BFG from the Fund be reduced as a result of the
availability of such brokerage and research services from brokers.
The trustees of the Fund have authorized portfolio
transactions to be placed on an agency basis through DSTS, a wholly owned
broker-dealer subsidiary of DST. When transactions are effected through DSTS,
the commission received by DSTS is credited against, and thereby reduces,
certain operating expenses that the Fund would otherwise be obligated to pay. No
portion of the commission is retained by DSTS. DSTS may be considered an
affiliate of BFG due to the ownership interest of Stilwell in both DST and BFG.
-26-
Included in the brokerage commissions paid by the Fund during
the last three fiscal years, as stated in the preceding Brokerage Commissions
table, are the following amounts paid to DSTS, which served to reduce the Fund's
out-of-pocket expenses as follows:
DSTS COMMISSIONS AND RELATED EXPENSE REDUCTIONS
<Table>
<Caption>
DSTS DSTS DSTS
COMMISSIONS REDUCTION IN COMMISSIONS REDUCTION IN COMMISSIONS REDUCTION IN
PAID EXPENSES FYE PAID EXPENSES FYE PAID EXPENSES FYE
FYE 9/30/01 9/30/01 FYE 9/30/00 9/30/00(1) FYE 9/30/99 9/30/99(1)
--------------- --------------- --------------- -------------- ---------------- --------------
Berger Small Company
Growth Fund $ 0 $ 0 $ 0 $ 0 $ 6,000 $ 4,500
</Table>
(1) No portion of the commission is retained by DSTS. Difference between
commissions paid through DSTS and reduction in expenses constitute
commissions paid to an unaffiliated clearing broker.
The Fund's adviser places securities orders with a limited
number of major institutional brokerage firms chosen for the reliability and
quality of execution; commission rates; quality of research coverage of major
U.S. companies, the U.S. economy and the securities markets; promptness; back
office capabilities; capital strength and financial stability; prior performance
in serving the adviser and its clients; and knowledge of other buyers and
sellers. The adviser selects the broker for each order based on the factors
stated, as well as the size, difficulty and other characteristics of the order.
The trustees of the Fund have also authorized sales of shares of the Fund by a
broker-dealer and the recommendations of a broker-dealer to its customers that
they purchase Fund shares to be considered as factors in the selection of
broker-dealers to execute portfolio transactions for the Fund. In addition, the
adviser may also consider payments made by brokers to the Fund or to other
persons on behalf of the Fund for services provided to the Fund for which it
would otherwise be obligated to pay, such as transfer agency fees. In placing
portfolio business with any such broker or dealer, the adviser of the Fund will
seek the best execution of each transaction.
7. HOW TO PURCHASE AND REDEEM SHARES IN THE FUND
Minimum Initial Investment $250,000
Institutional Shares in the Fund may be purchased at the
relevant net asset value without a sales charge. The minimum initial investment
for Institutional Shares of the Fund is $250,000.
To purchase shares in the Fund, simply complete the
application form enclosed with the Prospectus. Then mail it with a check payable
to "Berger Funds" to the following address:
Berger Funds
P.O. Box 219958
Kansas City, MO 64121-9958
Payment for shares purchased may be made by wire, electronic
funds transfer or mail. All purchase orders are effected at the relevant net
asset value per share of the Fund next determined after receipt of the purchase
order, completed application and payment. A purchase order, together with
payment in proper form, received by the Fund, its authorized agent or designee
prior to the close of the New York Stock Exchange (the "Exchange") on a day the
Fund is open for business will be effected at that day's net asset value. An
order received after that time will be effected at the net asset value
determined on the next business day.
Additional investments may be made at any time by mail,
telephone (1-800-960-8427) or online (bergerfunds.com) at the relevant net asset
value by calling or writing the Fund and making payment by wire or electronic
funds transfer as outlined here.
-27-
In addition, Fund shares may be purchased through certain
broker-dealers that have established mutual fund programs and certain other
organizations connected with pension and retirement plans. These broker-dealers
and other organizations may charge investors a transaction or other fee for
their services, may require different minimum initial and subsequent investments
than the Fund and may impose other charges or restrictions different from those
applicable to investors who invest in the Fund directly. Fees charged by these
organizations will have the effect of reducing an investor's total return on an
investment in Fund shares. No such charge will apply to an investor who
purchases Fund shares directly from the Fund as described here.
Procedures for purchasing, selling (redeeming) and exchanging
Fund shares by telephone and online are described in the Prospectus. The Fund
may terminate or modify those procedures and related requirements at any time.
BFG may, at its own risk, waive certain of those procedures and related
requirements.
The Fund also offers a Systematic Investment Plan (minimum
$50 per month) and a Systematic Withdrawal Plan (minimum of $50 withdrawn
monthly, quarterly, semiannually or annually). Forms for these plans may be
obtained online at bergerfunds.com or by calling 1-800-960-8427.
8. HOW THE NET ASSET VALUE IS DETERMINED
The net asset value of the Fund is determined once daily, at
the close of the regular trading session of the New York Stock Exchange (the
"Exchange") (normally 4:00 p.m., Eastern time, Monday through Friday) each day
that the Exchange is open. The Exchange is closed and the net asset value of the
Fund is not determined on weekends and on New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day each year.
The per share net asset value of the Institutional Shares is
determined by dividing the Institutional Shares' pro rata portion of the total
value of the Fund's securities and other assets, less the Institutional Shares'
pro rata portion of the Fund's liabilities and the liabilities attributable to
the Institutional Shares, by the total number of Institutional Shares
outstanding. Since net asset value for the Fund is calculated by class, and
since the Institutional Shares and each other class of the Fund has its own
expenses, the per share net asset value of the Fund will vary by class.
In determining net asset value, securities listed or traded
primarily on national exchanges, The Nasdaq Stock Market and foreign exchanges
are valued at the last sale price on such markets, or, if such a price is
lacking for the trading period immediately preceding the time of determination,
such securities are valued at the mean of their current bid and asked prices.
Securities that are traded in the over-the-counter market are valued at the mean
between their current bid and asked prices. The market value of individual
securities held by the Fund will be determined by using prices provided by
pricing services that provide market prices to other mutual funds or, as needed,
by obtaining market quotations from independent broker/dealers. Short-term money
market securities maturing within 60 days are valued on the amortized cost
basis, which approximates market value. All assets and liabilities initially
expressed in terms of non-U.S. dollar currencies are translated into U.S.
dollars at the prevailing market rates as quoted by one or more banks or dealers
shortly before the close of the Exchange. Securities and assets for which
quotations are not readily available or are not representative of market value
may be valued at their fair value determined in good faith pursuant to
consistently applied procedures established by the trustees. Examples would be
when events occur that materially affect the value of a security at a time when
the security is not trading or when the securities are illiquid.
Generally, trading in foreign securities markets is
substantially completed each day at various times prior to the close of the
Exchange. The values of foreign securities used in computing the net asset value
of the shares of the Fund are determined as of the earlier of such market close
or the closing time of the Exchange. Occasionally, events affecting the value of
such securities may occur between the times at which they are determined and the
close of the Exchange, or when the foreign market on which such securities trade
is closed but the Exchange is open, which will not be reflected in the
computation of net asset value. If during such periods, events occur that
materially affect the value of such securities, the securities may be valued at
their fair value as determined in good faith pursuant to consistently applied
procedures established by the trustees.
-28-
The Fund's securities may be listed primarily on foreign
exchanges or over-the-counter dealer markets that may trade on days when the
Exchange is closed (such as a customary U.S. holiday) and on which the Fund's
net asset value is not calculated. As a result, the net asset value of the Fund
may be significantly affected by such trading on days when investors cannot
purchase or redeem shares of the Fund.
9. INCOME DIVIDENDS, CAPITAL GAINS, DISTRIBUTIONS AND TAX
TREATMENT
This discussion summarizes certain U.S. federal income tax
issues relating to the Fund. As a summary, it is not an exhaustive discussion of
all possible tax ramifications. Accordingly, investors are urged to consult with
their tax advisers with respect to their particular tax consequences.
TAX STATUS OF THE FUND. If the Fund meets certain investment
and distribution requirements, it will be treated as a "regulated investment
company" (a "RIC") under the Internal Revenue Code and will not be subject to
federal income tax on earnings that it distributes in a timely manner to
investors. It may be subject to an excise tax on undistributed income if it does
not meet certain timing requirements for distributions. The Fund intends to
qualify as a RIC annually and to make timely distributions in order to avoid
income and excise tax liabilities.
TAX ON FUND DISTRIBUTIONS. With certain exceptions provided
by law, the Fund will report annually to the Internal Revenue Service and to
each investor, information about the tax treatment of the investor's
distributions. Dividends paid by the Fund, whether received in cash or
reinvested in additional Fund shares, will be treated as ordinary income to the
investors. Distributions of net capital gain, whether received in cash or
reinvested in Fund shares, will be taxable to the investors, but the rate of tax
will vary depending upon the Fund's holding periods in the assets whose sale
resulted in the capital gain. Dividends and distributions that are declared in
October, November or December but not distributed until the following January
will be considered to be received by the investors on December 31.
In general, net capital gains from assets held by the Fund
for more than 12 months will be subject to the applicable long-term capital
gains rates and net capital gains from assets held for 12 months or less will be
taxed as ordinary income. Distributions will be subject to these capital gains
rates, regardless of how long an investor has held Fund shares. Assets
contributed to the Fund in an in-kind purchase of Fund shares may generate more
gain upon their sale than if the assets had been purchased by the Fund with cash
contributed to the Fund in a cash purchase of Fund shares.
If the Fund's distributions for a taxable year exceeds its
tax earnings and profits available for distribution, all or a portion of its
distributions may be treated as a return of capital. To the extent a
distribution is treated as a return of capital, an investor's basis in his or
her Fund shares will be reduced by that amount.
If a investor has elected to receive dividends and/or capital
gain distributions in cash and the U.S. Postal Service is unable to deliver
checks to the investor's address of record or if a investor's checks remain
uncashed for six months, the Fund reserves the right to reinvest the amount
distributed in shares of the applicable Fund at the NAV next computed after the
check is canceled, and to convert the investor's distribution option from
receiving cash to having all dividend and other distributions reinvested in
additional shares. In addition, no interest will accrue on amounts represented
by uncashed distribution or redemption checks.
Additionally, the Funds reserve the right to reinvest
distributions of less than $10 in shares of the applicable Fund at the next
computed NAV.
TAX ON REDEMPTIONS OF FUND SHARES. Investors may be subject
to tax on the redemption of their Fund shares. In general, such redemptions may
give rise to a capital gain or loss, the treatment of which will depend on the
investor's holding period in the Fund shares. Tax laws may prevent the deduction
of a loss on the sale of Fund shares if the investor reinvests in the Fund
shortly before or after the sale giving rise to the loss. Any loss on the
redemption or other sale or exchange of Fund shares held for six months or less
will be treated as a long-term capital loss to the extent of any long-term
capital gain distribution received on the shares.
-29-
INCOME FROM FOREIGN SOURCES. Dividends and interest received
by the Fund on foreign securities may give rise to withholding and other taxes
imposed by foreign countries, although these taxes may be reduced by applicable
tax treaties. Foreign taxes will generally be treated as expenses of the Fund,
unless the Fund has more than 50% of its assets invested in foreign corporate
securities at the end of the Fund's taxable year. In that case, if the Fund
makes an election, investors of the Fund may be able to deduct (as an itemized
deduction) or claim a foreign tax credit for their share of foreign taxes,
subject to limitations prescribed in the tax law.
If the Fund invests in a foreign corporation that is a passive
foreign investment company (a "PFIC"), special rules apply that may affect the
tax treatment of gains from the sale of the stock and may cause the Fund to
incur IRS tax and interest charges. However, the Fund may be eligible to elect
one of two alternative tax treatments with respect to PFIC shares that would
avoid these taxes and charges but also may affect, among other things, the
amount and character of gain or loss and the timing of the recognition of income
with respect to PFIC shares. Accordingly, the amounts, character and timing of
income distributed to investors of the Fund holding PFIC shares may differ
substantially as compared with a fund that did not invest in PFIC shares.
INCOME FROM CERTAIN TRANSACTIONS. Some or all of the Fund's
investments may include transactions that are subject to special tax rules.
Transactions involving foreign currencies may give rise to gain or loss that
could affect the Fund's ability to make ordinary dividend distributions.
Investment in certain financial instruments, such as options, futures contracts
and forward contracts, may require annual recognition of unrealized gains and
losses. Transactions that are treated as "straddles" may affect the character
and/or timing of other gains and losses of the Fund. If the Fund enters into a
transaction (such as a "short sale against the box") that reduces the risk of
loss on an appreciated financial position that it already holds, the entry into
the transaction may constitute a constructive sale and require immediate
recognition of gain.
BACKUP WITHHOLDING. In general, if an investor is subject to
backup withholding, the Fund will be required to withhold federal income tax at
the applicable rate from distributions to that investor. These payments are
creditable against the investor's federal income tax liability.
FOREIGN INVESTORS. Foreign investors of the Fund generally
will be subject to the applicable U.S. withholding tax on dividends paid by the
Fund from ordinary income and short-term capital gain, although the rate may be
reduced by a tax treaty. If a foreign investor dies while owning Fund shares,
those shares may be subject to U.S. estate taxes.
10. SUSPENSION OF REDEMPTION RIGHTS
The Fund may not suspend the right of redemption, or postpone
the day of payment or satisfaction upon redemption of any redeemable shares for
more than seven days except for any period during which the New York Stock
Exchange is closed or the Securities and Exchange Commission determines that
trading on the Exchange is restricted or when there is an emergency as
determined by the Securities and Exchange Commission as a result of which it is
not reasonably practicable for the Fund to dispose of securities owned by it or
to determine the value of its net assets, or for such other period as the
Securities and Exchange Commission may by order permit for the protection of
investors of the Fund.
The Fund intends to redeem its shares only for cash, although
it retains the right to redeem its shares in-kind under unusual circumstances,
in order to protect the interests of the remaining investors, by the delivery of
securities selected from its assets at its discretion. The Fund is, however,
governed by Rule 18f-1 under the Investment Company Act of 1940 pursuant to
which the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net assets of the Fund during any 90-day period for any
one investor. For purposes of this threshold, each underlying account holder
whose shares are held of record in certain omnibus accounts is treated as one
investor. Should redemptions by any investor during any 90-day period exceed
such limitation, the Fund will have the option of redeeming the excess in cash
or in-kind. If shares are redeemed in-kind, the redeeming investor generally
will incur brokerage costs in converting the assets to cash. The redeeming
investor may have difficulty selling the securities and recovering the amount of
the redemption if the securities are illiquid. The method of valuing securities
used to make redemption in-kind will be the same as the method of valuing
portfolio securities described under Section 8.
-30-
11. TAX-SHELTERED RETIREMENT PLANS
The Fund offers several tax-qualified retirement plans for
individuals, businesses and nonprofit organizations. For information about
establishing an IRA, Roth IRA, profit sharing or money purchase pension plan,
403(b) Custodial Account, SEP-IRA, SIMPLE IRA account or other retirement plans,
please call 1-800-259-2820 or write to the Berger Funds, c/o Berger Financial
Group LLC, P.O. Box 5005, Denver, CO 80217-5005. Trustees for existing 401(k) or
other plans interested in using Fund shares as an investment or investment
alternative in their plans are invited to call the Fund at 1-800-259-2820.
12. EXCHANGE PRIVILEGE
Any investor may exchange any or all of the investor's shares
in any of the Funds, subject to stated minimums, for shares of any of the other
available Berger Funds or for shares of the Money Market Portfolio, the
Government Securities Portfolio or the Tax-Exempt Portfolio of the Cash Account
Trust ("CAT Portfolios"), separately managed, unaffiliated money market funds,
without charge, after receiving a current prospectus of the other Fund or CAT
Portfolio. The exchange privilege with the CAT Portfolios does not constitute an
offering or recommendation of the shares of any such CAT Portfolio by any of the
Funds or BFG. BFG is compensated for administrative services it performs with
respect to the CAT Portfolios.
Exchanges into or out of the Funds are made at the net asset
value per share next determined after the exchange request is received. Each
exchange represents the sale of shares from one Fund and the purchase of shares
in another, which may produce a gain or loss for income tax purposes.
An exchange of shares may be made by written request, via
on-line access or simply by telephoning the Berger Funds at 1-800-960-8427. This
privilege may be terminated or amended by any of the Funds and is not available
in any state in which the shares of the Fund or CAT Portfolio being acquired in
the exchange are not eligible for sale. Investors automatically have telephone
and on-line privileges to authorize exchanges unless they specifically decline
this service in the account application or in writing.
13. PERFORMANCE INFORMATION
From time to time in advertisements, the Fund may discuss its
performance ratings as published by recognized mutual fund statistical services,
such as Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.,
Morningstar, Inc. or Value Line Investment Survey or by publications of general
interest such as The Wall Street Journal, Investor's Business Daily, Money,
Barron's, Financial World or Kiplinger's Personal Finance Magazine. In addition,
the Fund may compare its performance to that of recognized broad-based
securities market indices, including the Standard & Poor's 500 Stock Index, the
Dow Jones Industrial Average, the Wilshire 5000 Index, the Russell 2000 Stock
Index, Russell 1000 Growth Index, Russell Mid Cap Growth, Russell 2000 Growth
Index, Russell 3000 Growth Index, Russell 2000 Value Index, Russell Mid Cap
Value Index, the Standard & Poor's 400 Mid-Cap Index, the Standard & Poor's 600
Small Cap Index, Morgan Stanley Capital International EAFE (Europe, Australasia,
Far East) Index, the Dow Jones World Index, the Standard & Poor's/BARRA Value
Index, the Nasdaq Composite Index, the Nasdaq 100, the Lehman Brothers
Intermediate Term Government/Corporate Bond Index or the InformationWeek 100
Index, or more narrowly based or blended indices that reflect the market sectors
in which that Fund invests.
The total return of the Fund is calculated for any specified
period of time by assuming the purchase of shares of the Fund at the net asset
value at the beginning of the period. Each dividend or other distribution paid
by the Fund is assumed to have been reinvested at the net asset value on the
reinvestment date. The total number of shares then owned as a result of this
process is valued at the net asset value at the end of the period. The
percentage increase is determined by subtracting the initial value of the
investment from the ending value and dividing the remainder by the initial
value.
The Fund's total return reflects the Fund's performance over
a stated period of time. An average annual total return reflects the
hypothetical annually compounded return that would have produced the same total
return if the Fund's performance had been constant over the entire period. Total
return figures are based on the overall change in value of a hypothetical
investment in the Fund. Because average annual total returns for more
-31-
than one year tend to smooth out variations in the Fund's return, investors
should recognize that such figures are not the same as actual year-by-year
results.
All performance figures for the Fund are based upon
historical results and do not assure future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
Quotations of average annual total return for the Fund will
be expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund over periods of 1, 3, 5 and 10 years, or for
the life of the Fund, if shorter. These are the rates of return that would
equate the initial amount invested to the ending redeemable value. These rates
of return are calculated pursuant to the following formula:
n
P(1 + T) = ERV
Where P = a hypothetical initial payment of $1,000 T = the
average annual total return n = the number of years
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at the
beginning of the period).
All total return figures reflect the deduction of a
proportional share of Fund expenses on an annual basis, and assume that all
dividends and distributions are reinvested when paid.
PREDECESSOR PERFORMANCE QUOTATIONS
Shares of the Fund had no class designations until July 6,
1999, when all of the then-existing shares were designated as Investor Shares
and the Institutional Shares class of the Fund covered in this Statement of
Additional Information was established. The Institutional Shares class of the
Fund commenced investment operations on October 16, 1999. Performance data for
the Institutional Shares include periods prior to the commencement of investment
operations of the Institutional Shares class on that date, and therefore reflect
a 0.25% per year 12b-1 fee applicable to the Investor Shares that is not paid by
the Institutional Shares. Total return of the Institutional Shares and other
classes of shares of the Fund will be calculated separately. Because each class
of shares is subject to different expenses, the performance of each class for
the same period will differ.
AVERAGE ANNUAL TOTAL RETURNS
The average annual total return for the Fund for various
periods ending September 30, 2001, are shown on the following table:
<Table>
<Caption>
FUND 1-YEAR 3-YEAR 5-YEAR 10-YEAR LIFE OF FUND
Berger Small Company Growth Fund(1) (59.03)% 7.30% 1.83% N/A 9.90%
(since 12/30/93)
</Table>
(1) Performance data reflects a 0.25% 12b-1 fee not paid by the
Institutional Shares.
14. ADDITIONAL INFORMATION
FUND ORGANIZATION
The Fund is a separate series of the Berger Investment
Portfolio Trust (the "Trust"), a Delaware business trust established under the
Delaware Business Trust Act. The Fund was established on August 23, 1993. The
name "Berger Small Company Growth Fund(R)" was registered as a service mark in
September 1995. The Berger Small Company Growth Fund had no class designations
until July 6, 1999, when all of the then-existing shares were designated as
Investor Shares, which are covered in a separate Prospectus and Statement of
-32-
Additional Information, and the Fund commenced offering the class known as
Institutional Shares covered in this Statement of Additional Information.
The Trust is authorized to issue an unlimited number of
shares of beneficial interest in series or portfolios. Currently, the Fund is
one of eight series established under the Trust, although others may be added in
the future. The Trust is also authorized to establish multiple classes of shares
representing differing interests in an existing or new series. The Fund
currently has two classes of shares, although others may be added in the future.
Shares of the Fund are fully paid and nonassessable when
issued. Each share has a par value of $.01. All shares issued by the Fund
participate equally in dividends and other distributions by the Fund, and in the
residual assets of the Fund in the event of its liquidation.
DELAWARE BUSINESS TRUST INFORMATION. Under Delaware law,
investors of the Fund will enjoy the same limitations on personal liability as
extended to stockholders of a Delaware corporation. Further, the Trust
Instrument of the Trust provides that no investor shall be personally liable for
the debts, liabilities, obligations and expenses incurred by, contracted for or
otherwise existing with respect to, the Trust or any particular series (fund) of
the Trust. However, the principles of law governing the limitations of liability
of beneficiaries of a business trust have not been authoritatively established
as to business trusts organized under the laws of one jurisdiction but operating
or owning property in other jurisdictions. In states that have adopted
legislation containing provisions comparable to the Delaware Business Trust Act,
it is believed that the limitation of liability of beneficial owners provided by
Delaware law should be respected. In those jurisdictions that have not adopted
similar legislative provisions, it is possible that a court might hold that the
investors of the Trust are not entitled to the limitations of liability set
forth in Delaware law or the Trust Instrument and, accordingly, that they may be
personally liable for the obligations of the Trust.
In order to protect investors from such potential liability,
the Trust Instrument requires that every written obligation of the Trust or any
series thereof contain a statement to the effect that such obligation may only
be enforced against the assets of the Trust or such series. The Trust Instrument
also provides for indemnification from the assets of the relevant series for all
losses and expenses incurred by any investor by reason of being or having been a
investor, and that the Trust shall, upon request, assume the defense of any such
claim made against such investor for any act or obligation of the relevant
series and satisfy any judgment thereon from the assets of that series.
As a result, the risk of an investor of the Fund incurring
financial loss on account of investor liability is limited to circumstances in
which the Fund itself would be unable to meet its obligations. The Trust
believes that the risk of personal liability to investors of the Fund is
therefore remote. The trustees intend to conduct the operations of the Trust and
the Fund so as to avoid, to the extent possible, liability of investors for
liabilities of the Trust or the Fund.
CORPORATE GOVERNANCE INFORMATION PERTAINING TO THE FUND. The
Fund is not required to hold annual investor meetings unless required by the
Investment Company Act of 1940 or other applicable law or unless called by the
trustees. If investors owning at least 10% of the outstanding shares of the
Trust so request, a special investors' meeting of the Trust will be held for the
purpose of considering the removal of a trustee. Special meetings will be held
for other purposes if the holders of at least 25% of the outstanding shares of
the Trust so request. Subject to certain limitations, the Trust will facilitate
appropriate communications by investors desiring to call a special meeting for
the purpose of considering the removal of a trustee.
Investors of the Fund and, when applicable, the other
series/classes of the Trust, generally vote separately on matters relating to
those respective series/classes, although they vote together and with the
holders of any other series/classes of the Trust in the election of trustees of
the Trust and on all matters relating to the Trust as a whole. Each full share
of the Fund has one vote.
Shares of the Fund have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election of
trustees can elect 100% of the trustees if they choose to do so, and, in such
event, the holders of the remaining less than 50% of the shares voting for the
election of trustees will not be able to elect any person or persons as
trustees.
-33-
Shares of the Fund have no preemptive rights. There are no
sinking funds or arrearage provisions that may affect the rights of the Fund
shares. Fund shares have no subscription rights or conversion rights, except
that investors of any class of the Fund may convert their shares into shares of
any other class of the Fund in the event and only in the event the investor
ceases to be eligible to purchase or hold shares of the original class or
becomes eligible to purchase shares of a different class, by reason of a change
in the investor's status under the conditions of eligibility in effect for such
class at that time. Shares of the Fund may be transferred by endorsement, or
other customary methods, but the Fund is not bound to recognize any transfer
until it is recorded on its books.
Under governing corporate law, the Fund may enter into a
variety of corporate transactions, such as reorganizations, conversions, mergers
and asset transfers, or may be liquidated. Any such transaction would be subject
to a determination from the trustees that the transaction was in the best
interests of the Fund and its investors, and may require obtaining investor
approval.
MORE INFORMATION ON SPECIAL MULTI-CLASS FUND STRUCTURE
The Fund currently has divided its shares into two classes of
shares, the Institutional Shares covered by this SAI and the Investor Shares
offered through a separate Prospectus and SAI. The Fund implemented its
multi-class structure by adopting a Rule 18f-3 Plan under the 1940 Act
permitting it to issue its shares in classes. The Fund's Rule 18f-3 Plan governs
such matters as class features, dividends, voting, allocation of income and
expenses between classes, exchange and trustee monitoring of the Plan. Each
class is subject to such investment minimums and other conditions of eligibility
as are set forth in the relevant prospectus for the class, as it may be amended
from time to time. Investor Shares are available to the general public and bear
a 0.25% 12b-1 fee. Information concerning Investor Shares is available from the
Fund at 1-800-333-1001.
Subject to the Trust's Trust Instrument and any other
applicable provisions, the trustees of the Trust have the authority to create
additional classes, or change existing classes, from time to time, in accordance
with Rule 18f-3 under the Act.
PRINCIPAL INVESTORS
Insofar as the management of the Fund is aware, as of
December 31, 2001, no person owned, beneficially or of record, more than 5% of
the outstanding shares of the Institutional Shares class of the Fund, except for
the following:
<Table>
<Caption>
OWNER PERCENTAGE
- ----- ----------------------------
Charles Schwab & Co. Inc. ("Schwab") 51.37%
101 Montgomery Street
San Francisco, CA 94104-4122
Sheldon & Co. 15.93%
C/O National City Bank
PO Box 94484
Cleveland, OH 44101-4484
Leonard Strear 8.92%
Strear Family Foundation
6825 E. Tennessee #235
Denver, CO 80224-1630
Herbert L. Wittow Tr. 6.83%
4600 S. Ulster Street, Ste 660
Denver, CO 80237-2872
Southwest Securities Inc. 5.25%
FBO Sisk Charitable Trust
PO Box 509002
Dallas, TX 75250-9002
Kenneburt & Co. 5.22%
PO Box 12365
Birmingham, AL 35202-2365
</Table>
-34-
As of December 31, 2001, Schwab owned of record 24.41% of all
the outstanding shares of the Berger Investment Portfolio Trust, of which the
Fund is one outstanding series.
Any person owning more than 25% of the outstanding securities
of the Fund may be deemed to control it. Schwab is believed to hold its shares
of the Fund as nominee for the benefit of its clients or customers.
DISTRIBUTION
Berger Distributors LLC, as the Fund's Distributor, is the
principal underwriter of the Fund's shares. The Distributor is a wholly owned
subsidiary of BFG. The Distributor is a registered broker-dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. The Distributor acts as the agent of the Fund in
connection with the sale of the Fund's shares in all states in which the shares
are eligible for sale and in which the Distributor is qualified as a
broker-dealer. Janice M. Teague, Vice President and Secretary of the
Distributor, is also Vice President and Assistant Secretary of the Fund. Brian
Ferrie, Vice President and Chief Financial Officer of the Distributor, is also
Vice President of the Fund. Anthony Bosch, Vice President and Chief Compliance
Officer of the Distributor is also Vice President of the Fund. Sue Vreeland,
Assistant Secretary of the Distributor, is also Secretary of the Fund.
The Fund and the Distributor are parties to a Distribution
Agreement that continues through April 2002, and thereafter from year to year if
such continuation is specifically approved at least annually by the trustees or
by vote of a majority of the outstanding shares of the Fund and in either case
by vote of a majority of the trustees who are not "interested persons" (as that
term is defined in the Investment Company Act of 1940) of the Fund or the
Distributor. The Distribution Agreement is subject to termination by the Fund or
the Distributor on 60 days' prior written notice and terminates automatically in
the event of its assignment. Under the Distribution Agreement, the Distributor
continuously offers shares of the Fund and solicits orders to purchase Fund
shares at net asset value. The Distributor is not compensated for its services
under the Distribution Agreement, but may be reimbursed by BFG for its costs in
distributing Fund shares.
OTHER INFORMATION
The Trust has filed with the Securities and Exchange
Commission, Washington, D.C., a Registration Statement under the Securities Act
of 1933, as amended, with respect to the securities of the Fund of which this
Statement of Additional Information is a part. If further information is desired
with respect to the Fund or such securities, reference is made to the
Registration Statement and the exhibits filed as a part thereof.
Davis Graham & Stubbs LLP, 1550 Seventeenth Street, Suite 500,
Denver, Colorado, acts as counsel to the Fund.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1670 Broadway, Suite 1000,
Denver, Colorado, acted as independent accountants for the Fund for the fiscal
year ended September 30, 2001. In that capacity, PricewaterhouseCoopers LLP
audited the financial statements of the Fund referenced below under "Financial
Information" and assisted the Fund in connection with the preparation of its
2000 tax return.
-35-
PricewaterhouseCoopers LLP has been appointed to act as
independent accountants for the Fund for the fiscal year ended September 30,
2002. In that capacity, PricewaterhouseCoopers LLP will audit the financial
statements of the Fund and assist the Fund in connection with the preparation of
its 2001 income tax return.
FINANCIAL INFORMATION
A copy of the Annual Report referenced below is enclosed with
a copy of this SAI. Additional copies of that Annual Report may be obtained upon
request without charge by calling the Fund at 1-800-259-2820.
Year-End Financial Statements
The following financial statements are incorporated herein by
reference from the Annual Report to Shareholders of the Fund dated September 30,
2001, in each case along with the Report of Independent Accountants thereon
dated November 7, 2001.
Schedule of Investments as of September 30, 2001
Statement of Assets and Liabilities as of September 30, 2001
Statement of Operations for the Year Ended September 30, 2001
Statements of Changes in Net Assets for the Years Ended
September 30, 2001 and 2000
Notes to Financial Statements, September 30, 2001
Financial Highlights for each of the periods indicated
-36-
APPENDIX A
HIGH-YIELD/HIGH-RISK SECURITIES
The Fund may invest in convertible securities of any quality, including
unrated securities or securities rated below investment grade (Ba or lower by
Moody's, BB or lower by S&P) (sometimes referred to as "junk bonds"). However,
the Fund will not purchase any security in default at the time of purchase. The
Fund will not invest more than 20% of the market value of its assets at the time
of purchase in convertible securities rated below investment grade.
Securities rated below investment grade are subject to greater risk
that adverse changes in the financial condition of their issuers, or in general
economic conditions or an unanticipated rise in interest rates, may impair the
ability of their issuers to make payments of interest and principal or
dividends. The market prices of lower grade securities are generally less
sensitive to interest rate changes than higher-rated investments, but more
sensitive to economic changes or individual corporate developments. Periods of
economic uncertainty and change can be expected to result in volatility of
prices of these securities. Lower rated securities may also have less liquid
markets than higher rated securities, and their liquidity as well as their value
may be adversely affected by poor economic conditions. Adverse publicity and
investor perceptions as well as new or proposed laws may also have a negative
impact on the market for high-yield/high-risk bonds. In the event of an
unanticipated default, the Fund will experience a reduction in its income and
could expect a decline in the market value of the securities affected. The
prices of these securities may be more volatile and the markets for them may be
less liquid than those for higher-rated securities.
Unrated securities, while not necessarily of lower quality than rated
securities, may not have as broad a market. Unrated securities will be included
in the Fund's percentage limits for investments rated below investment grade,
unless the Fund's adviser deems such securities to be the equivalent of
investment grade. If securities purchased by the Fund are downgraded following
purchase or if other circumstances cause the Fund to exceed its percentage
limits on assets invested in securities rated below investment grade, the
trustees of the Fund, in consultation with the Fund's adviser, will determine
what action, if any, is appropriate in light of all relevant circumstances.
Relying in part on ratings assigned by credit agencies in making
investments will not protect the Fund from the risk that the securities will
decline in value, because credit ratings represent evaluations of the safety of
principal, dividend and/or interest payments and not the market values of such
securities. Moreover, such ratings may not be changed on a timely basis to
reflect subsequent events.
Although the market for high-yield debt securities has been in
existence for many years and from time to time has experienced economic
downturns, this market has involved a significant increase in the use of
high-yield debt securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not, therefore, provide an accurate
indication of future performance of the high-yield debt securities market,
particularly during periods of economic recession.
Expenses incurred in recovering an investment in a defaulted security
may adversely affect the Fund's net asset value. Moreover, the reduced liquidity
of the secondary market for such securities may adversely affect the market
price of, and the ability of the Fund to value, particular securities at certain
times, thereby making it difficult to make specific valuation determinations.
CORPORATE BOND RATINGS
The ratings of fixed-income securities by Moody's and Standard & Poor's
are a generally accepted measurement of credit risk. However, they are subject
to certain limitations. Ratings are generally based upon historical events and
do not necessarily reflect the future. In addition, there is a period of time
between the issuance of a rating and the update of the rating, during which time
a published rating may be inaccurate.
-37-
KEY TO MOODY'S CORPORATE RATINGS
Aaa-Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa-Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than in Aaa securities.
A-Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present that suggest a susceptibility to impairment sometime in the future.
Baa-Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba-Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds of this class.
B-Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa-Bonds that are rated Caa are of poor standing. Such issues may be
in default, or there may be present elements of danger with respect to principal
or interest.
Ca-Bonds that are rated Ca represent obligations that are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds that are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic category.
KEY TO STANDARD & POOR'S CORPORATE RATINGS
AAA-Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
-38-
BBB-Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC AND C-Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation, and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are out-weighed by the large uncertainties or major risk exposures to adverse
conditions.
C1-The rating C1 is reserved for income bonds on which no interest is
being paid.
D-Debt rated D is in default, and payment of interest and/or repayment
of principal is in arrears.
PLUS (+) OR MINUS (-)-The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories. \\PIKE\shared\Registration Statements\SCG FUND\B January 2000
SCG Institutional SAI.doc
-39-
BERGER INFORMATION TECHNOLOGY FUND
(A SERIES OF BERGER INVESTMENT PORTFOLIO TRUST)
INSTITUTIONAL SHARES
STATEMENT OF ADDITIONAL INFORMATION
INVESTOR SERVICES: 1-800-960-8427
This Statement of Additional Information ("SAI") is not a
prospectus. It relates to the Prospectus for the Berger Information Technology
Fund (the "Fund") -- Institutional Shares, dated January 29, 2002, as it may be
amended or supplemented from time to time, which may be obtained by writing the
Fund at P.O. Box 5005, Denver, Colorado 80217-5005, or calling 1-800-259-2820.
This SAI is about the class of shares of the Fund designated
as Institutional Shares. Institutional Shares are designed for pension and
profit-sharing plans, employee benefit trusts, endowments, foundations and
corporations, as well as high net worth individuals, who are willing to maintain
a minimum account balance of $250,000. Shares of the Fund may be offered through
certain financial intermediaries that may charge their customers transaction or
other fees with respect to the customers' investment in the Fund. Institutional
Shares are also made available for purchase and dividend reinvestment in the
account of all holders of Institutional Shares who received their shares in the
Fund's reorganization in July 1999.
The Fund is the successor to the InformationTech 100(R) Fund,
which was reorganized into the Fund effective July 2, 1999.
The financial statements of the Fund for the fiscal year ended
September 30, 2001, and the related Report of Independent Accountants on those
statements, are incorporated into this SAI by reference from the Fund's 2001
Annual Report to Shareholders dated September 30, 2001.
A copy of that Annual Report is available, without charge,
upon request, by calling 1-800-259-2820.
DATED JANUARY 29, 2002
TABLE OF CONTENTS
&
CROSS-REFERENCES TO PROSPECTUS
<Table>
<Caption>
PAGE CROSS-REFERENCES TO RELATED
SECTION NO. DISCLOSURES IN PROSPECTUS
- ------- ----- ---------------------------
Introduction 1 Contents
1. Investment Strategies and Risks of the Fund 1 Berger Information Technology Fund; The Fund's Goal and
Principal Investment Strategies; Principal Risks; Investment
Techniques, Securities and Associated Risks
2. Investment Restrictions 13 Berger Information Technology Fund; Investment Techniques,
Securities and the Associated Risks
3. Management of the Fund 14 Berger Information Technology Fund; Organization of the Fund
4. Investment Adviser 19 Berger Information Technology Fund; Organization of the Fund
5. Expenses of the Fund 22 Berger Information Technology Fund; Financial Highlights for
the Fund; Organization of the Fund
6. Brokerage Policy 24 Berger Information Technology Fund; Organization of the Fund
7. How to Purchase and Redeem Shares In the Fund 26 To Open an Account or Purchase Shares; Selling (Redeeming)
Shares
8. How the Net Asset Value is Determined 27 Your Share Price
9. Income Dividends, Capital Gains, Distributions 28 Distributions and Taxes
and Tax Treatment
10. Suspension of Redemption Rights 29 Information About Your Account
11. Tax-Sheltered Retirement Plans 30 Tax-Sheltered Retirement Plans
12. Exchange Privilege 30 Exchanging Shares
13. Performance Information 31 Berger Information Technology Fund; Financial Highlights for
the Fund
14. Additional Information 32 Organization of the Fund; Special Fund Structures
Financial Information 35 Financial Highlights for the Fund
</Table>
-i-
INTRODUCTION
The Fund described in this SAI is a mutual fund, or open-end,
management investment company. The Fund is a diversified fund.
1. INVESTMENT STRATEGIES AND RISKS OF THE FUND
The Prospectus describes the investment objective of the Fund
and the principal investment policies and strategies used to achieve that
objective. It also describes the principal risks of investing in the Fund.
This section contains supplemental information concerning the
types of securities and other instruments in which the Fund may invest, the
investment policies and portfolio strategies that the Fund may utilize and
certain risks attendant to those investments, policies and strategies.
COMMON AND PREFERRED STOCKS. Stocks represent shares of
ownership in a company. Generally, preferred stock has a specified dividend and
ranks after bonds and before common stocks in its claim on income for dividend
payments and on assets should the company be liquidated. After other claims are
satisfied, common stockholders participate in company profits on a pro rata
basis. Profits may be paid out in dividends or reinvested in the company to help
it grow. Increases and decreases in earnings are usually reflected in a
company's stock price, so common stocks generally have the greatest appreciation
and depreciation potential of all corporate securities. While most preferred
stocks pay dividends, the Fund may purchase preferred stock where the issuer has
omitted, or is in danger of omitting, payment of its dividends. Such investments
would be made primarily for their capital appreciation potential. All
investments in stocks are subject to market risk, meaning that their prices may
move up and down with the general stock market, and that such movements might
reduce their value.
DEBT SECURITIES. Debt securities (such as bonds or debentures)
are fixed-income securities that bear interest and are issued by corporations or
governments. The issuer has a contractual obligation to pay interest at a stated
rate on specific dates and to repay principal on a specific maturity date. In
addition to market risk, debt securities are generally subject to two other
kinds of risk: credit risk and interest rate risk. Credit risk refers to the
ability of the issuer to meet interest or principal payments as they come due.
The lower the rating given a security by a rating service (such as Moody's
Investor Service ("Moody's") and Standard & Poor's ("S&P")), the greater the
credit risk the rating service perceives with respect to that security. The Fund
will not purchase any nonconvertible securities rated below investment grade (Ba
or lower by Moody's, BB or lower by S&P). In cases in which the ratings assigned
by more than one rating agency differ, the Fund will consider the security as
rated in the higher category. If nonconvertible securities purchased by the Fund
are downgraded to below investment grade following purchase, the trustees of the
Fund will determine what action, if any, is appropriate in light of all relevant
circumstances. For a further discussion of debt security ratings, see Appendix A
to this SAI.
Interest rate risk refers to the fact that the value of
fixed-income securities (like debt securities) generally fluctuates in response
to changes in interest rates. A decrease in interest rates will generally result
in an increase in the price of fixed-income securities held by the Fund.
Conversely, during periods of rising interest rates, the value of fixed-income
securities held by the Fund will generally decline. Longer-term securities are
generally more sensitive to interest rate changes and are more volatile than
shorter-term securities, but they generally offer higher yields to compensate
investors for the associated risks.
Certain debt securities can also present prepayment risk. For
example, a security may contain redemption and call provisions. If an issuer
exercises these provisions when interest rates are declining, the Fund could
sustain investment losses as well as have to reinvest the proceeds from the
security at lower interest rates, resulting in a decreased return for the Fund.
CONVERTIBLE SECURITIES. The Fund may also purchase debt or
equity securities that are convertible into common stock when the Fund's adviser
believes they offer the potential for a higher total return than nonconvertible
securities. Although fixed-income securities generally have a priority claim on
a corporation's assets over that of common stock, some of the convertible
securities that the Fund may hold are high-yield/high-risk securities that are
-1-
subject to special risks, including the risk of default in interest or principal
payments, which could result in a loss of income to the Fund or a decline in the
market value of the securities. Convertible securities often display a degree of
market price volatility that is comparable to common stocks. The credit risk
associated with convertible securities generally is reflected by their ratings
by organizations such as Moody's or S&P or a similar determination of
creditworthiness by the Fund's adviser. The Fund has no preestablished minimum
quality standards for convertible securities and may invest in convertible
securities of any quality, including lower rated or unrated securities. However,
the Fund will not invest in any security in default at the time of purchase, and
the Fund will invest less than 20% of the market value of its assets at the time
of purchase in convertible securities rated below investment grade. If
convertible securities purchased by the Fund are downgraded following purchase,
or if other circumstances cause 20% or more of the Fund's assets to be invested
in convertible securities rated below investment grade, the trustees of the
Fund, in consultation with the Fund's adviser, will determine what action, if
any, is appropriate in light of all relevant circumstances. For a further
discussion of debt security ratings, see Appendix A to this SAI.
SPECIAL SITUATIONS. The Fund may also invest in "special
situations." Special situations are companies that have recently experienced or
are anticipated to experience a significant change in structure, management,
products or services that may significantly affect the value of their
securities. Examples of special situations are companies being reorganized or
merged, companies emerging from bankruptcy, companies introducing unusual new
products or that enjoy particular tax advantages. Other examples are companies
experiencing changes in senior management, extraordinary corporate events,
significant changes in cost or capital structure or that are believed to be
probable takeover candidates. The opportunity to invest in special situations,
however, is limited and depends in part on the market's assessment of these
companies and their circumstances. By its nature, a "special situation" company
involves to some degree a break with the company's past experience. This creates
greater uncertainty and potential risk of loss than if the company were
operating according to long-established patterns. In addition, stocks of
companies in special situations may decline or not appreciate as expected if an
anticipated change or development does not occur or is not assessed by the
market as favorably as expected.
ZEROS/STRIPS. The Fund may invest also in zero coupon bonds or
in "strips." Zero coupon bonds do not make regular interest payments; rather,
they are sold at a discount from face value. Principal and accreted discount
(representing interest accrued but not paid) are paid at maturity. "Strips" are
debt securities that are stripped of their interest coupon after the securities
are issued, but otherwise are comparable to zero coupon bonds. The market values
of "strips" and zero coupon bonds generally fluctuate in response to changes in
interest rates to a greater degree than do interest-paying securities of
comparable term and quality. The Fund will not invest in mortgage-backed or
other asset-backed securities.
SECURITIES OF SMALLER COMPANIES. The Fund may invest in
securities of companies with small or mid-sized market capitalizations. Market
capitalization is defined as total current market value of a company's
outstanding common stock. Investments in companies with smaller market
capitalizations may involve greater risks and price volatility (that is, more
abrupt or erratic price movements) than investments in larger, more mature
companies because smaller companies may be at an earlier stage of development
and may have limited product lines, reduced market liquidity for their shares,
limited financial resources or less depth in management than larger or more
established companies. Smaller companies also may be less significant factors
within their industries and may have difficulty withstanding competition from
larger companies. While smaller companies may be subject to these additional
risks, they may also realize more substantial growth than larger or more
established companies.
SECURITIES OF COMPANIES WITH LIMITED OPERATING HISTORIES. The
Fund may invest in securities of companies with limited operating histories. The
Fund considers these to be securities of companies with a record of less than
three years' continuous operation, even including the operations of any
predecessors and parents. (These are sometimes referred to as "unseasoned
issuers.") These companies by their nature have only a limited operating history
that can be used for evaluating the company's growth prospects. As a result,
investment decisions for these securities may place a greater emphasis on
current or planned product lines and the reputation and experience of the
company's management and less emphasis on fundamental valuation factors than
would be the case for more mature companies. In addition, many of these
companies may also be small companies and involve the risks and price volatility
associated with smaller companies.
-2-
INITIAL PUBLIC OFFERINGS. The Fund may invest in a company's
securities at the time the company first offers securities to the public, that
is, at the time of the company's initial public offering or IPO. Although
companies can be any age or size at the time of their IPOs, they are often
smaller and have a limited operating history, which involves a greater potential
for the value of their securities to be impaired following the IPO. See
"Securities of Smaller Companies" and "Securities of Companies with Limited
Operating Histories".
Investors in IPOs can be adversely affected by substantial
dilution in the value of their shares, by sales of additional shares and by
concentration of control in existing management and principal investors. In
addition, all of the factors that affect stock market performance may have a
greater impact on the shares of IPO companies.
The price of a company's securities may be highly unstable at
the time of its IPO and for a period thereafter due to market psychology
prevailing at the time of the IPO, the absence of a prior public market, the
small number of shares available and limited availability of investor
information. As a result of this or other factors, the Fund's adviser might
decide to sell an IPO security more quickly than it would otherwise, which may
result in a significant gain or loss and greater transaction costs to the Fund.
Any gains from shares held for 12 months or less will be treated as short-term
gains, taxable as ordinary income to the Fund's investors. In addition, IPO
securities may be subject to varying patterns of trading volume and may, at
times, be difficult to sell without an unfavorable impact on prevailing prices.
The effect of an IPO investment can have a magnified impact on
the Fund's performance when the Fund's asset base is small. Consequently, IPOs
may constitute a significant portion of the Fund's returns particularly when the
Fund is small. Since the number of securities issued in an IPO is limited, it is
likely that IPO securities will represent a smaller component of the Fund's
assets as it increases in size and therefore have a more limited effect on the
Fund's performance.
There can be no assurance that IPOs will continue to be
available for the Fund to purchase. The number or quality of IPOs available for
purchase by the Fund may vary, decrease or entirely disappear. In some cases,
the Fund may not be able to purchase IPOs at the offering price, but may have to
purchase the shares in the aftermarket at a price greatly exceeding the offering
price, making it more difficult for the Fund to realize a profit.
The adviser's IPO trade allocation procedures govern which
funds and other advised accounts participate in the allocation of any IPO. See
the heading "Trade Allocations" under Section 4. Under the IPO allocation
procedures of Berger Financial Group LLC, the Fund generally will not
participate in an IPO if the securities available for allocation to the Fund are
insignificant relative to the Fund's net assets. As a result, any fund or
account whose assets are very large is not likely to participate in the
allocation of many IPOs.
FOREIGN SECURITIES. The Fund may invest in foreign securities,
which may be traded in foreign markets and denominated in foreign currency. The
Fund's investments may also include American Depositary Receipts (ADRs),
European Depositary Receipts (EDRs), which are similar to ADRs, in bearer form,
designed for use in the European securities markets, and in Global Depositary
Receipts (GDRs).
Investments in foreign securities involve some risks that are
different from the risks of investing in securities of U.S. issuers, such as the
risk of adverse political, social, diplomatic and economic developments and,
with respect to certain countries, the possibility of expropriation, taxes
imposed by foreign countries or limitations on the removal of monies or other
assets of the Fund. Moreover, the economies of individual foreign countries will
vary in comparison to the U.S. economy in such respects as growth of gross
domestic product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position. Securities of some foreign
companies, particularly those in developing countries, are less liquid and more
volatile than securities of comparable domestic companies. A developing country
generally is considered to be in the initial stages of its industrialization
cycle. Investing in the securities of developing countries may involve exposure
to economic structures that are less diverse and mature and to political systems
that can be expected to have less stability than developed countries.
There also may be less publicly available information about
foreign issuers and securities than domestic issuers and securities, and foreign
issuers generally are not subject to accounting, auditing and financial
reporting standards, requirements and practices comparable to those applicable
to domestic issuers. Also, there is
-3-
generally less government supervision and regulation of exchanges, brokers,
financial institutions and issuers in foreign countries than there is in the
U.S. Foreign financial markets typically have substantially less volume than
U.S. markets. Foreign markets also have different clearance and settlement
procedures and, in certain markets, delays or other factors could make it
difficult to effect transactions, potentially causing the Fund to experience
losses or miss investment opportunities. The use of a foreign securities
depository may increase this risk. The Fund may maintain assets with a foreign
securities depository if certain conditions are met. A foreign securities
depository may maintain assets on behalf of the Fund if the depository: (a) acts
as or operates a system for the central handling of securities that is regulated
by a foreign financial regulatory authority; (b) holds assets on behalf of the
Fund under safekeeping conditions no less favorable than those that apply to
other participants; (c) maintains records that identify the assets of
participants, and keeps its own assets separated from the assets of
participants; (d) provides periodic reports to participants; and (e) undergoes
periodic examination by regulatory authorities or independent accountants. In
addition, the Fund's primary custodian provides the Fund with an analysis of the
custodial risks of using a depository, monitors the depository on a continuous
basis and notifies the Fund of any material changes in risks associated with
using the depository. In general, the analysis may include an analysis of a
depository's expertise and market reputation; the quality of its services, its
financial strength, and insurance or indemnification arrangements; the extent
and quality of regulation and independent examination of the depository; its
standing in published ratings; its internal controls and other procedures for
safeguarding investments; and any related legal proceedings.
Costs associated with transactions in foreign securities are
generally higher than with transactions in U.S. securities. The Fund will incur
greater costs in maintaining assets in foreign jurisdictions and in buying and
selling foreign securities generally, resulting in part from converting foreign
currencies into U.S. dollars. In addition, the Fund might have greater
difficulty taking appropriate legal action with respect to foreign investments
in non-U.S. courts than with respect to domestic issuers in U.S. courts, which
may heighten the risk of possible losses through the holding of securities by
custodians and securities depositories in foreign countries.
If the Fund is invested in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the value of the investments in its portfolio and the
unrealized appreciation or depreciation of investments insofar as U.S. investors
are concerned. If the foreign currency in which a security is denominated
appreciates against the U.S. dollar, the dollar value of the security will
increase. Conversely, a decline in the exchange rate of the foreign currency
against the U.S. dollar would adversely affect the dollar value of the foreign
securities. Foreign currency exchange rates are determined by forces of supply
and demand on the foreign exchange markets, which are in turn affected by the
international balance of payments and other economic and financial conditions,
government intervention, speculation and other factors.
PASSIVE FOREIGN INVESTMENT COMPANIES (PFICS). The Fund may
purchase the securities of certain companies considered Passive Foreign
Investment Companies (PFICs) under U.S. tax laws. For certain types of PFICs, in
addition to bearing their proportionate share of the Fund's expenses (management
fees and operating expenses), investors will also indirectly bear similar
expenses of such PFIC. PFIC investments also may be subject to less favorable
U.S. tax treatment, as discussed in Section 9.
ILLIQUID AND RESTRICTED SECURITIES. The Fund is authorized to
invest in securities that are illiquid or not readily marketable because they
are subject to restrictions on their resale ("restricted securities") or
because, based upon their nature or the market for such securities, no ready
market is available. However, the Fund will not purchase any such security, the
purchase of which would cause the Fund to invest more than 15% of its net
assets, measured at the time of purchase, in illiquid securities. Investments in
illiquid securities involve certain risks to the extent that the Fund may be
unable to dispose of such a security at the time desired or at a reasonable
price or, in some cases, may be unable to dispose of it at all. In addition, in
order to resell a restricted security, the Fund might have to incur the
potentially substantial expense and delay associated with effecting
registration. If securities become illiquid following purchase or other
circumstances cause more than 15% of the Fund's net assets to be invested in
illiquid securities, the trustees of the Fund, in consultation with the Fund's
adviser, will determine what action, if any, is appropriate in light of all
relevant circumstances.
Repurchase agreements maturing in more than seven days will be
considered as illiquid for purposes of this restriction. Pursuant to guidelines
established by the trustees, the Fund's adviser will determine whether
securities eligible for resale to qualified institutional buyers pursuant to SEC
Rule 144A under the Securities Act of 1933
-4-
should be treated as illiquid investments considering, among other things, the
following factors: (a) the frequency of trades and quotes for the security; (b)
the number of dealers willing to purchase or sell the security and the number of
other potential purchasers; (c) dealer undertakings to make a market in the
security; and (d) the nature of the security and the marketplace trades (e.g.,
the time needed to dispose of the security, the method of soliciting offers and
the mechanics of the transfer). The liquidity of the Fund's investments in Rule
144A securities could be impaired if qualified institutional buyers become
uninterested in purchasing these securities.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase
agreements with various financial organizations, including commercial banks,
registered broker-dealers and registered government securities dealers. A
repurchase agreement is an agreement under which the Fund acquires a debt
security (generally a debt security issued or guaranteed by the U.S. government
or an agency thereof, a banker's acceptance or a certificate of deposit) from a
commercial bank, broker or dealer, subject to resale to the seller at an agreed
upon price and date (normally, the next business day). A repurchase agreement
may be considered a loan collateralized by securities. The resale price reflects
an agreed upon interest rate effective for the period the instrument is held by
the Fund and is unrelated to the interest rate on the underlying instrument. In
these transactions, the securities acquired by the Fund (including accrued
interest earned thereon) must have a total value equal to or in excess of the
value of the repurchase agreement and are held by the Fund's custodian bank
until repurchased. In addition, the trustees will establish guidelines and
standards for review by the investment adviser of the creditworthiness of any
bank, broker or dealer party to a repurchase agreement with the Fund. The Fund
will not enter into a repurchase agreement maturing in more than seven days if
as a result more than 15% of the Fund's net assets would be invested in such
repurchase agreements and other illiquid securities.
These transactions must be fully collateralized at all times
by debt securities (generally a security issued or guaranteed by the U.S.
Government or an agency thereof, a banker's acceptance or a certificate of
deposit) but involve certain risks, such as credit risk to the Fund if the other
party defaults on its obligation and the Fund is delayed or prevented from
liquidating the collateral. For example, if the other party to the agreement
defaults on its obligation to repurchase the underlying security at a time when
the value of the security has declined, the Fund may incur a loss upon
disposition of the security. If the other party to the agreement becomes
insolvent and subject to liquidation or reorganization under the Bankruptcy Code
or other laws, a court may determine that the underlying security is collateral
for a loan by the Fund not within the control of the Fund and therefore the
realization by the Fund on such collateral may automatically be stayed and
delayed. Further, it is possible that the Fund may not be able to substantiate
its interest in the underlying security and may be deemed an unsecured creditor
of the other party to the agreement. The Fund expects that these risks can be
controlled through careful monitoring procedures.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may
purchase and sell securities on a when-issued or delayed delivery basis.
However, the Fund currently does not intend to purchase or sell securities on a
when-issued or delayed delivery basis if as a result more than 5% of its total
assets taken at market value at the time of purchase would be invested in such
securities. When-issued or delayed delivery transactions arise when securities
(normally, obligations of issuers eligible for investment by the Fund) are
purchased or sold by the Fund with payment and delivery taking place in the
future in order to secure what is considered to be an advantageous price or
yield. However, the yield available on a comparable security when delivery takes
place may vary from the yield on the security at the time that the when-issued
or delayed delivery transaction was entered into. Any failure to consummate a
when-issued or delayed delivery transaction may result in the Fund missing the
opportunity of obtaining a price or yield considered to be advantageous.
When-issued and delayed delivery transactions may generally be expected to
settle within one month from the date the transactions are entered into but in
no event later than 90 days. However, no payment or delivery is made by the Fund
until it receives delivery or payment from the other party to the transaction.
When the Fund purchases securities on a when-issued basis, it
will maintain, in a segregated account with its custodian cash, U.S. government
securities or other liquid assets having an aggregate value equal to the amount
of such purchase commitments, until payment is made. If necessary, additional
assets will be placed in the account daily so that the value of the account will
equal or exceed the amount of the Fund's purchase commitments.
LENDING OF PORTFOLIO SECURITIES. The Fund may lend its
securities to qualified institutional investors (such as brokers, dealers or
other financial organizations) who need to borrow securities in order to
complete certain
-5-
transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. Loans of securities by the Fund
will be collateralized by cash, letters of credit, or securities issued or
guaranteed by the U.S. Government or its agencies. The collateral will equal at
least 100% of the current market value of the loaned securities,
marked-to-market on a daily basis. By lending its securities, the Fund will be
attempting to generate income through the receipt of interest on the loan,
which, in turn, can be invested in additional securities to pursue the Fund's
investment objective. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account of
the Fund.
The Fund may lend its portfolio securities to qualified
brokers, dealers, banks or other financial institutions, so long as the terms,
the structure and the aggregate amount of such loans are not inconsistent with
the Investment Company Act of 1940 or the Rules and Regulations or
interpretations of the Securities and Exchange Commission (the "Commission")
thereunder, which currently require that (a) the borrower pledge and maintain
with the Fund collateral consisting of cash, an irrevocable letter of credit or
securities issued or guaranteed by the United States government having a value
at all times not less than 100% of the value of the securities loaned, (b) the
borrower add to such collateral whenever the price of the securities loaned
rises (i.e., the borrower "marks to the market" on a daily basis), (c) the loan
be made subject to termination by the Fund at any time and (d) the Fund receives
reasonable interest on the loan, which interest may include the Fund's investing
cash collateral in interest bearing short-term investments, and (e) the Fund
receives all dividends and distributions on the loaned securities and any
increase in the market value of the loaned securities.
The Fund bears risk of loss in the event that the other party
to a securities lending transaction defaults on its obligations and the Fund is
delayed in or prevented from exercising its rights to dispose of the collateral,
including the risk of a possible decline in the value of the collateral
securities during the period in which the Fund seeks to assert these rights, the
risk of incurring expenses associated with asserting these rights and the risk
of losing all or a part of the income from the transaction. The Fund will not
lend its portfolio securities if, as a result, the aggregate value of such loans
would exceed 33-1/3% of the value of the Fund's total assets (including the
value of the collateral received to secure the loan). Loan arrangements made by
the Fund will comply with all other applicable regulatory requirements,
including the rules of the New York Stock Exchange, which rules presently
require the borrower, after notice, to redeliver the securities within the
normal settlement time of three business days. All relevant facts and
circumstances, including creditworthiness of the broker, dealer or institution,
will be considered in making decisions with respect to the lending of
securities, subject to review by the Fund's trustees.
Although voting rights with respect to loaned securities pass
to the borrower, the Fund retains the right to recall a security (or terminate a
loan) for the purpose of exercising the security's voting rights. Efforts to
recall loaned securities in time to exercise voting rights may be unsuccessful,
especially for foreign securities or thinly traded securities. In addition, it
is expected that loaned securities will be recalled for voting only when the
items being voted on are, in the judgment of the Fund's adviser, either material
to the economic value of the security or threaten to materially impact the
issuing company's corporate governance policies or structure.
SHORT SALES. The Fund currently is permitted to engage in
short sales if, at the time of the short sale, the Fund owns or has the right to
acquire an equivalent kind and amount of the security being sold short at no
additional cost (i.e., short sales "against the box").
In a short sale, the seller does not immediately deliver the
securities sold and is said to have a short position in those securities until
delivery occurs. To make delivery to the purchaser, the executing broker borrows
the securities being sold short on behalf of the seller. While the short
position is maintained, the seller collateralizes its obligation to deliver the
securities sold short in an amount equal to the proceeds of the short sale plus
an additional margin amount established by the Board of Governors of the Federal
Reserve. If the Fund engages in a short sale, the collateral account will be
maintained by the Fund's custodian. While the short sale is open, the Fund will
maintain in a segregated custodial account an amount of securities convertible
into or exchangeable for such equivalent securities at no additional cost. These
securities would constitute the Fund's long position.
Under prior law, the Fund could have made a short sale, as
described above, when it wanted to sell a security it owned at a current
attractive price but also wished to defer recognition of gain or loss for
Federal income tax purposes and for purposes of satisfying certain tests
applicable to regulated investment companies under the
-6-
Internal Revenue Code. However, federal tax legislation has eliminated the
ability to defer recognition of gain or loss in short sales against the box, and
accordingly it is not anticipated that the Fund will be engaging in these
transactions unless there are further legislative changes.
HEDGING TRANSACTIONS. Although it has historically not done
so, the Fund is authorized to make limited use of certain types of futures,
forwards and/or options, but only for the purpose of hedging, that is,
protecting against market risk caused by market movements that may adversely
affect the value of the Fund's securities or the price of securities that the
Fund is considering purchasing. The utilization of futures, forwards and options
is also subject to policies and procedures that may be established by the
trustees from time to time. In addition, the Fund is not required to hedge.
Decisions regarding hedging are subject to the adviser's judgment of the cost of
the hedge, its potential effectiveness and other factors the adviser considers
pertinent.
A hedging transaction may partially protect the Fund from a
decline in the value of a particular security or its portfolio generally,
although hedging may also limit the Fund's opportunity to profit from favorable
price movements, and the cost of the transaction will reduce the potential
return on the security or the portfolio. In addition, hedging transactions do
not eliminate fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire. Use of these instruments by the Fund involves the
potential for a loss that may exceed the amount of initial margin the Fund would
be permitted to commit to the contracts under its investment limitation or, in
the case of a call option written by the Fund, may exceed the premium received
for the option. However, the Fund is permitted to use such instruments for
hedging purposes only, and only if the aggregate amount of its obligations under
these contracts does not exceed the total market value of the assets the Fund is
attempting to hedge, such as a portion or all of its exposure to equity
securities or its holding in a specific foreign currency. To help ensure that
the Fund will be able to meet its obligations under its futures and forward
contracts and its obligations under options written by the Fund, the Fund will
be required to maintain liquid assets in a segregated account with its custodian
bank or to set aside portfolio securities to "cover" its position in these
contracts.
The principal risks of the Fund utilizing futures
transactions, forward contracts and options are: (a) losses resulting from
market movements not anticipated by the Fund; (b) possible imperfect correlation
between movements in the prices of futures, forwards and options and movements
in the prices of the securities or currencies hedged or used to cover such
positions; (c) lack of assurance that a liquid secondary market will exist for
any particular futures or options at any particular time and possible
exchange-imposed price fluctuation limits, either of which may make it difficult
or impossible to close a position when so desired; (d) lack of assurance that
the counterparty to a forward contract would be willing to negotiate an offset
or termination of the contract when so desired; and (e) the need for additional
information and skills beyond those required for the management of a portfolio
of traditional securities. In addition, when the Fund enters into an
over-the-counter contract with a counterparty, the Fund will assume counterparty
credit risk, that is, the risk that the counterparty will fail to perform its
obligations, in which case the Fund could be worse off than if the contract had
not been entered into.
Following is additional information concerning the futures,
forwards and options that the Fund may utilize, provided that no more than 5% of
the Fund's net assets at the time the contract is entered into may be used for
initial margins for financial futures transactions and premiums paid for the
purchase of options. In addition, the Fund may only write call options that are
covered and only up to 25% of the Fund's total assets.
Futures Contracts. Financial futures contracts are
exchange-traded contracts on financial instruments (such as securities and
foreign currencies) and securities indices that obligate the holder to take or
make delivery of a specified quantity of the underlying financial instrument, or
the cash value of an index, at a future date. Although futures contracts by
their terms call for the delivery or acquisition of the underlying instruments
or a cash payment based on the mark-to-market value of the underlying
instruments, in most cases the contractual obligation will be offset before the
delivery date by buying (in the case of an obligation to sell) or selling (in
the case of an obligation to buy) an identical futures contract. Such a
transaction cancels the original obligation to make or take delivery of the
instruments.
The Fund may enter into contracts for the purchase or sale for
future delivery of financial instruments, such as securities and foreign
currencies, or contracts based on financial indices including indices of U.S.
Government securities, foreign government securities or equity securities. U.S.
futures contracts are traded on exchanges that have
-7-
been designated "contract markets" by the Commodity Futures Trading Commission
("CFTC") and must be executed through a futures commission merchant (an "FCM"),
or brokerage firm, which is a member of the relevant contract market. Through
their clearing corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange.
Both the buyer and seller are required to deposit "initial
margin" for the benefit of the FCM when a futures contract is entered into.
Initial margin deposits are equal to a percentage of the contract's value, as
set by the exchange on which the contract is traded and may be maintained in
cash or other liquid assets. If the value of either party's position declines,
that party will be required to make additional "variation margin" payments to
the other party to settle the change in value on a daily basis. Initial and
variation margin payments are similar to good faith deposits or performance
bonds or party-to-party payments resulting from daily changes in the value of
the contract, unlike margin extended by a securities broker, and would be
released or credited to the Fund upon termination of the futures contract,
assuming all contractual obligations have been satisfied. Unlike margin extended
by a securities broker, initial and variation margin payments do not constitute
purchasing securities on margin for purposes of the Fund's investment
limitations. The Fund will incur brokerage fees when it buys or sells futures
contracts.
In the event of the bankruptcy of the FCM that holds margin on
behalf of the Fund, the Fund may be entitled to return of margin owed to the
Fund only in proportion to the amount received by the FCM's other customers. The
Fund will attempt to minimize the risk by careful monitoring of the
creditworthiness of the FCMs with which the Fund does business and by depositing
margin payments in a segregated account with the Fund's custodian for the
benefit of the FCM when practical or otherwise required by law.
The Fund intends to comply with guidelines of eligibility for
exclusion from the definition of the term "commodity pool operator" with the
CFTC and the National Futures Association, which regulate trading in the futures
markets. Accordingly, the Fund will not enter into any futures contract or
option on a futures contract if, as a result, the aggregate initial margin and
premiums required to establish such positions would exceed 5% of the Fund's net
assets.
Although the Fund would hold cash and liquid assets in a
segregated account with a mark-to-market value sufficient to cover the Fund's
open futures obligations, the segregated assets would be available to the Fund
immediately upon closing out the futures position.
The acquisition or sale of a futures contract may occur, for
example, when the Fund is considering purchasing or holds equity securities and
seeks to protect itself from fluctuations in prices without buying or selling
those securities. For example, if prices were expected to decrease, the Fund
might sell equity index futures contracts, thereby hoping to offset a potential
decline in the value of equity securities in the portfolio by a corresponding
increase in the value of the futures contract position held by the Fund and
thereby prevent the Fund's net asset value from declining as much as it
otherwise would have. The Fund also could protect against potential price
declines by selling portfolio securities and investing in money market
instruments. However, the use of futures contracts as a hedging technique allows
the Fund to maintain a defensive position without having to sell portfolio
securities.
Similarly, when prices of equity securities are expected to
increase, futures contracts may be bought to attempt to hedge against the
possibility of having to buy equity securities at higher prices. This technique
is sometimes known as an anticipatory hedge. Since the fluctuations in the value
of futures contracts should be similar to those of equity securities, the Fund
could take advantage of the potential rise in the value of equity securities
without buying them until the market has stabilized. At that time, the futures
contracts could be liquidated, and the Fund could buy equity securities on the
cash market.
The ordinary spreads between prices in the cash and futures
markets, due to differences in the nature of those markets are subject to
distortions. First, all participants in the futures market are subject to
initial margin and variation margin requirements. Rather than meeting additional
variation margin requirements, investors may close out futures contracts through
offsetting transactions that could distort the normal price relationship between
the cash and futures markets. Second, the liquidity of the futures market
depends on participants entering into offsetting transactions rather than making
or taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced and prices in the futures
market distorted. Third, from the point of view of speculators, the margin
deposit requirements in the futures market are less than margin requirements in
the securities market.
-8-
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of the foregoing
distortions, a correct forecast of general price trends by the Fund still may
not result in a successful use of futures.
Futures contracts entail additional risks. Although the Fund
will only utilize futures contracts when it believes that use of such contracts
will benefit the Fund, if the Fund's investment judgment is incorrect, the
Fund's overall performance could be worse than if the Fund had not entered into
futures contracts. For example, if the Fund has hedged against the effects of a
possible decrease in prices of securities held in the Fund's portfolio and
prices increase instead, the Fund will lose part or all of the benefit of the
increased value of these securities because of offsetting losses in the Fund's
futures positions. In addition, if the Fund has insufficient cash, it may have
to sell securities from its portfolio to meet daily variation margin
requirements. Those sales may be, but will not necessarily be, at increased
prices that reflect the rising market and may occur at a time when the sales are
disadvantageous to the Fund. Although the buyer of an option cannot lose more
than the amount of the premium plus related transaction costs, a buyer or seller
of futures contracts could lose amounts substantially in excess of any initial
margin deposits made, due to the potential for adverse price movements resulting
in additional variation margin being required by such positions. However, the
Fund intends to monitor its investments closely and will attempt to close its
positions when the risk of loss to the Fund becomes unacceptably high.
The prices of futures contracts depend primarily on the value
of their underlying instruments. Because there are a limited number of types of
futures contracts, it is possible that the standardized futures contracts
available to the Fund will not exactly match the Fund's current or potential
investments. The Fund may buy and sell futures contracts based on underlying
instruments with different characteristics from the securities in which it
typically invests -- for example, by hedging investments in portfolio securities
with a futures contract based on a broad index of securities -- which involves a
risk that the futures position will not correlate precisely with the performance
of the Fund's investments.
Futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments closely correlate
with the Fund's investments. Futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instruments and the time remaining until expiration of the contract.
Those factors may affect securities prices differently from futures prices.
Imperfect correlations between the Fund's investments and its futures positions
may also result from differing levels of demand in the futures markets and the
securities markets, from structural differences in how futures and securities
are traded, and from imposition of daily price fluctuation limits for futures
contracts. The Fund may buy or sell futures contracts with a value less than or
equal to the securities it wishes to hedge or is considering purchasing. If
price changes in the Fund's futures positions are poorly correlated with its
other investments, its futures positions may fail to produce desired gains or
result in losses that are not offset by the gains in the Fund's other
investments.
Because futures contracts are generally settled within a day
from the date they are closed out, compared with a longer settlement period for
most types of securities, the futures markets can provide superior liquidity to
the securities markets. Nevertheless, there is no assurance a liquid secondary
market will exist for any particular futures contract at any particular time. In
addition, futures exchanges may establish daily price fluctuation limits for
futures contracts and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days when the
price fluctuation limit is reached, it may be impossible for the Fund to enter
into new positions or close out existing positions. If the secondary market for
a futures contract is not liquid because of price fluctuation limits or
otherwise, the Fund may not be able to promptly liquidate unfavorable futures
positions and potentially could be required to continue to hold a futures
position until the delivery date, regardless of changes in its value. As a
result, the Fund's access to other assets held to cover its futures positions
could also be impaired.
Options on Futures Contracts. The Fund may buy and write
options on futures contracts for hedging purposes. An option on a futures
contract gives the Fund the right (but not the obligation) to buy or sell a
futures contract at a specified price on or before a specified date. The
purchase of a call option on a futures contract is similar in some respects to
the purchase of a call option on an individual security. Depending on the
pricing of the option compared to either the price of the futures contract upon
which it is based or the price of the underlying instrument, ownership of the
option may or may not be less risky than ownership of the futures contract or
the underlying instrument. As with the purchase of futures contracts, the Fund
may buy a call option on a futures contract to hedge against a market advance,
and the Fund might buy a put option on a futures contract to hedge against a
market decline.
-9-
The writing of a call option on a futures contract constitutes
a partial hedge against declining prices of the security or foreign currency
that is deliverable under, or of the index comprising, the futures contract. If
the futures price at the expiration of the call option is below the exercise
price, the Fund will retain the full amount of the option premium that provides
a partial hedge against any decline that may have occurred in the Fund's
portfolio holdings. If a call option the Fund has written is exercised, the Fund
will incur a loss that will be reduced by the amount of the premium it received.
Depending on the degree of correlation between change in the value of its
portfolio securities and changes in the value of the futures positions, the
Fund's losses from existing options on futures may to some extent be reduced or
increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar
in some respects to the purchase of protective put options on portfolio
securities. For example, the Fund may buy a put option on a futures contract to
hedge the Fund's portfolio against the risk of falling prices.
The amount of risk the Fund assumes when it buys an option on
a futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the options bought.
Forward Foreign Currency Exchange Contracts. A forward
contract is a privately negotiated agreement between two parties in which one
party is obligated to deliver a stated amount of a stated asset at a specified
time in the future and the other party is obligated to pay a specified invoice
amount for the assets at the time of delivery. The Fund currently intends that
it will only use forward contracts or commitments for hedging purposes and will
only use forward foreign currency exchange contracts, although the Fund may
enter into additional forms of forward contracts or commitments in the future if
they become available and advisable in light of the Fund's objectives and
investment policies. Forward contracts generally are negotiated in an interbank
market conducted directly between traders (usually large commercial banks) and
their customers. Unlike futures contracts, which are standardized
exchange-traded contracts, forward contracts can be specifically drawn to meet
the needs of the parties that enter into them. The parties to a forward contract
may agree to offset or terminate the contract before its maturity or may hold
the contract to maturity and complete the contemplated exchange.
The following discussion summarizes the Fund's principal uses
of forward foreign currency exchange contracts ("forward currency contracts").
The Fund may enter into forward currency contracts with stated contract values
of up to the value of the Fund's assets. A forward currency contract is an
obligation to buy or sell an amount of a specified currency for an agreed price
(which may be in U.S. dollars or a foreign currency) on a specified date. The
Fund will exchange foreign currencies for U.S. dollars and for other foreign
currencies in the normal course of business and may buy and sell currencies
through forward currency contracts in order to fix a price (in terms of a
specified currency) for securities it has agreed to buy or sell ("transaction
hedge"). The Fund also may hedge some or all of its investments denominated in
foreign currency against a decline in the value of that currency (or a proxy
currency whose price movements are expected to have a high degree of correlation
with the currency being hedged) relative to the U.S. dollar by entering into
forward currency contracts to sell an amount of that currency approximating the
value of some or all of its portfolio securities denominated in that currency
("position hedge") or by participating in futures contracts (or options on such
futures) with respect to the currency. The Fund may also enter into a forward
currency contract with respect to a currency when the Fund is considering the
purchase or sale of investments denominated in that currency but has not yet
selected the specific investments ("anticipatory hedge").
These types of hedging minimize the effect of currency
appreciation as well as depreciation but do not eliminate fluctuations in the
underlying U.S. dollar equivalent value of the proceeds of or rates of return on
the Fund's foreign currency denominated portfolio securities. The matching of
the increase in value of a forward contract and the decline in the U.S. dollar
equivalent value of the foreign currency denominated asset that is the subject
of the hedge generally will not be precise. Shifting the Fund's currency
exposure from one foreign currency to another limits the Fund's opportunity to
profit from increases in the value of the original currency and involves a risk
of increased losses to the Fund if its investment manager's projection of future
exchange rates is inaccurate. Unforeseen changes in currency prices may result
in poorer overall performance for the Fund than if it had not entered into such
contracts.
-10-
The Fund will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated in the currency underlying
the forward contract or the currency being hedged. To the extent that the Fund
is not able to cover its forward currency positions with underlying portfolio
securities, the Fund's custodian will segregate cash or liquid assets having a
value equal to the aggregate amount of the Fund's commitments under forward
contracts entered into. If the value of the securities used to cover a position
or the value of segregated assets declines, the Fund must find alternative cover
or segregate additional cash or liquid assets on a daily basis so that the value
of the covered and segregated assets will be equal to the amount of the Fund's
commitments with respect to such contracts.
While forward contracts are not currently regulated by the
CFTC, the CFTC may in the future assert authority to regulate forward contracts.
In such event, the Fund's ability to utilize forward contracts may be
restricted. The Fund may not always be able to enter into forward contracts at
attractive prices and may be limited in its ability to use these contracts to
hedge Fund assets. In addition, when the Fund enters into a privately negotiated
forward contract with a counterparty, the Fund assumes counterparty credit risk,
that is, the risk that the counterparty will fail to perform its obligations, in
which case the Fund could be worse off than if the contract had not been entered
into. Unlike many exchange-traded futures contracts and options on futures,
there are no daily price fluctuation limits with respect to forward contracts
and other negotiated or over-the-counter instruments, and with respect to those
contracts, adverse market movements could therefore continue to an unlimited
extent over a period of time. However, the Fund intends to monitor its
investments closely and will attempt to renegotiate or close its positions when
the risk of loss to the Fund becomes unacceptably high.
Options on Securities and Securities Indices. The Fund may buy
or sell put or call options and write covered call options on securities that
are traded on United States or foreign securities exchanges or over-the-counter.
Buying an option involves the risk that, during the option period, the price of
the underlying security will not increase (in the case of a call) to above the
exercise price or will not decrease (in the case of a put) to below the exercise
price, in which case the option will expire without being exercised and the
holder would lose the amount of the premium. Writing a call option involves the
risk of an increase in the market value of the underlying security, in which
case the option could be exercised and the underlying security would then be
sold by the Fund to the option holder at a lower price than its current market
value and the Fund's potential for capital appreciation on the security would be
limited to the exercise price. Moreover, when the Fund writes a call option on a
securities index, the Fund bears the risk of loss resulting from imperfect
correlation between movements in the price of the index and the price of the
securities set aside to cover such position. Although they entitle the holder to
buy equity securities, call options to purchase equity securities do not entitle
the holder to dividends or voting rights with respect to the underlying
securities, nor do they represent any rights in the assets of the issuer of
those securities.
A call option written by the Fund is "covered" if the Fund
owns the underlying security covered by the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or for additional cash consideration held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also deemed to be covered if the Fund holds a call
on the same security and in the same principal amount as the call written and
the exercise price of the call held (a) is equal to or less than the exercise
price of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Fund in liquid assets in a
segregated account with its custodian.
The writer of a call option may have no control when the
underlying securities must be sold. Whether or not an option expires
unexercised, the writer retains the amount of the premium. This amount, of
course, may, in the case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period.
The writer of an exchange-traded call option that wishes to
terminate its obligation may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option previously
written. The effect of the purchase is that the writer's position will be
canceled by the clearing corporation. If the Fund desires to sell a particular
security from the Fund's portfolio on which the Fund has written a call option,
the Fund will effect a closing transaction prior to or concurrent with the sale
of the security. However, a writer may not effect a closing purchase transaction
after being notified of the exercise of an option. An investor who is the holder
of an exchange-traded option may liquidate its position by effecting a "closing
sale transaction." This is accomplished by
-11-
selling an option of the same series as the option previously bought. There is
no guarantee that either a closing purchase or a closing sale transaction can be
effected.
The Fund will realize a profit from a closing transaction if
the price of the purchase transaction is less than the premium received from
writing the option or the price received from a sale transaction is more than
the premium paid to buy the option; the Fund will realize a loss from a closing
transaction if the price of the purchase transaction is more than the premium
received from writing the option or the price received from a sale transaction
is less than the premium paid to buy the option. 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 repurchase of a call option
is likely to be offset in whole or in part by appreciation of the underlying
security owned by the Fund.
An option position may be closed out only when a secondary
market exists for an option of the same series. If a secondary market does not
exist, it might not be possible to effect closing transactions in particular
options with the result that the Fund would have to exercise the options in
order to realize any profit. If the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or the Fund delivers the underlying security
upon exercise. Reasons for the absence of a liquid secondary market may include
the following: (a) there may be insufficient trading interest in certain
options, (b) restrictions may be imposed by a national securities exchange on
which the option is traded ("Exchange") on opening or closing transactions or
both, (c) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities, (d)
unusual or unforeseen circumstances may interrupt normal operations on an
Exchange, (e) the facilities of an Exchange or of the Options Clearing
Corporation ("OCC") may not at all times be adequate to handle current trading
volume, or (vi) one or more Exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that Exchange (or in that class or series of options) would cease to
exist, although outstanding options on that Exchange that had been issued by the
OCC as a result of trades on that Exchange would continue to be exercisable in
accordance with their terms.
In addition, when the Fund enters into an over-the-counter
option contract with a counterparty, the Fund assumes counterparty credit risk,
that is, the risk that the counterparty will fail to perform its obligations, in
which case the Fund could be worse off than if the contract had not been entered
into.
An option on a securities index is similar to an option on a
security except that rather than the right to take or make delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, on exercise of the option, an amount of cash if the
closing level of the securities index on which the option is based is greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option.
The Fund may buy call options on securities or securities
indices to hedge against an increase in the price of a security or securities
that the Fund may buy in the future. The premium paid for the call option plus
any transaction costs will reduce the benefit, if any, realized by the Fund upon
exercise of the option, and, unless the price of the underlying security or
index rises sufficiently, the option may expire and become worthless to the
Fund. The Fund may buy put options to hedge against a decline in the value of a
security or its portfolio. The premium paid for the put option plus any
transaction costs will reduce the benefit, if any, realized by the Fund upon
exercise of the option, and, unless the price of the underlying security or
index declines sufficiently, the option may expire and become worthless to the
Fund.
An example of a hedging transaction using an index option
would be if the Fund were to purchase a put on a stock index, in order to
protect the Fund against a decline in the value of all securities held by it to
the extent that the stock index moves in a similar pattern to the prices of the
securities held. While the correlation between stock indices and price movements
of the stocks in which the Fund will generally invest may be imperfect, the Fund
expects, nonetheless, that the use of put options that relate to such indices
will, in certain circumstances, protect against declines in values of specific
portfolio securities or the Fund's portfolio generally. Although the purchase of
a put option may partially protect the Fund from a decline in the value of a
particular security or its portfolio generally, the cost of a put will reduce
the potential return on the security or the portfolio.
-12-
TEMPORARY DEFENSIVE MEASURES. Although the Fund reserves the
right to take temporary defensive measures, it is the intention of the Fund to
remain fully invested at all times. The Fund may increase its investment in
government securities, and other short-term, interest-bearing securities without
regard to the Fund's otherwise applicable percentage limits, policies or its
normal investment emphasis, when its adviser believes market, economic or
political conditions warrant a temporary defensive position. In addition,
certain unusual circumstances may force the Fund to temporarily depart from the
investment requirement implied by its name. Taking larger positions in such
short-term investments may serve as a means of preserving capital in unfavorable
market conditions. When in a defensive position, the Fund could miss the
opportunity to participate in any stock or bond market advances that occur
during those periods, which the Fund might have been able to participate in if
it had remained more fully invested.
PORTFOLIO TURNOVER. The portfolio turnover rates of the Fund
are shown in the Financial Highlights table included in the Prospectus.
Investment changes in the Fund will be made whenever management deems them
appropriate even if this results in a higher portfolio turnover rate. A 100%
annual turnover rate results, for example, if the equivalent of all of the
securities in the Fund's portfolio are replaced in a period of one year. In
addition, portfolio turnover for the Fund may increase as a result of large
amounts of purchases and redemptions of shares of the Fund due to economic,
market or other factors that are not within the control of management.
Higher portfolio turnover will necessarily result in
correspondingly higher brokerage costs for the Fund. The existence of a high
portfolio turnover rate has no direct relationship to the tax liability of the
Fund, although sales of certain stocks will lead to realization of gains and,
possibly, increased taxable distributions to investors. The Fund's brokerage
policy is discussed further under Section 6--Brokerage Policy, and additional
information concerning income taxes is located under Section 9--Income
Dividends, Capital Gains Distributions and Tax Treatment.
2. INVESTMENT RESTRICTIONS
The investment objective of the Fund is capital appreciation.
The investment objective of the Fund is considered fundamental, meaning that it
cannot be changed without an investor vote. There can be no assurance that the
Fund's investment objective will be realized.
The Fund has also adopted certain investment policies,
strategies, guidelines and procedures in pursuing its objective. These may be
changed without an investor vote. The principal policies and strategies used by
the Fund are described in the Prospectus.
In addition, the Fund has adopted certain fundamental and
non-fundamental restrictions on its investments and other activities, which are
listed below. Fundamental restrictions may not be changed without the approval
of (a) 67% or more of the voting securities of the Fund present at a meeting of
investors thereof if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy, or (b) more than 50% of the
outstanding voting securities of the Fund. Non-fundamental restrictions may be
changed in the future by action of the trustees without investor vote.
The following fundamental restrictions apply to the Berger
Information Technology Fund. The Fund may not:
1. With respect to 75% of the Fund's total assets, purchase
the securities of any one issuer (except U.S. government securities) if
immediately after and as a result of such purchase (a) the value of the holdings
of the Fund in the securities of such issuer exceeds 5% of the value of the
Fund's total assets or (b) the Fund owns more than 10% of the outstanding voting
securities of such issuer.
2. Invest in any one industry (other than U.S. government
securities) 25% or more of the value of its total assets at the time of such
investment.
3. Borrow money, except from banks for temporary or emergency
purposes in amounts not to exceed 25% of the Fund's total assets (including the
amount borrowed) taken at market value, nor pledge, mortgage or hypothecate its
assets, except to secure permitted indebtedness and then only if such pledging,
mortgaging or
-13-
hypothecating does not exceed 25% of the Fund's total assets taken at market
value. When borrowings exceed 5% of the Fund's total assets, the Fund will not
purchase portfolio securities.
4. Act as a securities underwriter (except to the extent the
Fund may be deemed an underwriter under the Securities Act of 1933 in disposing
of a security), issue senior securities (except to the extent permitted under
the Investment Company Act of 1940), invest in real estate (although it may
purchase shares of a real estate investment trust), or invest in commodities or
commodity contracts except financial futures transactions, futures contracts on
securities and securities indices and options on such futures, forward foreign
currency exchange contracts, forward commitments or securities index put or call
options.
5. Make loans, except that the Fund may enter into repurchase
agreements and may lend portfolio securities in accordance with the Fund's
investment policies. The Fund does not, for this purpose, consider the purchase
of all or a portion of an issue of publicly distributed bonds, bank loan
participation agreements, bank certificates of deposit, bankers' acceptances,
debentures or other securities, whether or not the purchase is made upon the
original issuance of the securities, to be the making of a loan.
In applying the industry concentration investment restriction
(no. 2 above), the Fund uses the industry groups used in the Data Monitor
Portfolio Monitoring System of William O'Neil & Co. Incorporated.
The trustees have adopted additional non-fundamental
investment restrictions for the Fund. These limitations may be changed by the
trustees without an investor vote. The non-fundamental investment restrictions
include the following:
1. The Fund may not purchase securities on margin from a
broker or dealer, except that the Fund may obtain such short-term credits as may
be necessary for the clearance of transactions, and may not make short sales of
securities, except that the Fund may make short sales if, at the time of the
short sale, the Fund owns or has the right to acquire an equivalent kind and
amount of the security being sold short at no additional cost (i.e., short sales
"against the box"). This limitation shall not prohibit or restrict the Fund from
entering into futures, forwards and options contracts or from making margin
payments and other deposits in connection therewith.
2. The Fund may not purchase the securities of any other
investment company, except by purchase in the open market involving no
commission or profit to a sponsor or dealer (other than the customary broker's
commission).
3. The Fund may not invest in companies for the purposes of
exercising control of management.
4. The Fund may not purchase any security, including any
repurchase agreement maturing in more than seven days, which is not readily
marketable, if more than 15% of the net assets of the Fund, taken at market
value at the time of purchase would be invested in such securities.
5. Only for the purpose of hedging, the Fund may purchase and
sell financial futures, forward foreign currency exchange contracts and put and
call options, but no more than 5% of the Fund's net assets at the time of
purchase may be invested in initial margins for financial futures transactions
and premiums for options. The Fund may only write call options that are covered
and only up to 25% of the Fund's total assets.
6. The Fund may not purchase or sell securities on a
when-issued or delayed delivery basis, if as a result more than 5% of its total
assets taken at market value at the time of purchase would be invested in such
securities.
3. MANAGEMENT OF THE FUND
The Fund is supervised by trustees who are responsible for
major decisions about the Fund's policies and overall Fund oversight. The Fund's
trustees hire the companies that run day-to-day Fund operations, such as the
investment adviser, administrator, transfer agent and custodian.
-14-
The trustees and executive officers of the Fund are listed
below, together with information that includes their principal occupations
during the past five years and other principal business affiliations.
MICHAEL OWEN, 210 University Boulevard, Suite 800, Denver, CO 80206,
DOB: 1937. Dean of Zayed University (since September 2000).
Formerly self-employed as a financial and management
consultant, and in real estate development (from June 1999 to
September 2000). Dean (from 1993 to June 1999), and a member
of the Finance faculty (from 1989 to 1993), of the College of
Business, Montana State University. Formerly, Chairman and
Chief Executive Officer of Royal Gold, Inc. (mining) (1976 to
1989). Chairman of the Board of Berger Growth Fund and Berger
Large Cap Growth Fund. Chairman of the Trustees of Berger
Investment Portfolio Trust, Berger Institutional Products
Trust, Berger Worldwide Funds Trust, Berger Worldwide
Portfolios Trust and Berger Omni Investment Trust.
* JACK R. THOMPSON, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1949. President and a director since May 1999
(Executive Vice President from February 1999 to May 1999) of
Berger Growth Fund and Berger Large Cap Growth Fund. President
and a trustee since May 1999 (Executive Vice President from
February 1999 to May 1999) of Berger Investment Portfolio
Trust, Berger Institutional Products Trust, Berger Worldwide
Funds Trust, Berger Worldwide Portfolios Trust and Berger Omni
Investment Trust. President and Director since June 1999
(Executive Vice President from February 1999 to June 1999) of
Berger Financial Group LLC (formerly Berger LLC). Audit
Committee Member of the Public Employees' Retirement
Association of Colorado (pension plan) since November 1997.
Self-employed as a consultant from July 1995 through February
1999. Director of Wasatch Advisors (investment management)
from February 1997 to February 1999. Director of Janus Capital
Corporation (investment management) from June 1984 through
June 1995, and Executive Vice President of the Corporation
from April 1989 through June 1995. Treasurer of Janus Capital
Corporation from November 1983 through October 1989. Trustee
of the Janus Investment Funds from December 1990 through June
1995, and Senior Vice President of the Trust from May 1993
through June 1995. President and a director of Janus Service
Corporation (transfer agent) from January 1987 through June
1995. President and a director of Fillmore Agency, Inc.
(advertising agency), from January 1990 through June 1995.
Executive Vice President and a director of Janus Capital
International, Ltd. (investment adviser) from September 1994
through June 1995. President and a director of Janus
Distributors, Inc. (broker/dealer), from May 1991 through June
1995. Director of IDEX Management, Inc. (investment
management), from January 1985 through June 1995. Trustee and
Senior Vice President of the Janus Aspen Funds from May 1993
through June 1995.
DENNIS E. BALDWIN, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1928. President, Baldwin Financial Counseling
(since July 1991). Formerly, Vice President and Denver Office
Manager of Merrill Lynch Capital Markets (1978 to 1990).
Director of Berger Growth Fund and Berger Large Cap Growth
Fund. Trustee of Berger Investment Portfolio Trust, Berger
Institutional Products Trust, Berger Worldwide Funds Trust,
Berger Worldwide Portfolios Trust and Berger Omni Investment
Trust.
KATHERINE A. CATTANACH, 210 University Boulevard, Suite 800,
Denver, CO 80206, DOB: 1945. Managing Principal (since
September 1987), Sovereign Financial Services, Inc.
(investment consulting firm). Executive Vice President (1981
to 1988), Captiva Corporation, Denver, Colorado (private
investment management firm). Ph.D. in Finance (Arizona State
University); Chartered Financial Analyst (CFA). Director of
Berger Growth Fund and Berger Large Cap Growth Fund. Trustee
of Berger Investment Portfolio Trust, Berger Institutional
Products Trust, Berger Worldwide Funds Trust, Berger Worldwide
Portfolios Trust and Berger Omni Investment Trust.
PAUL R. KNAPP, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1945. Executive Officer of DST Systems, Inc.
("DST"), a publicly traded information and transaction
processing company, which acts as the Funds' transfer agent
(since October 2000). President of Vermont Western Assurance,
Inc., a wholly owned subsidiary of DST Systems (since December
2000).
-15-
Director and Vice President (February 1998 to November 2000)
of West Side Investments, Inc. (investments), a wholly owned
subsidiary of DST Systems, Inc. President, Chief Executive
Officer and a director (September 1997 to October 2000) of DST
Catalyst, Inc., an international financial markets consulting,
software and computer services company, (now DST
International, a subsidiary of DST). Previously (1991 to
October 2000), Chairman, President, Chief Executive Officer
and a director of Catalyst Institute (international public
policy research organization focused primarily on financial
markets and institutions); also (1991 to September 1997),
Chairman, President, Chief Executive Officer and a director of
Catalyst Consulting (international financial institutions
business consulting firm). Prior thereto (1988 to 1991),
President, Chief Executive Officer and a director of Kessler
Asher Group (brokerage, clearing and trading firm). Director
of Berger Growth Fund and Berger Large Cap Growth Fund.
Trustee of Berger Investment Portfolio Trust, Berger
Institutional Products Trust, Berger Worldwide Funds Trust,
Berger Worldwide Portfolios Trust and Berger Omni Investment
Trust.
HARRY T. LEWIS, JR., 210 University Boulevard, Suite 800, Denver,
CO 80206, DOB: 1933. Lewis Investments (since June 1988)
(self-employed private investor). Formerly, Senior Vice
President, Rocky Mountain Region, of Dain Bosworth
Incorporated and member of that firm's Management Committee
(1981 to 1988). Director (1995 to March 2002) of J.D. Edwards
& Co. (computer software company). Director of Berger Growth
Fund and Berger Large Cap Growth Fund. Trustee of Berger
Investment Portfolio Trust, Berger Institutional Products
Trust, Berger Worldwide Funds Trust, Berger Worldwide
Portfolios Trust and Berger Omni Investment Trust.
WILLIAM SINCLAIRE, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1928. President (since January 1998), Santa Clara
LLC (privately owned agriculture company). President (January
1963 to January 1998), Sinclaire Cattle Co. (privately owned
agriculture company). Director of Berger Growth Fund and
Berger Large Cap Growth Fund. Trustee of Berger Investment
Portfolio Trust, Berger Institutional Products Trust, Berger
Worldwide Funds Trust, Berger Worldwide Portfolios Trust and
Berger Omni Investment Trust.
ALBERT C. YATES, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1941. President (since 1990), Chancellor and
Professor of Chemistry Department of Chemistry, of Colorado
State University. Formerly Executive Vice President and
Provost (1983 to 1990) Academic Vice President and Provost
(1981 to 1983) and Professor of Chemistry (1981 to 1990) of
Washington State University. Vice President and University
Dean for Graduate Studies and Research and Professor of
Chemistry of the University of Cincinnati (1977 to 1981).
Director of the Berger Growth Fund and Berger Large Cap Growth
Fund. Trustee of Berger Investment Portfolio Trust, Berger
Institutional Products Trust, Berger Worldwide Funds Trust,
Berger Worldwide Portfolios Trust and Berger Omni Investment
Trust.
* JAY W. TRACEY CFA, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1954. Executive Vice President of the Berger Funds
(since August 2000). Executive Vice President and Chief
Investment Officer of Berger Financial Group LLC (since June
2000). Portfolio manager of the Berger Growth Fund (since
August 2000); team portfolio manager of the Berger Select Fund
(since June 2000) and the Berger Large Cap Growth Fund (from
January 2001 through December 2001). Team portfolio manager
(since December 2001) of the Berger Mid Cap Growth Fund and
team interim portfolio manager (since December 2001) of the
Berger New Generation Fund. Formerly, Vice President and
Portfolio Manager at Oppenheimer Funds, Inc. (September 1994
to May 2000) and Managing Director of Buckingham Capital
Management (February 1994 to September 1994).
* PAUL A. LAROCCO, CFA, 210 University Boulevard, Suite 800, Denver,
CO 80206, DOB: 1958. Vice President (since February 2001) and
portfolio manager (since January 2001) of the Berger Small
Company Growth Fund. Vice President (since February 2001) and
team portfolio manager (since January 2001) of the Berger
Select Fund. Team portfolio manager (since December 2001) of
the Berger Mid Cap Growth Fund and interim team portfolio
manager (since December 2001) of the Berger New Generation
Fund. Vice President of Berger Financial Group LLC (since
December
-16-
2000). Formerly, portfolio manager with Montgomery Asset
Management (from January 2000 through December 2000); senior
portfolio manager with Founders Asset Management (from March
1998 through December 1999); and portfolio manager with
Oppenheimer Funds (from January 1993 through March 1998).
* STEVEN L. FOSSEL, CFA, 210 University Boulevard, Suite 800, Denver,
CO 80206, DOB: 1968. Vice President (since August 2000) and
portfolio manager (since June 2000) of the Berger Balanced
Fund. Vice President (since August 2000) and team portfolio
manager (since June 2000) of the Berger Select Fund. Vice
President (since February 2001); portfolio manager (since
December 2001) of the Berger Large Cap Growth Fund; and team
portfolio manager (from January 2001 through December 2001) of
the Berger Large Cap Growth Fund. Interim portfolio manager
(from June 2000 to January 2001) of the Berger Large Cap
Growth Fund. Vice President and portfolio manager of Berger
Financial Group LLC (since June 2000); senior equity analyst
with Berger Financial Group LLC (from March 1998 to June
2000). Formerly, Analyst and Assistant portfolio manager with
Salomon Brothers Asset Management (from August 1992 to
February 1998).
* JANICE M. TEAGUE, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1954. Vice President and Secretary of Bay Isle
Financial LLC (since January 2002). Vice President (since
November 1998) and Assistant Secretary (since February 2000
and previously from September 1996 to November 1998) and
Secretary (November 1998 to February 2000) of the Berger
Funds. Vice President (since October 1997), Secretary (since
November 1998) and Assistant Secretary (October 1996 through
November 1998) with Berger Financial Group LLC. Vice President
and Secretary with Berger Distributors LLC (since August
1998). Formerly, self-employed as a business consultant (from
June 1995 through September 1996), Secretary of the Janus
Funds (from January 1990 to May 1995) and Assistant Secretary
of Janus Capital Corporation from (October 1989 to May 1995).
* ANDREW J. ISEMAN, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1964. Vice President of the Berger Funds (since
March 2001). Vice President (since September 1999) and Chief
Operating Officer (since November 2000) of Berger Financial
Group LLC. Manager (since September 1999) and Director (June
1999 to September 1999) of Berger Distributors LLC. Vice
President-Operations (February 1999 to November 2000) of
Berger Financial Group LLC. Associate (November 1998 to
February 1999) with DeRemer & Associates (a consulting firm).
Vice President-Operations (February 1997 to November 1998) and
Director of Research and Development (May 1996 to February
1997) of Berger Financial Group LLC.
* ANTHONY R. BOSCH, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1965. Vice President of Bay Isle Financial LLC
(since January 2002). Vice President of the Berger Funds
(since February 2000). Vice President (since June 1999) and
Chief Legal Officer (since August 2000) with Berger Financial
Group LLC. Chief Compliance Officer with Berger Distributors
LLC (since September 2001). Formerly, Assistant Vice President
of Federated Investors, Inc. (December 1996 through May 1999),
and Attorney with the U.S. Securities and Exchange Commission
(June 1990 through December 1996).
* BRIAN S. FERRIE, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1958. Vice President of the Berger Funds (since
November 1998). Vice President (since February 1997),
Treasurer and Chief Financial Officer (since March 2001) and
Chief Compliance Officer (from August 1994 to March 2001) with
Berger Financial Group LLC. Vice President (since May 1996),
Treasurer and Chief Financial Officer (since March 2001) and
Chief Compliance Officer (from May 1996 to September 2001)
with Berger Distributors LLC. Formerly, Compliance Officer
with United Services Advisor, Inc. (from January 1988 to July
1994) and Director of Internal Audit of United Services Funds
(from January 1987 to July 1994).
* JOHN PAGANELLI, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1967. Vice President (since November 1998),
Treasurer (since March 2001) and Assistant Treasurer
-17-
(November 1998 to March 2001) of the Berger Funds. Vice
President (since November 1998) and Manager of Accounting
(January 1997 through November 1998) with Berger Financial
Group LLC. Formerly, Manager of Accounting (December 1994
through October 1996) and Senior Accountant (November 1991
through December 1994) with Palmeri Fund Administrators, Inc.
* SUE VREELAND, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1948. Secretary of the Berger Funds (since
February 2000). Assistant Secretary of Berger Financial Group
LLC and Berger Distributors LLC (since June 1999) and Bay Isle
Financial LLC (since December 2001). Formerly, Assistant
Secretary of the Janus Funds (from March 1994 to May 1999),
Assistant Secretary of Janus Distributors, Inc. (from June
1995 to May 1997) and Manager of Fund Administration for Janus
Capital Corporation (from February 1992 to May 1999).
* Interested person (as defined in the Investment Company Act of 1940) of the
Fund and/or of the Fund's adviser.
The trustees of the Fund have adopted a trustee retirement age of 75 years.
TRUSTEE COMPENSATION
The officers of the Fund received no compensation from the
Fund during the fiscal year ended September 30, 2001. However, trustees of the
Fund who are not "interested persons" of the Fund or its adviser are compensated
for their services according to a fee schedule, allocated among the Berger
Funds. Neither the officers of the Fund nor the trustees receive any form of
pension or retirement benefit compensation from the Fund.
The following table sets forth information regarding
compensation paid or accrued during the fiscal year ended September 30, 2001,
for each trustee of the Fund:
<Table>
<Caption>
NAME AND POSITION
WITH BERGER FUNDS AGGREGATE COMPENSATION FROM
----------------- -------------------------------------------------------------------------
BERGER INFORMATION TECHNOLOGY FUND ALL BERGER FUNDS(1)
---------------------------------- --------------------
Dennis E. Baldwin(2) $ 694 $ 57,984
Louis Bindner(5) $ 304 $ 19,234
Katherine A. Cattanach(2) $ 698 $ 58,400
Paul R. Knapp(2) $ 653 $ 54,234
Harry T. Lewis(2) $ 653 $ 54,234
Michael Owen(2) $ 811 $ 67,448
William Sinclaire(2) $ 653 $ 54,234
Albert C. Yates(2),(6) $ 350 $ 35,000
Jack R. Thompson(2),(3),(4) $ 0 $ 0
</Table>
(1) Includes the Berger Growth Fund, the Berger Large Cap Growth Fund, the
Berger Investment Portfolio Trust (including the Berger Mid Cap Growth
Fund, the Berger Small Company Growth Fund, the Berger New Generation Fund,
the Berger Select Fund, the Berger Information Technology Fund, the Berger
Mid Cap Value Fund, and the Berger Balanced Fund), the Berger Institutional
Products Trust (five series), the Berger Worldwide Funds Trust (three
series, including the Berger International Fund), the Berger Worldwide
Portfolios Trust (one series) and
-18-
the Berger Omni Investment Trust (one series). Aggregate compensation
figures do not include first-year estimates for any Fund in existence for
less than one year. Of the aggregate amounts shown for each
director/trustee, the following amounts were deferred under applicable
deferred compensation plans: Dennis E. Baldwin $31,960; Lou Bindner $2,499;
Katherine A. Cattanach $58,400; William Sinclaire $54,234; Albert C. Yates
$17,500.
(2) Director of Berger Growth Fund and Berger Large Cap Growth Fund and trustee
of Berger Investment Portfolio Trust, Berger Institutional Products Trust,
Berger Worldwide Portfolios Trust, Berger Worldwide Funds Trust and Berger
Omni Investment Trust.
(3) Interested person of Berger Financial Group LLC.
(4) President of Berger Growth Fund, Berger Large Cap Growth Fund, Berger
Investment Portfolio Trust, Berger Institutional Products Trust, Berger
Worldwide Portfolios Trust, Berger Worldwide Funds Trust and Berger Omni
Investment Trust.
(5) Resigned effective March 1, 2001.
(6) Appointed Trustee effective March 1, 2001.
Trustees may elect to defer receipt of all or a portion of
their fees pursuant to a fee deferral plan adopted by the Fund. Under the plan,
deferred fees are credited to an account and adjusted thereafter to reflect the
investment experience of whichever of the Berger Funds (or approved money market
funds) is designated by the trustee for this purpose. Pursuant to an SEC
exemptive order, the Fund is permitted to purchase shares of the designated
funds in order to offset its obligation to the trustees participating in the
plan. Purchases made pursuant to the plan are excepted from any otherwise
applicable investment restriction limiting the purchase of securities of any
other investment company. The Fund's obligation to make payments of deferred
fees under the plan is a general obligation of the Fund.
As of December 31, 2001, the officers and trustees of the
Fund as a group owned, of record or beneficially, an aggregate of less than 1%
of the outstanding shares of the Institutional Shares class and the Fund.
The Trust, the Funds' investment adviser and principal
underwriter have adopted Codes of Ethics under Rule 17j-1 of the Investment
Company Act. The Codes of Ethics permit personnel subject to the Codes to invest
in securities, including securities that may be purchased or held by the Funds
in certain circumstances. The Codes of Ethics are described fully under
Restrictions on Personal Trading in Section 4 of this SAI.
4. INVESTMENT ADVISER
BERGER FINANCIAL GROUP LLC - INVESTMENT ADVISER
Berger Financial Group LLC ("BFG") (formerly Berger LLC), 210
University Boulevard, Suite 800, Denver, Colorado 80206, is the investment
adviser to the Fund. BFG is responsible for managing the investment operations
of the Fund and the composition of its investment portfolio. BFG also acts as
the Fund's administrator and is responsible for such functions as monitoring
compliance with all applicable federal and state laws.
BFG is a Nevada Limited Liability Company, and has been in
the investment advisory business since 1974. It serves as investment adviser or
sub-adviser to mutual funds and institutional investors and had assets under
management of approximately $8.7 billion as of December 31, 2001. BFG is a
subsidiary of Stilwell Management Inc. ("Stilwell"), which owns approximately
89.5% of BFG, and is an indirect subsidiary of Stilwell Financial Inc.
("Stilwell Financial"). Stilwell also owns approximately 33% of the outstanding
shares of DST Systems, Inc. ("DST"), a publicly traded information and
transaction processing company, which acts as the Fund's transfer agent. DST, in
turn, owns 100% of DST Securities, a registered broker-dealer, which executes
portfolio trades for the Funds.
Stilwell Financial was previously a wholly owned subsidiary of
Kansas City Southern Industries, Inc. ("KCSI"). On July 12, 2000, KCSI completed
a separation of its transportation and financial services segments through a
dividend of stock of Stilwell Financial. On that date, KCSI shareholders
received two shares of Stilwell Financial for every KCSI share held as of June
28, 2000. The separation resulted in no change in the management or control of
the Funds or the adviser to the Funds.
-19-
BAY ISLE FINANCIAL CORPORATION
Prior to December 31, 2001, Bay Isle Financial LLC (formerly
Bay Isle Financial Corporation), 160 Sansome Street, 17th Floor, San Francisco,
California 94104, served as the investment sub-adviser for the Berger
Information Technology Fund. Effective December 2001, BFG acquired all of the
outstanding shares of Bay Isle Financial Corporation. Bay Isle Financial LLC
("Bay Isle") is now a subsidiary of BFG. Bay Isle has been in the investment
advisory business since 1986. Bay Isle serves as investment adviser or
sub-adviser to mutual funds, institutional investors and individual separate
accounts. Previously, Bay Isle served as investment adviser to the Berger
Information Technology Fund (originally known as the InformationTech 100(R)
Fund) from its inception in April 1997 until July 1999, when the InformationTech
100(R) Fund was reorganized into the Berger Information Technology Fund with
investor approval. At that time, Bay Isle became the investment sub-adviser to
the Fund under a Sub-Advisory Agreement between BFG as adviser and Bay Isle as
sub-adviser. The Sub-Advisory Agreement was terminated effective December 31,
2001.
In addition to its other activities, Bay Isle maintains the
InformationWeek(R) 100 Index, an unmanaged index of the stocks of 100 companies
in the information technology industries. InformationWeek(R) is a registered
trademark of CMP Media, which is not affiliated with Bay Isle or the Fund. Mr.
Schaff, President of Bay Isle, also writes articles on investments for
InformationWeek magazine, a publication of CMP Media covering information
technology-related topics. CMP Media compensates Bay Isle for managing the Index
and for Mr. Schaff's articles.
INVESTMENT ADVISORY AGREEMENTS
Under the Investment Advisory Agreement between the Fund and
its adviser, the adviser is generally responsible for furnishing continuous
advice and making investment decisions as to the acquisition, holding or
disposition of securities or other assets that the Fund may own or contemplate
acquiring from time to time. The Investment Advisory Agreement provides that the
investment adviser shall not be liable for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or omission
taken with respect to the Fund, except for willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties thereunder and except to the extent
otherwise provided by law.
Under the Agreement the adviser is compensated for its
services by the payment of a fee at an annual rate, calculated as a percentage
of the average daily net assets of the Fund.
The following schedule reflects the advisory fees charged to
the Fund for the fiscal year ended September 30, 2001:
<Table>
<Caption>
FUND ADVISER INVESTMENT ADVISORY FEE
---- ------- -----------------------
Berger Information Technology Fund BFG 0.85%(1)
</Table>
(1) Under a written contract, the Fund's investment adviser waives its fee or
reimburses the Fund for expenses to the extent that, at any time during the
life of the Fund, the annual operating expenses for the Institutional
Shares class of the Fund in any fiscal year, including the investment
advisory fee, but excluding brokerage commissions, interest, taxes and
extraordinary expenses, exceed 1.50% of the Fund's average daily net assets
attributable to the Institutional Shares for that fiscal year. The contract
also provides that the adviser will waive an additional amount of its fees
or reimburse an additional amount of expenses to the extent necessary to
keep its fee waiver and reimbursement for the Institutional Shares class
proportionate to its fee waiver and reimbursement for the Fund's other
outstanding share class. The contract may not be terminated or amended
except by a vote of the Fund's Board of Trustees. The investment advisory
fee is allocated among the Institutional Shares and the other class of the
Fund on the basis of net assets attributable to each such class.
-20-
Investment advisory fees are charged to the Fund according to
the following schedule:
<Table>
<Caption>
FUND ADVISER INVESTMENT ADVISORY FEE
---- ------- -----------------------
Berger Information Technology Fund BFG 0.85% of the first $500 million
0.80% of the next $500 million
0.75% in excess of $1 billion
</Table>
The Fund's Investment Advisory Agreement will continue in
effect until the last day of April 2002, and thereafter from year to year if
such continuation is specifically approved at least annually by the trustees or
by vote of a majority of the outstanding shares of the Fund and in either case
by vote of a majority of the trustees who are not "interested persons" (as that
term is defined in the 1940 Act) of the Fund or the adviser. The Agreement is
subject to termination by the Fund or the adviser on 60 days' written notice and
terminates automatically in the event of its assignment.
Prior to December 31, 2001, BFG paid to Bay Isle, as the
former sub-adviser of the Fund, an adviser fee at the annual rate of 0.425% for
the first $500 million of the Fund's average daily net assets, 0.40% of the next
$500 million and 0.375% of any amount in excess of $1 billion. The Sub-Advisory
Agreement was terminated December 31,2001.
OTHER ARRANGEMENTS BETWEEN BFG AND BAY ISLE
BFG and Bay Isle have formed a joint venture to provide asset
management services to certain private accounts.
TRADE ALLOCATIONS
While investment decisions for the Fund are made
independently by the adviser, the same investment decision may be made for the
Fund and one or more accounts advised by the adviser. In this circumstance,
should purchase and sell orders of the same class of security be in effect on
the same day, the orders for such transactions may be combined by the adviser in
order to seek the best combination of net price and execution for each. Client
orders partially filled will, as a general matter, be allocated pro rata in
proportion to each client's original order, although exceptions may be made to
avoid, among other things, odd lots and de minimus allocations. Execution prices
for a combined order will be averaged so that each participating client receives
the average price paid or received. Although in some cases this policy might
adversely affect the price paid or received by the Fund or other participating
accounts, or the size of the position obtained or liquidated, the adviser will
aggregate orders if it believes that coordination of orders and the ability to
participate in volume transactions will result in the best overall combination
of net price and execution.
BFG has adopted procedures for allocating to its participating
accounts' securities purchased pursuant to a company's initial public offering
("IPO"). The procedures provide that such allocations must be effected in a
manner that is fair and equitable to all accounts. Generally, securities
received from participating in IPOs will be allocated to participating accounts
pro rata based on account size or total equity assets.
The key criterion for determining eligibility of the account
to participate in an offering is the suitability of the investment for the
account. An account may participate in an IPO allocation if BFG believes that,
based on the account's investment restrictions, risk profile, asset composition
and cash levels, the IPO is an appropriate investment. Accordingly, no account
will participate in every IPO allocation. In addition, an account generally will
not participate in an IPO if the securities available for allocation to the
account are insignificant relative to the account's net assets. As a result, any
fund or account whose assets are very large is not likely to participate in the
allocation of many IPOs.
-21-
RESTRICTIONS ON PERSONAL TRADING
BFG, the Berger Funds and Berger Distributors LLC each permits
its directors, officers and employees to purchase and sell securities for their
own accounts, including securities that may be purchased or held by the Funds,
in accordance with a policy regarding personal investing in each of the Codes of
Ethics for BFG, the Berger Funds and Berger Distributors LLC. The policy
requires all covered persons to conduct their personal securities transactions
in a manner that does not operate adversely to the interests of the Funds or
BFG's other advisory clients. Directors and officers of BFG and Berger
Distributors LLC, investment personnel and other designated persons deemed to
have access to current trading information ("access persons") are required to
pre-clear all transactions in securities not otherwise exempt under the policy.
Requests for authority to trade will be denied pre-clearance when, among other
reasons, the proposed personal transaction would be contrary to the provisions
of the policy or would be deemed to adversely affect any transaction then known
to be under consideration for or currently being effected on behalf of any
client account, including the Funds.
In addition to the pre-clearance requirements described here
for BFG and Berger Distributors LLC, the policy subjects directors and officers
of BFG, the Berger Funds and Berger Distributors LLC, investment personnel and
other access persons to various trading restrictions and reporting obligations.
All reportable transactions are reviewed for compliance with the policy. The
policy is administered by BFG and the provisions of the policy are subject to
interpretation by and exceptions authorized by its management.
Bay Isle Financial LLC has adopted a Code of Ethics that is
substantially similar to the Code adopted by BFG.
5. EXPENSES OF THE FUND
In addition to paying an investment advisory fee to its
adviser, the Fund pays all of its expenses not assumed by its adviser,
including, but not limited to, custodian and transfer agent fees, legal and
accounting expenses, administrative and record keeping expenses, interest
charges, federal and state taxes, expenses of investors' meetings, compensation
of trustees who are not interested persons of BFG, expenses of printing and
distributing reports to investors and federal and state administrative agencies,
and all expenses incurred in connection with the execution of its portfolio
transactions, including brokerage commissions on purchases and sales of
portfolio securities, which are considered a cost of securities of the Fund. The
Fund also pays all expenses incurred in complying with all federal and state
laws and the laws of any foreign country applicable to the issue, offer or sale
of shares of the Fund, including, but not limited to, all costs involved in
preparing and printing prospectuses for investors of the Fund.
Under a separate Administrative Services Agreement with
respect to the Fund, BFG performs certain administrative and recordkeeping
services not otherwise performed by the Fund's custodian and recordkeeper,
including the preparation of financial statements and reports to be filed with
the Securities and Exchange Commission and state regulatory authorities. For the
fiscal year ended September 30, 2001, BFG did not charge an administrative fee
to the Fund. The administrative services fee may be changed by the trustees
without investor approval.
The following table shows the cost to the Fund of the
previously applicable advisory fee and administrative services fee for the years
shown and the amount of such fees waived on account of excess expenses under
applicable expense limitations. For the Funds that have two classes of shares,
each class bears pro rata its share of the Fund's investment advisory fee based
on assets.
-22-
BERGER INFORMATION TECHNOLOGY FUND
<Table>
<Caption>
FISCAL YEAR(1) ADVISORY FEE
ENDED INVESTMENT ADMINISTRATIVE WAIVER AND EXPENSE
SEPTEMBER 30, ADVISORY FEE(2) SERVICE FEE(3) REIMBURSEMENT(4) TOTAL
------------- --------------- -------------- ------------------ ----------
2001 $ 654,000 $ 0 $ 0 $ 654,000
2000 $ 849,000 $ 0 $ 0 $ 849,000
1999 $ 97,000 $ 11,000 $ (47,000) $ 61,000
</Table>
(1) The Fund's fiscal year changed from February 28 to September 30 as part of
a reorganization effective July 2, 1999.
(2) Under the advisory agreement in effect prior to the reorganization
referenced in note (1), the Fund's predecessor paid an advisory fee at an
annual rate of 0.95% of its average daily net assets to Bay Isle. As part
of the reorganization, the investment advisory fee of 0.90% payable to BFG
came into effect. Effective October 1, 1999, the investment advisory fee
charged to the Fund was reduced from .90% to the following rates of average
daily net assets: 0.85% of the first $500 million; 0.80% of the next $500
million and 0.75% in excess of $1 billion.
(3) Under the administrative service agreement in effect prior to the
reorganization referenced in note (1), the Fund's predecessor paid to a
third party administrator an administrative services fee at the annual rate
of 0.20% of average net assets, subject to a $30,000 annual minimum.
Effective October 1, 1999, BFG eliminated the 0.01% administrative fee
charged to the Fund.
(4) Prior to the reorganization referenced in note (1), the Fund's prior
adviser had voluntarily agreed to reduce its fees and/or pay expenses of
the Fund to ensure that the Fund's expenses did not exceed 1.50%. During
1998, in addition to waiving its entire advisory fee and reimbursing the
Fund for the entire administrative service fee, the Fund's prior adviser
reimbursed the Fund for $59,000 of additional expenses in order to meet the
applicable expense limitation. As part of the reorganization, the current
expense limitation arrangements came into effect with BFG, which are
described in note (2) to the table appearing above under the heading
"Investment Advisory Agreements."
The Fund has appointed State Street Bank and Trust Company
("State Street"), One Heritage Drive, North Quincy, Massachusetts 02171, as its
recordkeeping and pricing agent. In addition, State Street also serves as the
Funds' custodian. Each of the Funds has appointed DST Systems, Inc. ("DST"),
P.O. Box 219958, Kansas City, Missouri 64121, as its transfer agent and
dividend-disbursing agent. Stilwell owns approximately 33% of the outstanding
shares of DST.
As recordkeeping and pricing agent, State Street calculates
the daily net asset value of the Fund and performs certain accounting and
recordkeeping functions required by the Fund. The Fund pays State Street a
monthly asset-based fee for such services. State Street is also reimbursed for
certain out-of-pocket expenses.
State Street, as custodian, and its subcustodians have
custody and provide for the safekeeping of the Fund's securities and cash, and
receive and remit the income thereon as directed by the management of the Fund.
The custodian and subcustodians do not perform any managerial or policy-making
functions for the Fund. For its services as custodian, State Street receives an
asset-based fee plus certain transaction fees and out-of-pocket expenses.
As transfer agent and dividend disbursing agent, DST
maintains all investor accounts of record; assists in mailing all reports,
proxies and other information to the Fund's investors; calculates the amount of,
and delivers to the Fund's investors, proceeds representing all dividends and
distributions; and performs other related services. For these services, DST
receives a fee from the Fund at an annual rate of $14.85 per open Fund investor
account, subject to preset volume discounts, plus certain transaction fees and
fees for closed accounts, and is reimbursed for out-of-pocket expenses.
All of State Street's fees are subject to reduction pursuant
to an agreed formula for certain earnings credits on the cash balances of the
Fund. Earnings credits received by the Fund can be found on the Fund's Statement
of Operations in the Annual Report incorporated by reference into this Statement
of Additional Information
OTHER EXPENSE INFORMATION
The trustees of the Fund have authorized portfolio
transactions to be placed on an agency basis through DST Securities, Inc.
("DSTS"), a wholly owned broker-dealer subsidiary of DST. When transactions are
effected through DSTS, the commission received by DSTS is credited against, and
thereby reduces, certain operating expenses that the Fund would otherwise be
obligated to pay. No portion of the commission is retained by DSTS. See Section
6--Brokerage Policy for further information concerning the expenses reduced as a
result of these arrangements. DSTS may be considered an affiliate of BFG due to
the ownership interest of Stilwell in both DST and BFG.
The Fund and/or its adviser have entered into arrangements
with certain brokerage firms and other companies (such as recordkeepers and
administrators) to provide administrative services (such as sub-transfer agency,
-23-
recordkeeping, investor communications, sub-accounting and/or other services) to
investors purchasing shares of the Fund through those firms or companies. The
Fund's adviser or the Fund (if approved by its trustees) may pay fees to these
companies for their services. These companies may also be appointed as agents
for or authorized by the Fund to accept on its behalf purchase and redemption
requests that are received in good order. Subject to Fund approval, certain of
these companies may be authorized to designate other entities to accept purchase
and redemption orders on behalf of the Fund.
The Fund's adviser may also enter into arrangements with
organizations that solicit clients for the adviser, which may include clients
who purchase shares of the Fund. While the specific terms of each arrangement
may differ, generally the fee paid by the adviser under such arrangements is
based on the value of the referred client's assets managed by the adviser. None
of the fees paid to such organizations will be borne by the Fund.
DISTRIBUTOR
The distributor (principal underwriter) of the Fund's shares
is Berger Distributors LLC (the "Distributor"), 210 University Boulevard, Suite
800, Denver, Colorado 80206. The Distributor may be reimbursed by BFG for its
costs in distributing the Fund's Institutional Shares.
6. BROKERAGE POLICY
Although the Fund retains full control over its own
investment policies, under the terms of its Investment Advisory Agreement, BFG
as the Fund's adviser is directed to place the portfolio transactions of the
Fund. A report on the placement of brokerage business is given to the trustees
of the Fund every quarter, indicating the brokers with whom Fund portfolio
business was placed and the basis for such placement.
The brokerage commissions paid by the Fund were as follows:
<Table>
<Caption>
FISCAL YEAR (PERIOD ENDED) BROKERAGE COMMISSIONS
-------------------------- ---------------------
2001 $ 61,000
2000 $ 41,000(1)
1999 $ 4,000(1)
</Table>
(1) The Fund's fiscal year changed from February 28 to September 30 as part
of a reorganization effective July 1999. Accordingly, the brokerage
commissions for 1998 were paid by the Fund's predecessor for the fiscal
year ended February 28, 1999. Brokerage commissions for 1999 were paid
by the Fund for the period March 1, 1999 to September 30, 1999.
The Investment Advisory Agreement authorizes and directs the
adviser to place portfolio transactions for the Fund only with brokers and
dealers who render satisfactory service in the execution of orders at the most
favorable prices and at reasonable commission rates. However, the Agreement
specifically authorizes the adviser to place such transactions with a broker
with whom it has negotiated a commission that is in excess of the commission
another broker or dealer would have charged for effecting that transaction if
the adviser determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker viewed in terms of either that particular transaction or
the overall responsibilities of the adviser. Accordingly, the adviser does not
have an obligation to seek the lowest available commission.
In accordance with this provision of the Agreement, portfolio
brokerage business of the Fund may be placed with brokers who provide useful
brokerage and research services to the adviser. During the Fund's fiscal year
ended February 28, 1999, brokerage was placed by the Fund's then adviser Bay
Isle, and none of the brokerage commissions paid by the Fund were paid to
brokers who provided to the Fund such brokerage or research services. Currently,
however, the Fund's brokerage is placed by BFG, the Fund's adviser, which may
consider the value of research provided as a factor in the choice of brokers.
"Research" includes computerized on-line stock quotation
-24-
systems and related data feeds from stock exchanges, computerized trade order
entry, execution and confirmation systems, fundamental and technical analysis
data and software, computerized stock market and business news services,
economic research, account performance data and computer hardware used for the
receipt of electronic research services and broker and other third-party equity
research, such as publications or writings that furnish advice as to the value
of securities and advisability of investing, and analyses and reports concerning
issuers, industries, securities, market trends and portfolio strategies.
Research may be provided orally, in print or electronically. These include a
service used by the independent trustees of the Fund in reviewing the Investment
Advisory Agreement.
In some cases, a product or services termed "research" may
serve other functions unrelated to the making of investment decisions. When a
product has such a mixed use, the adviser will make a good faith allocation of
the cost of the product according to the use made of it. The portion of the
product that assists the adviser in the investment decision-making process may
be paid for with the Fund's commission dollars. The adviser pays for the portion
of the product that is not "research" with its own funds. Accordingly, the
decision whether and how to allocate the costs of such a product presents a
conflict of interest for BFG.
BFG does not enter into formal agreements with any brokers
regarding the placement of securities transactions because of any such brokerage
or research services that they provide. BFG may, however, make arrangements with
and maintain internal procedures for allocating transactions to brokers who
provide such services to encourage them to provide services expected to be
useful to BFG's clients, including the Fund. Brokers may suggest a level of
business they would like to receive in return for the brokerage and research
they provide. BFG then determines whether to continue receiving the research and
brokerage provided and the approximate amount of commissions it is willing to
pay to continue the brokerage and research arrangement with each broker. The
actual amount of commissions a broker may receive may be more or less than a
broker's suggested allocations, depending on BFG's level of business, market
conditions and other relevant factors. Even under these arrangements, however,
the placement of all Fund transactions, must be consistent with the Fund's
brokerage placement and execution policies, and must be directed to a broker who
renders satisfactory service in the execution of orders at the most favorable
prices and at reasonable commission rates.
During the fiscal year ended September 30, 2001, of the
brokerage commissions paid by the Fund, the following amounts were paid to
brokers who provided to the Fund selected brokerage or research services
prepared by the broker or subscribed or paid for by the broker on behalf of the
Fund:
<Table>
<Caption>
FUND AMOUNT OF TRANSACTIONS AMOUNT OF COMMISSIONS
---- ---------------------- ---------------------
Berger Information Technology Fund $ 9,328,000 $ 16,000
</Table>
These brokerage and research services received from brokers
are often helpful to BFG in performing its investment advisory responsibilities
to the Fund, and the availability of such services from brokers does not reduce
the responsibility of BFG's advisory personnel to analyze and evaluate the
securities in which the Fund invests. The brokerage and research services
obtained as a result of the Fund's brokerage business also will be useful to BFG
in making investment decisions for its other advisory accounts, and, conversely,
information obtained by reason of placement of brokerage business of such other
accounts may be used by BFG in rendering investment advice to the Fund. Although
such brokerage and research services may be deemed to be of value to BFG, they
are not expected to decrease the expenses that BFG would otherwise incur in
performing its investment advisory services for the Fund nor will the advisory
fees that are received by BFG from the Fund be reduced as a result of the
availability of such brokerage and research services from brokers.
The trustees of the Fund have authorized portfolio
transactions to be placed on an agency basis through DSTS, a wholly owned
broker-dealer subsidiary of DST. When transactions are effected through DSTS,
the commission received by DSTS is credited against, and thereby reduces,
certain operating expenses that the Fund would otherwise be obligated to pay. No
portion of the commission is retained by DSTS. DSTS may be considered an
affiliate of BFG due to the ownership interest of Stilwell in both DST and BFG.
-25-
Included in the brokerage commissions paid by the Fund during
the fiscal year ended September 30, 2001, as stated in the preceding Brokerage
Commissions table, are the following amounts paid to DSTS, which served to
reduce the Fund's out-of-pocket expenses as follows:
DSTS COMMISSIONS AND RELATED EXPENSE REDUCTIONS
<Table>
<Caption>
DSTS REDUCTION IN DSTS REDUCTION IN DSTS REDUCTION IN
COMMISSIONS EXPENSES COMMISSIONS EXPENSES COMMISSIONS EXPENSES
PAID FYE PAID FYE PAID FYE
FYE 9/30/01 9/30/01(1) FYE 9/30/00 9/30/00(1) FYE 9/30/99 9/30/99(1)
----------- ------------- ----------- ------------ ------------ ------------
Berger Information $ 0 $ 0 $ 0 $ 0 $ 0(2) $ 0
Technology Fund
</Table>
(1) No portion of the commission is retained by DSTS. Difference between
commissions paid through DSTS and reduction in expenses constitute
commissions paid to an unaffiliated clearing broker.
(2) The Fund's fiscal year changed from February 28 to September 30 as part of
a reorganization effective July 2, 1999. Accordingly, amounts for the
fiscal year ended February 28, 1999 were paid by the Fund's predecessor.
Amounts shown for FYE 9/30/99 cover the period of March 1, 1999 to
September 30, 1999.
The Fund's adviser places securities orders with a limited
number of major institutional brokerage firms chosen for the reliability and
quality of execution; commission rates; quality of research coverage of major
U.S. companies, the U.S. economy and the securities markets; promptness; back
office capabilities; capital strength and financial stability; prior performance
in serving the adviser and its clients; and knowledge of other buyers and
sellers. The adviser selects the broker for each order based on the factors
stated, as well as the size, difficulty and other characteristics of the order.
The trustees of the Fund have also authorized sales of shares of the Fund by a
broker-dealer and the recommendations of a broker-dealer to its customers that
they purchase Fund shares to be considered as factors in the selection of
broker-dealers to execute portfolio transactions for the Fund. In addition, the
adviser may also consider payments made by brokers to the Fund or to other
persons on behalf of the Fund for services provided to the Fund for which it
would otherwise be obligated to pay, such as transfer agency fees. In placing
portfolio business with any such broker or dealer, the adviser of the Fund will
seek the best execution of each transaction.
7. HOW TO PURCHASE AND REDEEM SHARES IN THE FUND
Minimum Initial Investment $250,000
Institutional Shares in the Fund may be purchased at the
relevant net asset value without a sales charge. The minimum initial investment
for Institutional Shares of the Fund is $250,000. (This requirement is not
applicable to investor accounts opened prior to the Fund's reorganization in
July 1999, since those accounts met the initial investment minimum in effect for
the Fund at the time those accounts were opened.)
To purchase shares in the Fund, simply complete the
application form enclosed with the Prospectus. Then mail it with a check payable
to "Berger Funds" to the following address:
Berger Funds
P.O. Box 219958
Kansas City, MO 64121-9958
Payment for shares purchased may be made by wire, electronic
funds transfer or mail. All purchase orders are effected at the relevant net
asset value per share of the Fund next determined after receipt of the purchase
order, completed application and payment. A purchase order, together with
payment in proper form, received by the Fund, its authorized agent or designee
prior to the close of the New York Stock Exchange (the "Exchange") on a day the
Fund is open for business will be effected at that day's net asset value. An
order received after that time will be effected at the net asset value
determined on the next business day.
-26-
Additional investments may be made at any time by mail,
telephone (1-800-960-8427) or online (bergerfunds.com) at the relevant net asset
value by calling or writing the Fund and making payment by wire or electronic
funds transfer as outlined above.
In addition, Fund shares may be purchased through certain
broker-dealers that have established mutual fund programs and certain other
organizations connected with pension and retirement plans. These broker-dealers
and other organizations may charge investors a transaction or other fee for
their services, may require different minimum initial and subsequent investments
than the Fund and may impose other charges or restrictions different from those
applicable to investors who invest in the Fund directly. Fees charged by these
organizations will have the effect of reducing an investor's total return on an
investment in Fund shares. No such charge will apply to an investor who
purchases Fund shares directly from the Fund as described here.
Procedures for purchasing, selling (redeeming) and exchanging
Fund shares by telephone and online are described in the Prospectus. The Fund
may terminate or modify those procedures and related requirements at any time.
BFG may, at its own risk, waive certain of those procedures and related
requirements.
As described in the Prospectus, the Fund is intended as a
long-term investment, and not as a short-term trading vehicle. Therefore, the
Fund will deduct a 1% redemption fee from an investor's redemption proceeds if
the investor redeems Fund shares held less than 6 months. This fee is paid to
the Fund and is intended to discourage investors from short-term trading of Fund
shares and to offset the cost to the Fund of excess brokerage and other costs
incurred as a result of such trading. If the investor has purchased shares on
different days, shares held the longest will be redeemed first for purposes of
determining if a fee is applicable. This fee will not be charged to reinvested
dividends and capital gains, certain retirement plan accounts (such as 401(k)s
and 403(b)s) or in the case of redemptions resulting from the death of the
investor.
The Fund also offers a Systematic Investment Plan (minimum
$50 per month) and a Systematic Withdrawal Plan (minimum of $50 withdrawn
monthly, quarterly, semiannually or annually). Forms for these plans may be
obtained online at bergerfunds.com or by calling 1-800-960-8427.
8. HOW THE NET ASSET VALUE IS DETERMINED
The net asset value of the Fund is determined once daily, at
the close of the regular trading session of the New York Stock Exchange (the
"Exchange") (normally 4:00 p.m., Eastern time, Monday through Friday) each day
that the Exchange is open. The Exchange is closed and the net asset value of the
Fund is not determined on weekends and on New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day each year.
The per share net asset value of the Institutional Shares is
determined by dividing the Institutional Shares' pro rata portion of the total
value of the Fund's securities and other assets, less the Institutional Shares'
pro rata portion of the Fund's liabilities and the liabilities attributable to
the Institutional Shares, by the total number of Institutional Shares
outstanding. Since net asset value for the Fund is calculated by class, and
since the Institutional Shares and each other class of the Fund has its own
expenses, the per share net asset value of the Fund will vary by class.
In determining net asset value, securities listed or traded
primarily on national exchanges, The Nasdaq Stock Market and foreign exchanges
are valued at the last sale price on such markets, or, if such a price is
lacking for the trading period immediately preceding the time of determination,
such securities are valued at the mean of their current bid and asked prices.
Securities that are traded in the over-the-counter market are valued at the mean
between their current bid and asked prices. The market value of individual
securities held by the Fund will be determined by using prices provided by
pricing services that provide market prices to other mutual funds or, as needed,
by obtaining market quotations from independent broker/dealers. Short-term money
market securities maturing within 60 days are valued on the amortized cost
basis, which approximates market value. All assets and liabilities initially
expressed in terms of non-U.S. dollar currencies are translated into U.S.
dollars at the prevailing market rates as quoted by one or more banks or dealers
shortly before the close of the Exchange. Securities and assets for which
quotations
-27-
are not readily available or are not representative of market value may be
valued at their fair value determined in good faith pursuant to consistently
applied procedures established by the trustees. Examples would be when events
occur that materially affect the value of a security at a time when the security
is not trading or when the securities are illiquid.
Generally, trading in foreign securities markets is
substantially completed each day at various times prior to the close of the
Exchange. The values of foreign securities used in computing the net asset value
of the shares of the Fund are determined as of the earlier of such market close
or the closing time of the Exchange. Occasionally, events affecting the value of
such securities may occur between the times at which they are determined and the
close of the Exchange, or when the foreign market on which such securities trade
is closed but the Exchange is open, which will not be reflected in the
computation of net asset value. If during such periods, events occur that
materially affect the value of such securities, the securities may be valued at
their fair value as determined in good faith pursuant to consistently applied
procedures established by the trustees.
The Fund's securities may be listed primarily on foreign
exchanges or over-the-counter dealer markets that may trade on days when the
Exchange is closed (such as a customary U.S. holiday) and on which the Fund's
net asset value is not calculated. As a result, the net asset value of the Fund
may be significantly affected by such trading on days when investors cannot
purchase or redeem shares of the Fund.
9. INCOME DIVIDENDS, CAPITAL GAINS, DISTRIBUTIONS AND TAX
TREATMENT
This discussion summarizes certain U.S. federal income tax
issues relating to the Fund. As a summary, it is not an exhaustive discussion of
all possible tax ramifications. Accordingly, investors are urged to consult with
their tax advisers with respect to their particular tax consequences.
TAX STATUS OF THE FUND. If the Fund meets certain investment
and distribution requirements, it will be treated as a "regulated investment
company" (a "RIC") under the Internal Revenue Code and will not be subject to
federal income tax on earnings that it distributes in a timely manner to
investors. It may be subject to an excise tax on undistributed income if it does
not meet certain timing requirements for distributions. The Fund intends to
qualify as a RIC annually and to make timely distributions in order to avoid
income and excise tax liabilities.
TAX ON FUND DISTRIBUTIONS. With certain exceptions provided
by law, the Fund will report annually to the Internal Revenue Service, and to
each investor, information about the tax treatment of the investor's
distributions. Dividends paid by the Fund, whether received in cash or
reinvested in additional Fund shares, will be treated as ordinary income to the
investors. Distributions of net capital gain, whether received in cash or
reinvested in Fund shares, will be taxable to the investors, but the rate of tax
will vary depending upon the Fund's holding periods in the assets whose sale
resulted in the capital gain. Dividends and distributions that are declared in
October, November or December but not distributed until the following January
will be considered to be received by the investors on December 31.
In general, net capital gains from assets held by the Fund
for more than 12 months will be subject to the applicable long-term capital
gains rates and net capital gains from assets held for 12 months or less will be
taxed as ordinary income. Distributions will be subject to these capital gains
rates, regardless of how long an investor has held Fund shares. Assets
contributed to the Fund in an in-kind purchase of Fund shares may generate more
gain upon their sale than if the assets had been purchased by the Fund with cash
contributed to the Fund in a cash purchase of Fund shares.
If the Fund's distributions for a taxable year exceeds its
tax earnings and profits available for distribution, all or a portion of its
distributions may be treated as a return of capital. To the extent a
distribution is treated as a return of capital, an investor's basis in his or
her Fund shares will be reduced by that amount.
If an investor has elected to receive dividends and/or capital
gain distributions in cash and the U.S. Postal Service is unable to deliver
checks to the investor's address of record or if a investor's checks remain
uncashed for six months, the Fund reserves the right to reinvest the amount
distributed in shares of the applicable Fund at the NAV next computed after the
check is canceled, and to convert the investor's distribution option from
receiving cash
-28-
to having all dividend and other distributions reinvested in additional shares.
In addition, no interest will accrue on amounts represented by uncashed
distribution or redemption checks.
Additionally, the Funds reserve the right to reinvest
distributions of less than $10 in shares of the applicable Fund at the next
computed NAV.
TAX ON REDEMPTIONS OF FUND SHARES. Investors may be subject
to tax on the redemption of their Fund shares. In general, such redemptions may
give rise to a capital gain or loss, the treatment of which will depend on the
investor's holding period in the Fund shares. Tax laws may prevent the deduction
of a loss on the sale of Fund shares if the investor reinvests in the Fund
shortly before or after the sale giving rise to the loss. Any loss on the
redemption or other sale or exchange of Fund shares held for six months or less
will be treated as a long-term capital loss to the extent of any long-term
capital gain distribution received on the shares.
INCOME FROM FOREIGN SOURCES. Dividends and interest received
by the Fund on foreign securities may give rise to withholding and other taxes
imposed by foreign countries, although these taxes may be reduced by applicable
tax treaties. Foreign taxes will generally be treated as expenses of the Fund,
unless the Fund has more than 50% of its assets invested in foreign corporate
securities at the end of the Fund's taxable year. In that case, if the fund
makes an election, investors of the Fund may be able to deduct (as an itemized
deduction) or claim a foreign tax credit for their share of foreign taxes,
subject to limitations prescribed in the tax law.
If the Fund invests in a foreign corporation that is a
passive foreign investment company (a "PFIC"), special rules apply that may
affect the tax treatment of gains from the sale of the stock and may cause the
Fund to incur IRS tax and interest charges. However, the Fund may be eligible to
elect one of two alternative tax treatments with respect to PFIC shares that
would avoid these taxes and charges but also may affect, among other things, the
amount and character of gain or loss and the timing of the recognition of income
with respect to PFIC shares. Accordingly, the amounts, character and timing of
income distributed to investors of the Fund holding PFIC shares may differ
substantially as compared with a fund that did not invest in PFIC shares.
INCOME FROM CERTAIN TRANSACTIONS. Some or all of the Fund's
investments may include transactions that are subject to special tax rules.
Transactions involving foreign currencies may give rise to gain or loss that
could affect the Fund's ability to make ordinary dividend distributions.
Investment in certain financial instruments, such as options, futures contracts
and forward contracts, may require annual recognition of unrealized gains and
losses. Transactions that are treated as "straddles" may affect the character
and/or timing of other gains and losses of the Fund. If the Fund enters into a
transaction (such as a "short sale against the box") that reduces the risk of
loss on an appreciated financial position that it already holds, the entry into
the transaction may constitute a constructive sale and require immediate
recognition of gain.
BACKUP WITHHOLDING. In general, if an investor is subject to
backup withholding, the Fund will be required to withhold federal income tax at
the applicable rate from distributions to that investor. These payments are
creditable against the investor's federal income tax liability.
FOREIGN INVESTORS. Foreign investors of the Fund generally
will be subject to the applicable U.S. withholding tax on dividends paid by the
Fund from ordinary income and short-term capital gain, although the rate may be
reduced by a tax treaty. If a foreign investor dies while owning Fund shares,
those shares may be subject to U.S. estate taxes.
10. SUSPENSION OF REDEMPTION RIGHTS
The Fund may not suspend the right of redemption, or postpone
the date of payment or satisfaction upon redemption of any redeemable shares for
more than seven days except for any period during which the New York Stock
Exchange is closed or the Securities and Exchange Commission determines that
trading on the Exchange is restricted or when there is an emergency as
determined by the Securities and Exchange Commission as a result of which it is
not reasonably practicable for the Fund to dispose of securities owned by it or
to determine the value of its net assets, or for such other period as the
Securities and Exchange Commission may by order permit for the protection of
investors of the Fund.
-29-
The Fund intends to redeem its shares only for cash, although
it retains the right to redeem its shares in-kind under unusual circumstances,
in order to protect the interests of the remaining investors, by the delivery of
securities selected from its assets at its discretion. The Fund is, however,
governed by Rule 18f-1 under the Investment Company Act of 1940 pursuant to
which the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net assets of the Fund during any 90-day period for any
one investor. For purposes of this threshold, each underlying account holder
whose shares are held of record in certain omnibus accounts is treated as one
investor. Should redemptions by any investor during any 90-day period exceed
such limitation, the Fund will have the option of redeeming the excess in cash
or in-kind. If shares are redeemed in-kind, the redeeming investor generally
will incur brokerage costs in converting the assets to cash. The redeeming
investor may have difficulty selling the securities and recovering the amount of
the redemption if the securities are illiquid. The method of valuing securities
used to make redemption in-kind will be the same as the method of valuing
portfolio securities described under Section 8.
11. TAX-SHELTERED RETIREMENT PLANS
The Fund offers several tax-qualified retirement plans for
individuals, businesses and nonprofit organizations. For information about
establishing an IRA, Roth IRA, profit-sharing or money purchase pension plan,
403(b) Custodial Account, SEP-IRA, SIMPLE IRA account or other retirement plans,
please call 1-800-259-2820, or write to The Berger Funds, c/o Berger Financial
Group LLC, P.O. Box 5005, Denver, CO 80217-5005. Trustees for existing 401(k) or
other plans interested in using Fund shares as an investment or investment
alternative in their plans are invited to call the Fund at 1-800-259-2820.
12. EXCHANGE PRIVILEGE
Any investor may exchange any or all of the investor's shares
in any of the Funds, subject to stated minimums, for shares of any of the other
available Berger Funds or for shares of the Money Market Portfolio, the
Government Securities Portfolio or the Tax-Exempt Portfolio of the Cash Account
Trust ("CAT Portfolios"), separately managed, unaffiliated money market funds,
without charge, after receiving a current prospectus of the other Fund or CAT
Portfolio. The exchange privilege with the CAT Portfolios does not constitute an
offering or recommendation of the shares of any such CAT Portfolio by any of the
Funds or BFG. BFG is compensated for administrative services it performs with
respect to the CAT Portfolios.
Exchanges into or out of the Funds are made at the net asset
value per share next determined after the exchange request is received. Each
exchange represents the sale of shares from one Fund and the purchase of shares
in another, which may produce a gain or loss for income tax purposes. As
described in the Prospectus, the Fund will deduct a 1% exchange fee from an
investor's exchange proceeds if the investor exchanges out shares of the Fund
held less than 6 months. This fee is paid to the Fund and is intended to
discourage investors from short-term trading of Fund shares and to offset the
cost to the Fund of excess brokerage and other costs incurred as a result of
such trading. If the investor has purchased shares on different days, shares
held the longest will be redeemed first for purposes of determining if a fee is
applicable. This fee will not be charged to reinvested dividends and capital
gains, certain retirement plan accounts (such as 401(k)s and 403(b)s) or in the
case of redemptions resulting from the death of the investor.
An exchange of shares may be made by written request, via
on-line access or simply by telephoning the Berger Funds at 1-800-960-8427. This
privilege may be terminated or amended by any of the Funds and is not available
in any state in which the shares of the Fund or CAT Portfolio being acquired in
the exchange are not eligible for sale. Investors automatically have telephone
and on-line privileges to authorize exchanges unless they specifically decline
this service in the account application or in writing.
-30-
13. PERFORMANCE INFORMATION
From time to time in advertisements, the Fund may discuss its
performance ratings as published by recognized mutual fund statistical services,
such as Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.,
Morningstar, Inc. or Value Line Investment Survey or by publications of general
interest such as The Wall Street Journal, Investor's Business Daily, Money,
Barron's, Financial World or Kiplinger's Personal Finance Magazine. In addition,
the Fund may compare its performance to that of recognized broad-based
securities market indices, including the Standard & Poor's 500 Stock Index, the
Dow Jones Industrial Average, the Wilshire 5000 Index, the Russell 2000 Stock
Index, Russell 1000 Growth Index, Russell Mid Cap Growth, Russell 2000 Growth
Index, Russell 3000 Growth Index, Russell 2000 Value Index, Russell Mid Cap
Value Index, the Standard & Poor's 400 Mid-Cap Index, the Standard & Poor's 600
Small Cap Index, Morgan Stanley Capital International EAFE (Europe, Australasia,
Far East) Index, the Dow Jones World Index, the Standard & Poor's/BARRA Value
Index, the Nasdaq Composite Index, the Nasdaq 100, the Lehman Brothers
Intermediate Term Government/Corporate Bond Index or the InformationWeek 100
Index, or more narrowly based or blended indices that reflect the market sectors
in which that Fund invests.
The total return of the Fund is calculated for any specified
period of time by assuming the purchase of shares of the Fund at the net asset
value at the beginning of the period. Each dividend or other distribution paid
by the Fund is assumed to have been reinvested at the net asset value on the
reinvestment date. The total number of shares then owned as a result of this
process is valued at the net asset value at the end of the period. The
percentage increase is determined by subtracting the initial value of the
investment from the ending value and dividing the remainder by the initial
value.
The Fund's total return reflects the Fund's performance over
a stated period of time. An average annual total return reflects the
hypothetical annually compounded return that would have produced the same total
return if the Fund's performance had been constant over the entire period. Total
return figures are based on the overall change in value of a hypothetical
investment in the Fund. Because average annual total returns for more than one
year tend to smooth out variations in the Fund's return, investors should
recognize that such figures are not the same as actual year-by-year results.
All performance figures for the Fund are based upon
historical results and do not assure future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
Quotations of average annual total return for the Fund will
be expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund over periods of 1, 3, 5 and 10 years, or for
the life of the Fund, if shorter. These are the rates of return that would
equate the initial amount invested to the ending redeemable value. These rates
of return are calculated pursuant to the following formula:
n
P(1 + T) = ERV
Where P = a hypothetical initial payment of $1,000 T = the
average annual total return n = the number of years
ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
period).
All total return figures reflect the deduction of a
proportional share of Fund expenses on an annual basis, and assume that all
dividends and distributions are reinvested when paid.
PREDECESSOR PERFORMANCE QUOTATIONS
The Fund is the accounting survivor and successor of a fund
previously known as the InformationTech 100(R) Fund, which was reorganized into
the Fund effective July 2, 1999. As part of the reorganization, all of the
then-existing shares of the predecessor fund were exchanged for Institutional
Shares of the Fund. The Fund quotes its historical performance track record for
both of its classes of shares based on its predecessor's only shares outstanding
prior to the reorganization.
-31-
Total return of the Institutional Shares and other classes of
shares of the Fund will be calculated separately. Because each class of shares
is subject to different expenses, the performance of each class for the same
period will differ.
The average annual total returns for the Fund for the periods
shown ending September 30, 2001 are as follows:
<Table>
<Caption>
LIFE OF FUND
1-YEAR 3-YEAR (APRIL 8, 1997)
-------- -------- -----------------
Berger Information Technology Fund - (71.48)% 4.82% 13.92%
Institutional Shares
</Table>
14. ADDITIONAL INFORMATION
FUND ORGANIZATION
The Fund is a separate series of the Berger Investment
Portfolio Trust (the "Trust"), a Delaware business trust established under the
Delaware Business Trust Act. The Fund was established on February 18, 1999. The
Fund is the successor to the fund formerly known as the InformationTech 100(R)
Fund. The InformationTech 100(R) Fund commenced operations on April 8, 1997, as
a separate series of the Advisors Series Trust, a Delaware business trust. The
InformationTech 100(R) Fund was then reorganized into the Fund in a transaction
that became effective on July 2, 1999. As part of the reorganization, all of the
then-existing shares of the predecessor fund were exchanged for Institutional
Shares of the Fund.
The Trust is authorized to issue an unlimited number of
shares of beneficial interest in series or portfolios. Currently, the Fund is
one of eight series established under the Trust, although others may be added in
the future. The Trust is also authorized to establish multiple classes of shares
representing differing interests in an existing or new series. The Fund
currently has two classes of shares, although others may be added in the future.
Shares of the Fund are fully paid and nonassessable when
issued. Each share has a par value of $.01. All shares issued by the Fund
participate equally in dividends and other distributions by the Fund, and in the
residual assets of the Fund in the event of its liquidation.
DELAWARE BUSINESS TRUST INFORMATION. Under Delaware law,
investors of the Fund will enjoy the same limitations on personal liability as
extended to stockholders of a Delaware corporation. Further, the Trust
Instrument of the Trust provides that no investor shall be personally liable for
the debts, liabilities, obligations and expenses incurred by, contracted for or
otherwise existing with respect to, the Trust or any particular series (fund) of
the Trust. However, the principles of law governing the limitations of liability
of beneficiaries of a business trust have not been authoritatively established
as to business trusts organized under the laws of one jurisdiction but operating
or owning property in other jurisdictions. In states that have adopted
legislation containing provisions comparable to the Delaware Business Trust Act,
it is believed that the limitation of liability of beneficial owners provided by
Delaware law should be respected. In those jurisdictions that have not adopted
similar legislative provisions, it is possible that a court might hold that the
investors of the Trust are not entitled to the limitations of liability set
forth in Delaware law or the Trust Instrument and, accordingly, that they may be
personally liable for the obligations of the Trust.
In order to protect investors from such potential liability,
the Trust Instrument requires that every written obligation of the Trust or any
series thereof contain a statement to the effect that such obligation may only
be enforced against the assets of the Trust or such series. The Trust Instrument
also provides for indemnification from the assets of the relevant series for all
losses and expenses incurred by any investor by reason of being or having been a
investor, and that the Trust shall, upon request, assume the defense of any such
claim made against such investor for any act or obligation of the relevant
series and satisfy any judgment thereon from the assets of that series.
-32-
As a result, the risk of an investor of the Fund incurring
financial loss on account of investor liability is limited to circumstances in
which the Fund itself would be unable to meet its obligations. The Trust
believes that the risk of personal liability to investors of the Fund is
therefore remote. The trustees intend to conduct the operations of the Trust and
the Fund so as to avoid, to the extent possible, liability of investors for
liabilities of the Trust or the Fund.
CORPORATE GOVERNANCE INFORMATION PERTAINING TO THE FUND. The
Fund is not required to hold annual investor meetings unless required by the
Investment Company Act of 1940 or other applicable law or unless called by the
trustees. If investors owning at least 10% of the outstanding shares of the
Trust so request, a special investors' meeting of the Trust will be held for the
purpose of considering the removal of a trustee. Special meetings will be held
for other purposes if the holders of at least 25% of the outstanding shares of
the Trust so request. Subject to certain limitations, the Trust will facilitate
appropriate communications by investors desiring to call a special meeting for
the purpose of considering the removal of a trustee.
Investors of the Fund and, when applicable, the other
series/classes of the Trust, generally vote separately on matters relating to
those respective series/classes, although they vote together and with the
holders of any other series/classes of the Trust in the election of trustees of
the Trust and on all matters relating to the Trust as a whole. Each full share
of the Fund has one vote.
Shares of the Fund have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election of
trustees can elect 100% of the trustees if they choose to do so, and, in such
event, the holders of the remaining less than 50% of the shares voting for the
election of trustees will not be able to elect any person or persons as
trustees.
Shares of the Fund have no preemptive rights. There are no
sinking funds or arrearage provisions that may affect the rights of the Fund
shares. Fund shares have no subscription rights or conversion rights, except
that investors of any class of the Fund may convert their shares into shares of
any other class of the Fund in the event and only in the event the investor
ceases to be eligible to purchase or hold shares of the original class or
becomes eligible to purchase shares of a different class, by reason of a change
in the investor's status under the conditions of eligibility in effect for such
class at that time. Shares of the Fund may be transferred by endorsement, or
other customary methods, but the Fund is not bound to recognize any transfer
until it is recorded on its books.
Under governing corporate law, the Fund may enter into a
variety of corporate transactions, such as reorganizations, conversions, mergers
and asset transfers, or may be liquidated. Any such transaction would be subject
to a determination from the trustees that the transaction was in the best
interests of the Fund and its investors, and may require obtaining investor
approval.
MORE INFORMATION ON SPECIAL MULTI-CLASS FUND STRUCTURE
The Fund currently has divided its shares into two classes of
shares, the Institutional Shares covered by this SAI and the Investor Shares
offered through a separate Prospectus and SAI. The Fund implemented its
multi-class structure by adopting a Rule 18f-3 Plan under the 1940 Act
permitting it to issue its shares in classes. The Fund's Rule 18f-3 Plan governs
such matters as class features, dividends, voting, allocation of income and
expenses between classes, exchange and trustee monitoring of the Plan. Each
class is subject to such investment minimums and other conditions of eligibility
as are set forth in the relevant prospectus for the class, as it may be amended
from time to time. Investor Shares are available to the general public and bear
a 0.25% 12b-1 fee. Information concerning Investor Shares is available from the
Fund at 1-800-333-1001.
Subject to the Trust's Trust Instrument and any other
applicable provisions, the trustees of the Trust have the authority to create
additional classes, or change existing classes, from time to time, in accordance
with Rule 18f-3 under the Act.
-33-
PRINCIPAL INVESTORS
Insofar as the management of the Fund is aware, as of
December 31, 2001, no person owned, beneficially or of record, more than 5% of
the outstanding shares of the Institutional Shares class of the Fund, except for
the following:
<Table>
<Caption>
OWNER PERCENTAGE HELD
----- ---------------
Charles Schwab & Co., Inc. 71.02%
101 Montgomery Street
San Francisco, CA 94104
Myron Du Bain Tr 5.71%
160 Sansome Street, 17th Floor
San Francisco, CA 94104
</Table>
In addition, as of December 31, 2001, Schwab owned of record
18.83% of the Investor Shares class of the Fund, which together with its
Institutional Shares, constitute 39.56% of the Fund's total outstanding shares.
Also as of December 31, 2001, Schwab owned of record 24.41% of all the
outstanding shares of the Berger Investment Portfolio Trust, of which the Fund
is one outstanding series.
In addition, Bay Isle has advised the Trust that, as of
December 31, 2001, it had voting discretion over approximately 35.27% of the
Fund's Institutional Shares class (14.02% of the Fund's outstanding shares) in
accounts beneficially owned by various Bay Isle advisory clients. Bay Isle may
be deemed to beneficially own those shares as a result of its voting discretion.
Any person owning more than 25% of the outstanding securities
of the Fund may be deemed to control it. Schwab is believed to hold its shares
of the Fund as nominee for the benefit of its clients or customers.
DISTRIBUTION
Berger Distributors LLC, as the Fund's Distributor, is the
principal underwriter of the Fund's shares. The Distributor is a wholly owned
subsidiary of BFG. The Distributor is a registered broker-dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. The Distributor acts as the agent of the Fund in
connection with the sale of the Fund's shares in all states in which the shares
are eligible for sale and in which the Distributor is qualified as a
broker-dealer. Janice M. Teague, Vice President and Secretary of the
Distributor, is also Vice President and Assistant Secretary of the Fund. Brian
Ferrie, Vice President and Chief Financial Officer of the Distributor, is also
Vice President of the Fund. Anthony Bosch, Vice President and Chief Compliance
Officer of the Distributor is also Vice President of the Fund. Sue Vreeland,
Assistant Secretary of the Distributor, is also Secretary of the Fund.
The Fund and the Distributor are parties to a Distribution
Agreement that continues through April 2002, and thereafter from year to year if
such continuation is specifically approved at least annually by the trustees or
by vote of a majority of the outstanding shares of the Fund and in either case
by vote of a majority of the trustees who are not "interested persons" (as that
term is defined in the Investment Company Act of 1940) of the Fund or the
Distributor. The Distribution Agreement is subject to termination by the Fund or
the Distributor on 60 days' prior written notice and terminates automatically in
the event of its assignment. Under the Distribution Agreement, the Distributor
continuously offers shares of the Fund and solicits orders to purchase Fund
shares at net asset value. The Distributor is not compensated for its services
under the Distribution Agreement, but may be reimbursed by BFG for its costs in
distributing Fund shares.
-34-
OTHER INFORMATION
The Trust has filed with the Securities and Exchange
Commission, Washington, D.C., a Registration Statement under the Securities Act
of 1933, as amended, with respect to the securities of the Fund of which this
Statement of Additional Information is a part. If further information is desired
with respect to the Fund or such securities, reference is made to the
Registration Statement and the exhibits filed as a part thereof.
Davis Graham & Stubbs LLP, 1550 Seventeenth Street, Suite
500, Denver, Colorado, acts as counsel to the Fund.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1670 Broadway, Suite 1000, Denver,
Colorado, acted as independent accountants for the Fund for the fiscal year
ended September 30, 2001. In that capacity, PricewaterhouseCoopers LLP audited
the financial statements of the Fund referenced below under "Financial
Information" and assisted the Fund in connection with the preparation of its
2000 tax return.
PricewaterhouseCoopers LLP has been appointed to act as
independent accountants for the Fund for the fiscal year ended September 30,
2002. In that capacity, PricewaterhouseCoopers LLP will audit the financial
statements of the Fund and assist the Fund in connection with the preparation of
its 2001 income tax return.
FINANCIAL INFORMATION
A copy of the Annual Report referenced below is enclosed with
a copy of this SAI. Additional copies of that Annual Report may be obtained upon
request without charge by calling the Fund at 1-800-259-2820.
Year-End Financial Statements
The following financial statements are incorporated herein by
reference from the Annual Report to Shareholders of the Fund dated September 30,
2001, in each case along with the Report of Independent Accountants thereon
dated November 7, 2001.
Schedule of Investments as of September 30, 2001
Statement of Assets and Liabilities as of September 30, 2001
Statement of Operations for the Year Ended September 30, 2001
Statements of Changes in Net Assets for the Years Ended
September 30, 2001 and 2000
Notes to Financial Statements, September 30, 2001
Financial Highlights for each of the periods indicated
-35-
APPENDIX A
HIGH-YIELD/HIGH-RISK SECURITIES
The Fund may invest in convertible securities of any quality, including
unrated securities or securities rated below investment grade (Ba or lower by
Moody's, BB or lower by S&P) (sometimes referred to as "junk bonds"). However,
the Fund will not purchase any security in default at the time of purchase. The
Fund will not invest more than 20% of the market value of its assets at the time
of purchase in convertible securities rated below investment grade.
Securities rated below investment grade are subject to greater risk
that adverse changes in the financial condition of their issuers, or in general
economic conditions or an unanticipated rise in interest rates may impair the
ability of their issuers to make payments of interest and principal or
dividends. The market prices of lower grade securities are generally less
sensitive to interest rate changes than higher-rated investments, but more
sensitive to economic changes or individual corporate developments. Periods of
economic uncertainty and change can be expected to result in volatility of
prices of these securities. Lower rated securities may also have less liquid
markets than higher rated securities, and their liquidity as well as their value
may be adversely affected by poor economic conditions. Adverse publicity and
investor perceptions as well as new or proposed laws may also have a negative
impact on the market for high-yield/high-risk bonds. In the event of an
unanticipated default, the Fund will experience a reduction in its income and
could expect a decline in the market value of the securities affected. The
prices of these securities may be more volatile and the markets for them may be
less liquid than those for higher-rated securities.
Unrated securities, while not necessarily of lower quality than rated
securities, may not have as broad a market. Unrated securities will be included
in the Fund's percentage limits for investments rated below investment grade,
unless the Fund's adviser deems such securities to be the equivalent of
investment grade. If securities purchased by the Fund are downgraded following
purchase or if other circumstances cause the Fund to exceed its percentage
limits on assets invested in securities rated below investment grade, the
trustees of the Fund, in consultation with the Fund's adviser, will determine
what action, if any, is appropriate in light of all relevant circumstances.
Relying in part on ratings assigned by credit agencies in making
investments will not protect the Fund from the risk that the securities will
decline in value, because credit ratings represent evaluations of the safety of
principal, dividend and/or interest payments and not the market values of such
securities. Moreover, such ratings may not be changed on a timely basis to
reflect subsequent events.
Although the market for high-yield debt securities has been in
existence for many years and from time to time has experienced economic
downturns, this market has involved a significant increase in the use of
high-yield debt securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not, therefore, provide an accurate
indication of future performance of the high-yield debt securities market,
particularly during periods of economic recession.
Expenses incurred in recovering an investment in a defaulted security
may adversely affect the Fund's net asset value. Moreover, the reduced liquidity
of the secondary market for such securities may adversely affect the market
price of, and the ability of the Fund to value, particular securities at certain
times, thereby making it difficult to make specific valuation determinations.
CORPORATE BOND RATINGS
The ratings of fixed-income securities by Moody's and Standard & Poor's
are a generally accepted measurement of credit risk. However, they are subject
to certain limitations. Ratings are generally based upon historical events and
do not necessarily reflect the future. In addition, there is a period of time
between the issuance of a rating and the update of the rating, during which time
a published rating may be inaccurate.
-36-
KEY TO MOODY'S CORPORATE RATINGS
Aaa-Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa-Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than in Aaa securities.
A-Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa-Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba-Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds of this class.
B-Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa-Bonds that are rated Caa are of poor standing. Such issues may be
in default, or there may be present elements of danger with respect to principal
or interest.
Ca-Bonds that are rated Ca represent obligations that are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds that are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic category.
KEY TO STANDARD & POOR'S CORPORATE RATINGS
AAA-Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
-37-
BBB-Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC AND C-Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation, and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are out-weighed by the large uncertainties or major risk exposures to adverse
conditions.
C1-The rating C1 is reserved for income bonds on which no interest is
being paid.
D-Debt rated D is in default, and payment of interest and/or repayment
of principal is in arrears.
PLUS (+) OR MINUS (-) The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
-38-
BERGER INTERNATIONAL FUND
(A SERIES OF BERGER WORLDWIDE FUNDS TRUST)
STATEMENT OF ADDITIONAL INFORMATION
INVESTOR SERVICES: 1-800-551-5849
This Statement of Additional Information ("SAI") about the
Berger International Fund (the "Fund"), a series of the Berger Worldwide Funds
Trust (the "Trust"), is not a prospectus. It relates to the Prospectus
describing the Fund, dated January 29, 2002, as it may be amended or
supplemented from time to time, which may be obtained by writing the Fund at
P.O. Box 5005, Denver, Colorado 80217-5005, or calling 1-800-333-1001.
The Fund is an open-end management investment company
organized as a diversified series of the Trust. UNLIKE MANY OTHER MUTUAL FUNDS
THAT DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIOS OF SECURITIES, THE FUND
SEEKS ITS INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE ASSETS IN THE
BERGER INTERNATIONAL PORTFOLIO (THE "PORTFOLIO"). Accordingly, the investment
performance of the Fund will derive from the investment performance of the
Portfolio. The Portfolio is an open-end management investment company and a
diversified series of a separate trust known as the Berger Worldwide Portfolios
Trust ("Worldwide Portfolios"). The Portfolio's investment objective and
policies are identical to those of the Fund. The Portfolio is advised by Berger
Financial Group LLC ("BFG" or the "adviser") (formerly Berger LLC), which has
delegated daily portfolio management of the Portfolio to Bank of Ireland Asset
Management (U.S.) Limited ("BIAM" or the "sub-adviser").
The financial statements of the Fund for the fiscal year ended
September 30, 2001, and the related Report of Independent Accountants on those
statements, are incorporated into this SAI by reference from the Fund's 2001
Annual Report to Shareholders dated September 30, 2001.
A copy of that Annual Report is available, without charge,
upon request, by calling 1-800-333-1001.
DATED JANUARY 29, 2002
TABLE OF CONTENTS
&
CROSS-REFERENCES TO PROSPECTUS
<Table>
<Caption>
PAGE CROSS-REFERENCES TO RELATED
SECTION NO. DISCLOSURES IN PROSPECTUS
- ------- ---- -------------------------
Introduction 1 Table of Contents
1. Investment Strategies and Risks of the Fund 1 Principal Investment Strategies; Principal Risks;
Investment Techniques, Securities and the Associated
Risks
2. Investment Restrictions 8 Investment Techniques, Securities and the Associated
Risks
3. Management of the Fund 10 Organization of the Fund
4. Investment Adviser and Sub-Adviser 14 Organization of the Fund
5. Expenses of the Fund 17 Organization of the Fund; Financial Highlights for the
Fund
6. Brokerage Policy 21 Organization of the Fund
7. How to Purchase and Redeem Shares in the Fund 22 To Open an Account or Purchase Shares; Selling
(Redeeming) Shares
8. How the Net Asset Value is Determined 23 Your Share Price
9. Income Dividends, Capital Gains, Distributions 24 Distributions and Taxes
and Tax Treatment
10. Suspension of Redemption Rights 26 Information About Your Account
11. Tax-Sheltered Retirement Plans 26 Tax-Sheltered Retirement Plans
12. Exchange Privilege and Systematic 29 Exchanging Shares; Selling (Redeeming) Shares
Withdrawal Plan
13. Performance Information 30 Financial Highlights for the Fund
14. Additional Information 31 Organization of the Fund; Special Fund Structure
Financial Information 35 Financial Highlights for the Fund
</Table>
-i-
INTRODUCTION
The Berger International Fund is a mutual fund, or an
open-end, management investment company. The Fund is a diversified fund. The
investment objective of the Fund is long-term capital appreciation. This is also
the investment objective of the Portfolio in which the Fund invests all of its
investable assets. The Fund does not invest to provide current income, although
some income may be produced while managing the Portfolio.
1. INVESTMENT STRATEGIES AND RISKS OF THE FUND
The Prospectus discusses the investment objective of the Fund
and the Portfolio and the principal investment strategies employed to achieve
that objective. It also describes the principal risks of investing in the Fund.
This section contains supplemental information concerning the
types of securities and other instruments in which the Portfolio may invest, the
investment policies and portfolio strategies that the Portfolio may utilize and
certain risks attendant to those investments, policies and strategies.
COMMON AND PREFERRED STOCKS. Stocks represent shares of
ownership in a company. Generally, preferred stock has a specified dividend and
ranks after bonds and before common stocks in its claim on income for dividend
payments and on assets should the company be liquidated. After other claims are
satisfied, common stockholders participate in company profits on a pro rata
basis. Profits may be paid out in dividends or reinvested in the company to help
it grow. Increases and decreases in earnings are usually reflected in a
company's stock price, so common stocks generally have the greatest appreciation
and depreciation potential of all corporate securities. While most preferred
stocks pay dividends, the Portfolio may purchase preferred stock where the
issuer has omitted, or is in danger of omitting, payment of its dividends. Such
investments would be made primarily for their capital appreciation potential.
All investments in stocks are subject to market risk, meaning that their prices
may move up and down with the general stock market, and that such movements
might reduce their value.
DEBT SECURITIES. Debt securities (such as bonds or debentures)
are fixed-income securities that bear interest and are issued by corporations or
governments. The issuer has a contractual obligation to pay interest at a stated
rate on specific dates and to repay principal on a specific maturity date. In
addition to market risk, debt securities are generally subject to two other
kinds of risk: credit risk and interest rate risk. Credit risk refers to the
ability of the issuer to meet interest or principal payments as they come due.
The lower the rating given a security by a rating service (such as Moody's
Investor Service ("Moody's") and Standard & Poor's ("S&P")), the greater the
credit risk the rating service perceives with respect to that security. The
Portfolio will not purchase any nonconvertible securities rated below investment
grade (Ba or lower by Moody's, BB or lower by S&P). In cases in which the
ratings assigned by more than one rating agency differ, the Portfolio will
consider the security as rated in the higher category. If nonconvertible
securities purchased by the Portfolio are downgraded to below investment grade
following purchase, the trustees of Worldwide Portfolios, in consultation with
the sub-adviser, will determine what action, if any, is appropriate in light of
all relevant circumstances. For a further discussion of debt security ratings,
see Appendix A to this SAI.
Interest rate risk refers to the fact that the value of
fixed-income securities (like debt securities) generally fluctuates in response
to changes in interest rates. A decrease in interest rates will generally result
in an increase in the price of fixed-income securities held by the Portfolio.
Conversely, during periods of rising interest rates, the value of fixed-income
securities held by the Portfolio will generally decline. Longer-term securities
are generally more sensitive to interest rate changes and are more volatile than
shorter-term securities, but they generally offer higher yields to compensate
investors for the associated risks.
Certain debt securities can also present prepayment risk. For
example, a security may contain redemption and call provisions. If an issuer
exercises these provisions when interest rates are declining, the Portfolio
could sustain investment losses as well as have to reinvest the proceeds from
the security at lower interest rates, resulting in a decreased return for the
Portfolio.
INITIAL PUBLIC OFFERINGS. The Fund may invest in a company's
securities at the time the company first offers securities to the public, that
is, at the time of the company's initial public offering or IPO. Although
companies can be any age or size at the time of their IPOs, they are often
smaller and have a limited operating history, which
-1-
involves a greater potential for the value of their securities to be impaired
following the IPO. See "Securities of Smaller Companies" and "Securities of
Companies with Limited Operating Histories".
Investors in IPOs can be adversely affected by substantial
dilution in the value of their shares, by sales of additional shares and by
concentration of control in existing management and principal investors. In
addition, all of the factors that affect stock market performance may have a
greater impact on the shares of IPO companies.
The price of a company's securities may be highly unstable at
the time of its IPO and for a period thereafter due to market psychology
prevailing at the time of the IPO, the absence of a prior public market, the
small number of shares available and limited availability of investor
information. As a result of this or other factors, the Fund's sub-adviser might
decide to sell an IPO security more quickly than it would otherwise, which may
result in a significant gain or loss and greater transaction costs to the Fund.
Any gains from shares held for 12 months or less will be treated as short-term
gains, taxable as ordinary income to the Fund's investors. In addition, IPO
securities may be subject to varying patterns of trading volume and may, at
times, be difficult to sell without an unfavorable impact on prevailing prices.
The effect of an IPO investment can have a magnified impact on
the Fund's performance when the Fund's asset base is small. Consequently, IPOs
may constitute a significant portion of the Fund's returns particularly when the
Fund is small. Since the number of securities issued in an IPO is limited, it is
likely that IPO securities will represent a smaller component of the Fund's
assets as it increases in size and therefore have a more limited effect on the
Fund's performance.
There can be no assurance that IPOs will continue to be
available for the Fund to purchase. The number or quality of IPOs available for
purchase by the Fund may vary, decrease or entirely disappear. In some cases,
the Fund may not be able to purchase IPOs at the offering price, but may have to
purchase the shares in the aftermarket at a price greatly exceeding the offering
price, making it more difficult for the Fund to realize a profit.
The sub-adviser's IPO trade allocation procedures govern which
funds and other advised accounts participate in the allocation of any IPO. See
the heading "Trade Allocations" under Section 4. Under the IPO allocation
procedures of BFG, the Fund generally will not participate in an IPO if the
securities available for allocation to the Fund are insignificant relative to
the Fund's net assets. As a result, any fund or account whose assets are very
large is not likely to participate in the allocation of many IPOs.
FOREIGN SECURITIES. Investments in foreign securities involve
some risks that are different from the risks of investing in securities of U.S.
issuers, such as the risk of adverse political, social, diplomatic and economic
developments and, with respect to certain countries, the possibility of
expropriation, taxes imposed by foreign countries or limitations on the removal
of monies or other assets of the Portfolio. Moreover, the economies of
individual foreign countries will vary in comparison to the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, capital
reinvestment, resources, self-sufficiency and balance of payments position.
Securities of some foreign companies, particularly those in developing
countries, are less liquid and more volatile than securities of comparable
domestic companies. Investing in the securities of developing countries may
involve exposure to economic structures that are less diverse and mature and to
political systems that can be expected to have less stability than developed
countries. The Portfolio's investments may include American Depositary Receipts
(ADRs). The Portfolio may also invest in European Depositary Receipts (EDRs),
which are similar to ADRs, in bearer form, designed for use in the European
securities markets, and in Global Depositary Receipts (GDRs). Some of the
companies in which the Portfolio invests may be considered passive foreign
investment companies (PFICs), which are described in greater detail below.
There also may be less publicly available information about
foreign issuers and securities than domestic issuers and securities, and foreign
issuers generally are not subject to accounting, auditing and financial
reporting standards, requirements and practices comparable to those applicable
to domestic issuers. Also, there is generally less government supervision and
regulation of exchanges, brokers, financial institutions and issuers in foreign
countries than there is in the U.S. Foreign financial markets typically have
substantially less volume than U.S. markets. Foreign markets also have different
clearance and settlement procedures and, in certain markets, delays or other
factors could make it difficult to effect transactions, potentially causing the
Portfolio to experience losses or miss investment opportunities. The use of a
foreign securities depository may increase this risk. The Fund may maintain
assets with a foreign securities depository if certain conditions are met. A
foreign securities depository may maintain
-2-
assets on behalf of the Fund if the depository: (a) acts as or operates a system
for the central handling of securities that is regulated by a foreign financial
regulatory authority; (b) holds assets on behalf of the Fund under safekeeping
conditions no less favorable than those that apply to other participants; (c)
maintains records that identify the assets of participants, and keep its own
assets separated from the assets of participants; (d) provides periodic reports
to participants; and (e) undergoes periodic examination by regulatory
authorities or independent accountants. In addition, the Fund's primary
custodian provides the Fund with an analysis of the custodial risks of using a
depository, monitors the depository on a continuous basis and notifies the Fund
of any material changes in risks associated with using the depository. In
general, the analysis may include an analysis of a depository's expertise and
market reputation; the quality of its services, its financial strength, and
insurance or indemnification arrangements; the extent and quality of regulation
and independent examination of the depository; its standing in published
ratings; its internal controls and other procedures for safeguarding
investments; and any related legal proceedings.
Costs associated with transactions in foreign securities are
generally higher than with transactions in U.S. securities. The Portfolio will
incur greater costs in maintaining assets in foreign jurisdictions and in buying
and selling foreign securities generally, resulting in part from converting
foreign currencies into U.S. dollars. In addition, the Portfolio might have
greater difficulty taking appropriate legal action with respect to foreign
investments in non-U.S. courts than with respect to domestic issuers in U.S.
courts, which may heighten the risk of possible losses through the holding of
securities by custodians and securities depositories in foreign countries.
Since the Portfolio will invest in securities denominated or
quoted in currencies other than the U.S. dollar, changes in foreign currency
exchange rates will affect the value of the investments in its portfolio and the
unrealized appreciation or depreciation of investments insofar as U.S. investors
are concerned. If the foreign currency in which a security is denominated
appreciates against the U.S. dollar, the dollar value of the security will
increase. Conversely, a decline in the exchange rate of the foreign currency
against the U.S. dollar would adversely affect the dollar value of the foreign
securities. Foreign currency exchange rates are determined by forces of supply
and demand on the foreign exchange markets, which are in turn affected by the
international balance of payments and other economic and financial conditions,
government intervention, speculation and other factors.
PASSIVE FOREIGN INVESTMENT COMPANIES (PFICS). The Portfolio
may purchase the securities of certain companies considered Passive Foreign
Investment Companies (PFICs) under U.S. tax laws. For certain types of PFICs, in
addition to bearing their proportionate share of the Portfolio's expenses
(management fees and operating expenses), investors will also indirectly bear
similar expenses of such PFIC. PFIC investments also may be subject to less
favorable U.S. tax treatment, as discussed in Section 9.
HEDGING TRANSACTIONS. As described in the Prospectus, the
Portfolio is authorized to make limited commitments in certain foreign currency
forward contracts, but only for the purpose of hedging, that is, protecting
against the risk of market movements that may adversely affect the value (in
foreign currency or U.S. dollar terms) of the Portfolio's securities or the
price of securities that the Portfolio is considering purchasing. The
utilization of forwards is also subject to policies and procedures that may be
established by the trustees from time to time. In addition, the Portfolio is not
required to hedge. Decisions regarding hedging are subject to the sub-adviser's
judgment of the cost of the hedge, its potential effectiveness and other factors
the sub-adviser considers pertinent.
A hedging transaction may partially protect the Portfolio from
a decline in the value of a particular security or its portfolio generally,
although hedging may also limit the Portfolio's opportunity to profit from
favorable price movements, and the cost of the transaction will reduce the
potential return on the security or the portfolio. In addition, hedging
transactions do not eliminate fluctuations in the prices of the underlying
securities the Portfolio owns or intends to acquire. Use of these instruments by
the Portfolio involves the potential for a loss that may exceed the Portfolio's
initial commitment to a forward contract. However, the Portfolio is permitted to
use forwards for hedging purposes only, and only if the aggregate amount of its
obligations under these contracts does not exceed the total market value of the
assets the Portfolio is attempting to hedge, such as a portion or all of its
exposure to equity securities denominated in a particular currency. To help
ensure that the Portfolio will be able to meet its obligations under forward
contracts entered into by the Portfolio, the Portfolio will be required to
maintain liquid assets in a segregated account with its custodian bank or to set
aside portfolio securities to "cover" its position in these contracts.
The principal risks of the Portfolio utilizing forward
contracts are: (a) losses resulting from market movements not anticipated by the
Portfolio; (b) possible imperfect correlation between movements in the prices of
-3-
forwards and movements in the prices of the securities or positions hedged or
used to cover such positions; (c) lack of assurance that a liquid secondary
market will exist for any particular contract at any particular time; and (d)
the need for additional information and skills beyond those required for the
management of a portfolio of traditional securities. In addition, when the
Portfolio enters into an over-the-counter contract with a counterparty, the
Portfolio will assume counterparty credit risk, that is, the risk that the
counterparty will fail to perform its obligations, in which case the Portfolio
could be worse off than if the contract had not been entered into.
Any utilization of forwards or any other hedging technique
(investing, for example, in futures or options) is subject to policies and
procedures that may be established and changed by the trustees from time to time
without investor vote. Currently, the Portfolio is authorized to utilize forward
contracts only for hedging purposes and is not permitted to invest in futures or
options. If the trustees ever authorize the Portfolio to invest in futures or
options, such investments would be permitted solely for hedging purposes, and
the Portfolio would not be permitted to invest more than 5% of its net assets at
the time of purchase in initial margins for financial futures transactions and
premiums for options. In addition, the adviser or sub-adviser may be required to
obtain bank regulatory approval before the Portfolio engages in futures and
options transactions. The following information should be read in conjunction
with the information concerning the Portfolio's investment in forwards and the
risks of such investments contained in the Prospectus.
Forward Foreign Currency Exchange Contracts. A forward
contract is a privately negotiated agreement between two parties in which one
party is obligated to deliver a stated amount of a stated asset at a specified
time in the future and the other party is obligated to pay a specified invoice
amount for the asset at the time of delivery. The Portfolio currently intends
that the only forward contracts or commitments that it might use are forward
foreign currency exchange contracts and that it may use such contracts solely
for hedging purposes, although the Portfolio may enter into additional forms of
forward contracts or commitments in the future for hedging purposes if they
become available and advisable in light of the Portfolio's objective and
investment policies. Forward contracts generally are negotiated in an interbank
market conducted directly between traders (usually large commercial banks) and
their customers. Unlike futures contracts, which are standardized,
exchange-traded contracts, forward contracts can be specifically drawn to meet
the needs of the parties that enter into them. The parties to a forward contract
may agree to offset or terminate the contract before its maturity or may hold
the contract to maturity and complete the contemplated exchange.
The following discussion summarizes the Portfolio's principal
uses of forward foreign currency exchange contracts ("forward currency
contracts"). The Portfolio may enter into forward currency contracts with
aggregate stated contract values of up to the value of the Portfolio's assets. A
forward currency contract is an obligation to buy or sell an amount of a
specified currency for an agreed price (which may be in U.S. dollars or a
foreign currency) on a specified date. The Portfolio will exchange foreign
currencies for U.S. dollars and for other foreign currencies in the normal
course of business and may buy and sell currencies through forward currency
contracts in order to fix a price (in terms of a specified currency) for
securities it has agreed to buy or sell ("transaction hedge"). The Portfolio
also may hedge some or all of its investments denominated in foreign currency
against a decline in the value of that currency relative to the U.S. dollar by
entering into forward currency contracts to sell an amount of that currency (or
a proxy currency whose price movements are expected to have a high degree of
correlation with the currency being hedged) approximating the value of some or
all of its portfolio securities denominated in that currency ("position hedge").
The Portfolio may also enter into a forward currency contract with respect to a
currency where the Portfolio is considering the purchase or sale of investments
denominated in that currency but has not yet selected the specific investments
("anticipatory hedge").
These types of hedging minimize the effect of currency
appreciation as well as depreciation but do not eliminate fluctuations in the
underlying U.S. dollar equivalent value of the proceeds of or rates of return on
the Portfolio's foreign currency denominated portfolio securities. The matching
of the increase in value of a forward foreign currency exchange contract and the
decline in the U.S. dollar equivalent value of the foreign currency denominated
asset that is the subject of the hedge generally will not be precise. Shifting
the Portfolio's currency exposure from one foreign currency to another limits
the Portfolio's opportunity to profit from increases in the value of the
original currency and involves a risk of increased losses to the Portfolio if
the sub-adviser's projection of future exchange rates is inaccurate.
The Portfolio will cover outstanding forward currency
contracts by maintaining liquid portfolio securities denominated in the currency
underlying the forward contract or the currency being hedged. To the extent that
the
-4-
Portfolio is not able to cover its forward currency positions with underlying
portfolio securities, the Portfolio's custodian will segregate cash or liquid
assets having a value equal to the aggregate amount of the Portfolio's
commitments under forward contracts entered into. If the value of the securities
used to cover a position or the value of segregated assets declines, the
Portfolio must find alternative cover or segregate additional cash or liquid
assets on a daily basis so that the value of the covered and segregated assets
will be equal to the amount of the Portfolio's commitments with respect to such
contracts.
While forward contracts are not currently regulated by the
Commodity Futures Trading Commission ("CFTC"), the CFTC may in the future assert
authority to regulate forward contracts. In such event, the Portfolio's ability
to utilize forward contracts may be restricted. The Portfolio may not always be
able to enter into forward contracts at attractive prices and may be limited in
its ability to use these contracts to hedge Portfolio assets. In addition, when
the Portfolio enters into a privately negotiated forward contract with a
counterparty, the Portfolio assumes counterparty credit risk, that is, the risk
that the counterparty will fail to perform its obligations, in which case the
Portfolio could be worse off than if the contract had not been entered into.
Unlike many exchange-traded futures contracts and options on futures, there are
no daily price fluctuation limits with respect to forward contracts and other
negotiated or over-the-counter instruments, and with respect to those contracts,
adverse market movements could therefore continue to an unlimited extent over a
period of time. However, the Portfolio intends to monitor its investments
closely and will attempt to renegotiate or close its positions when the risk of
loss to the Portfolio becomes unacceptably high.
CONVERTIBLE SECURITIES. The Portfolio may also purchase debt
or equity securities that are convertible into common stock when the sub-adviser
believes they offer the potential for a higher total return than nonconvertible
securities. Although fixed income securities generally have a priority claim on
a corporation's assets over that of common stock, some of the convertible
securities that the Portfolio may hold are high-yield/high-risk securities that
are subject to special risks, including the risk of default in interest or
principal payments, which could result in a loss of income to the Portfolio or a
decline in the market value of the securities. Convertible securities often
display a degree of market price volatility that is comparable to common stocks.
The credit risk associated with convertible securities generally is reflected by
their ratings assigned by organizations such as Moody's Investors Service, Inc.,
and Standard & Poor's Corporation, or a similar determination of
creditworthiness by the sub-adviser. The Portfolio has no pre-established
minimum quality standards for convertible securities and may invest in
convertible securities of any quality, including lower rated or unrated
securities. However, the Portfolio will not invest in any security in default at
the time of purchase or in any nonconvertible debt securities rated below
investment grade, and the Portfolio will invest less than 20% of the market
value of its assets at the time of purchase in convertible securities rated
below investment grade. If convertible securities purchased by the Portfolio are
downgraded following purchase, or if other circumstances cause 20% or more of
the Portfolio's assets to be invested in convertible securities rated below
investment grade, the trustees of Worldwide Portfolios, in consultation with the
sub-adviser, will determine what action, if any, is appropriate in light of all
relevant circumstances. For a further discussion of debt security ratings, see
Appendix A to this SAI.
SECURITIES OF SMALLER COMPANIES. The Portfolio may invest in
securities of companies with small or mid-sized market capitalizations. Market
capitalization is defined as total current market value of a company's
outstanding common stock. Investments in companies with smaller market
capitalizations may involve greater risks and price volatility (that is, more
abrupt or erratic price movements) than investments in larger, more mature
companies because smaller companies may be at an earlier stage of development
and may have limited product lines, reduced market liquidity for their shares,
limited financial resources or less depth in management than larger or more
established companies. Smaller companies also may be less significant factors
within their industries and may have difficulty withstanding competition from
larger companies. While smaller companies may be subject to these additional
risks, they may also realize more substantial growth than larger or more
established companies.
LENDING OF PORTFOLIO SECURITIES. As discussed in the
Prospectus, the Portfolio may lend its securities to qualified institutional
investors who need to borrow securities in order to complete certain
transactions, such as covering short sales, avoiding failures to deliver
securities, or completing arbitrage operations. By lending its securities, the
Portfolio will be attempting to generate income through the receipt of interest
on the loan, which, in turn, can be invested in additional securities to pursue
the Portfolio's investment objective. Any gain or loss in the market price of
the securities loaned that might occur during the term of the loan would be for
the account of the Portfolio.
The Portfolio may lend its portfolio securities to qualified
brokers, dealers, banks or other financial institutions, so long as the terms,
the structure and the aggregate amount of such loans are not inconsistent with
the
-5-
Investment Company Act of 1940 or the Rules and Regulations or interpretations
of the Securities and Exchange Commission (the "Commission") thereunder, which
currently require that (a) the borrower pledge and maintain with the Portfolio
collateral consisting of cash, an irrevocable letter of credit or securities
issued or guaranteed by the U.S. government having a value at all times not less
than 100% of the value of the securities loaned, (b) the borrower add to such
collateral whenever the price of the securities loaned rises (i.e., the borrower
"marks to the market" on a daily basis), (c) the loan be made subject to
termination by the Portfolio at any time and (d) the Portfolio receive
reasonable interest on the loan, which interest may include the Portfolio's
investing cash collateral in interest bearing short-term investments, and (e)
the Portfolio receive all dividends and distributions on the loaned securities
and any increase in the market value of the loaned securities.
The Portfolio bears a risk of loss in the event that the other
party to a securities lending transaction defaults on its obligations and the
Portfolio is delayed in or prevented from exercising its rights to dispose of
the collateral, including the risk of a possible decline in the value of the
collateral securities during the period in which the Portfolio seeks to assert
these rights, the risk of incurring expenses associated with asserting these
rights and the risk of losing all or a part of the income from the transaction.
The Portfolio will not lend its portfolio securities if, as a result, the
aggregate value of such loans would exceed 33-1/3% of the value of the
Portfolio's total assets. Loan arrangements made by the Portfolio will comply
with all other applicable regulatory requirements, including the rules of the
New York Stock Exchange, which rules presently require the borrower, after
notice, to redeliver the securities within the normal settlement time of three
business days. All relevant facts and circumstances, including creditworthiness
of the broker, dealer or institution, will be considered in making decisions
with respect to the lending of securities, subject to review by Worldwide
Portfolio's trustees.
ILLIQUID AND RESTRICTED SECURITIES. The Portfolio is
authorized to invest in securities that are illiquid or not readily marketable
because they are subject to restrictions on their resale ("restricted
securities") or because, based upon their nature or the market for such
securities, no ready market is available. However, the Portfolio may not
purchase any security, the purchase of which would cause the Portfolio to invest
more than 15% of its net assets, measured at the time of purchase, in illiquid
securities. Investments in illiquid securities involve certain risks to the
extent that the Portfolio may be unable to dispose of such a security at the
time desired or at a reasonable price or, in some cases, may be unable to
dispose of it at all. In addition, in order to resell a restricted security, the
Portfolio might have to incur the potentially substantial expense and delay
associated with effecting registration. If securities become illiquid following
purchase or other circumstances cause more than 15% of the Portfolio's net
assets to be invested in illiquid securities, the trustees of Worldwide
Portfolios, in consultation with the sub-adviser, will determine what action, if
any, is appropriate in light of all relevant circumstances.
Repurchase agreements maturing in more than seven days will be
considered as illiquid for purposes of this restriction. Pursuant to guidelines
established by the trustees, the Portfolio's sub-adviser will determine whether
securities eligible for resale to qualified institutional buyers pursuant to
Rule 144A under the Securities Act of 1933 should be treated as illiquid
investments considering, among other things, the following factors: (a) the
frequency of trades and quotes for the security; (b) the number of dealers
wanting to purchase or sell the security and the number of other potential
purchasers; (c) dealer undertakings to make a market in the security; and (d)
the nature of the security and the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). The liquidity of the Portfolio's investments in Rule 144A
securities could be impaired if qualified institutional buyers become
uninterested in purchasing these securities.
REPURCHASE AGREEMENTS. The Portfolio may invest in repurchase
agreements with various financial organizations, including commercial banks,
registered broker-dealers and registered government securities dealers. A
repurchase agreement is a means of investing cash for a short period. A
repurchase agreement is an agreement under which the Portfolio acquires a debt
security (generally a debt security issued or guaranteed by the U.S. government
or an agency thereof, a banker's acceptance or a certificate of deposit) from a
commercial bank, broker or dealer, subject to resale to the seller at an agreed
upon price and date (normally, the next business day). A repurchase agreement
may be considered a loan collateralized by securities. The resale price reflects
an agreed upon interest rate effective for the period the instrument is held by
the Portfolio and is unrelated to the interest rate on the underlying
instrument.
In these transactions, the securities acquired by the
Portfolio (including accrued interest earned thereon) must have a total value
equal to or in excess of the value of the repurchase agreement and are held by
the
-6-
Portfolio's custodian bank until repurchased. In addition, the trustees will
establish guidelines and standards for review by the sub-adviser of the
creditworthiness of any bank, broker or dealer party to a repurchase agreement
with the Portfolio. The Portfolio will not enter into a repurchase agreement
maturing in more than seven days if as a result more than 15% of the Portfolio's
net assets would be invested in such repurchase agreements and other illiquid
securities.
These transactions must be fully collateralized at all times
by debt securities (generally a security issued or guaranteed by the U.S.
Government or an agency thereof, a banker's acceptance or a certificate of
deposit) but involve certain risks, such as credit risk to the Portfolio if the
other party defaults on its obligation and the Portfolio is delayed or prevented
from liquidating the collateral. For example, if the other party to the
agreement defaults on its obligation to repurchase the underlying security at a
time when the value of the security has declined, the Portfolio may incur a loss
upon disposition of the security. If the other party to the agreement becomes
insolvent and subject to liquidation or reorganization under the bankruptcy or
other laws, a court may determine that the underlying security is collateral for
a loan by the Portfolio not within the control of the Portfolio and therefore
the realization by the Portfolio on such collateral may automatically be stayed
and delayed. Further, it is possible that the Portfolio may not be able to
substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement. The Portfolio expects
that these risks can be controlled through careful monitoring procedures.
SECURITIES OF COMPANIES WITH LIMITED OPERATING HISTORIES. The
Portfolio may invest in securities of companies with limited operating
histories. The Portfolio considers these to be securities of companies with a
record of less than three years' continuous operation, even including the
operations of any predecessors and parents. (These are sometimes referred to as
"unseasoned issuers.") These companies by their nature have only a limited
operating history that can be used for evaluating the company's growth
prospects. As a result, investment decisions for these securities may place a
greater emphasis on current or planned product lines and the reputation and
experience of the company's management and less emphasis on fundamental
valuation factors than would be the case for more mature companies. In addition,
many of these companies may also be small companies and involve the risks and
price volatility associated with smaller companies.
SPECIAL SITUATIONS. The Portfolio may also invest in "special
situations." Special situations are companies that have recently experienced or
are anticipated to experience a significant change in structure, management,
products or services that may significantly affect the value of their
securities. Examples of special situations are companies being reorganized or
merged, companies emerging from bankruptcy, companies introducing unusual new
products or that enjoy particular tax advantages. Other examples are companies
experiencing changes in senior management, extraordinary corporate events,
significant changes in cost or capital structure or that are believed to be
probable takeover candidates. The opportunity to invest in special situations,
however, is limited and depends in part on the market's assessment of these
companies and their circumstances. By its nature, a "special situation" company
involves to some degree a break with the company's past experience. This creates
greater uncertainty and potential risk of loss than if the company were
operating according to long-established patterns. In addition, stocks of
companies in special situations may decline or not appreciate as expected if an
anticipated change or development does not occur or is not assessed by the
market as favorably as expected.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may
purchase and sell securities on a when-issued or delayed delivery basis.
However, the Portfolio does not currently intend to purchase or sell securities
on a when-issued or delayed delivery basis if as a result more than 5% of its
net assets taken at market value at the time of purchase would be invested in
such securities. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Portfolio with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous price or yield. However, the yield available on a comparable
security when delivery takes place may vary from the yield on the security at
the time that the when-issued or delayed delivery transaction was entered into.
Any failure to consummate a when-issued or delayed delivery transaction may
result in the Portfolio missing the opportunity of obtaining a price or yield
considered to be advantageous. When-issued and delayed delivery transactions may
generally be expected to settle within one month from the date the transactions
are entered into but in no event later than 90 days. However, no payment or
delivery is made by the Portfolio until it receives delivery or payment from the
other party to the transaction.
When the Portfolio purchases securities on a when-issued
basis, it will maintain, in a segregated account with its custodian cash, U.S.
government securities or other liquid assets having an aggregate value equal to
the amount of such purchase commitments, until payment is made. If necessary,
additional assets will be placed in
-7-
the account daily so that the value of the account will equal or exceed the
amount of the Portfolio's purchase commitments.
TEMPORARY DEFENSIVE MEASURES. Although the Portfolio reserves
the right to take temporary defensive measures, it is the intention of the
Portfolio to remain fully invested at all times. The Portfolio may increase its
investment in government securities, and other short-term, interest-bearing
securities without regard to the Portfolio's otherwise applicable percentage
limits, policies or its normal investment emphasis, when its adviser or
sub-adviser believes market, economic or political conditions warrant a
temporary defensive position. In addition, certain unusual circumstances may
force the Portfolio to temporarily depart from the investment requirement
implied by its name. Taking larger positions in such short-term investments may
serve as a means of preserving capital in unfavorable market conditions. When in
a defensive position, the Portfolio could miss the opportunity to participate in
any stock or bond market advances that occur during those periods, which the
Portfolio might have been able to participate in if it had remained more fully
invested.
PORTFOLIO TURNOVER. The portfolio turnover rate of the
Portfolio is shown in the Financial Highlights table in the Prospectus. In
pursuit of the Portfolio's investment objective, the sub-adviser continuously
monitors the Portfolio's investments and makes portfolio changes whenever
changes in investment themes, the fundamentals of any portfolio company or the
price of any portfolio security indicate to the sub-adviser that more attractive
alternatives exist or that the Portfolio's investment objective could be better
achieved by investment in another security, regardless of portfolio turnover. In
addition, portfolio turnover may increase as a result of large amounts of
purchases and redemptions of shares of the Portfolio due to economic, market or
other factors that are not within the control of management.
2. INVESTMENT RESTRICTIONS
The investment objective of the Portfolio and the Fund is
long-term capital appreciation.
The Fund has adopted an investment policy that it may,
notwithstanding any other fundamental or non-fundamental investment policy or
restriction, invest all of its investable assets in the securities of another
open-end investment company or series thereof with substantially the same
investment objective, policies and limitations as the Fund.
All other fundamental and non-fundamental investment policies
and restrictions of the Fund and the Portfolio in which all the Fund's
investable assets are invested are identical. Therefore, although the following
investment restrictions refer to the Portfolio and the trustees of Worldwide
Portfolios, they apply equally to the Fund and the trustees of the Trust.
The Portfolio has also adopted certain investment policies,
strategies, guidelines and procedures in pursuing its objective. These may be
changed without an investor vote. The principal policies and strategies used by
the Portfolio are described in the Prospectus.
In addition, the Portfolio has adopted certain fundamental and
non-fundamental restrictions on its investments and other activities, which are
listed below. Fundamental restrictions may not be changed without the approval
of (a) 67% or more of the voting securities of the Portfolio present at a
meeting of investors thereof if the holders of more than 50% of the outstanding
voting securities are present or represented by proxy, or (b) more than 50% of
the outstanding voting securities of the Portfolio. Whenever the Fund is
requested to vote on a change in the investment restrictions of the Portfolio,
the Fund will hold a meeting of its investors and will cast its votes as
instructed by the investors. Non-fundamental restrictions may be changed in the
future by action of the trustees without investor vote.
The following fundamental restrictions apply to the Portfolio.
The Portfolio may not:
1. With respect to 75% of the Portfolio's total assets,
purchase the securities of any one issuer (except U.S. government securities) if
immediately after and as a result of such purchase (a) the value of the holdings
of the Portfolio in the securities of such issuer exceeds 5% of the value of the
Portfolio's total assets or (b) the Portfolio owns more than 10% of the
outstanding voting securities of such issuer.
-8-
2. Invest in any one industry (other than U.S. government
securities) 25% or more of the value of its total assets at the time of such
investment.
3. Borrow money, except from banks for temporary or emergency
purposes in amounts not to exceed 25% of the Portfolio's total assets (including
the amount borrowed) taken at market value, nor pledge, mortgage or hypothecate
its assets, except to secure permitted indebtedness and then only if such
pledging, mortgaging or hypothecating does not exceed 25% of the Portfolio's
total assets taken at market value. When borrowings exceed 5% of the Portfolio's
total assets, the Portfolio will not purchase portfolio securities.
4. Act as a securities underwriter (except to the extent the
Portfolio may be deemed an underwriter under the Securities Act of 1933 in
disposing of a security), issue senior securities (except to the extent
permitted under the Investment Company Act of 1940), invest in real estate
(although it may purchase shares of a real estate investment trust), or invest
in commodities or commodity contracts except financial futures transactions,
futures contracts on securities and securities indices and options on such
futures, forward foreign currency exchange contracts, forward commitments or
securities index put or call options.
5. Make loans, except that the Portfolio may enter into
repurchase agreements and may lend portfolio securities in accordance with the
Portfolio's investment policies. The Portfolio does not, for this purpose,
consider the purchase of all or a portion of an issue of publicly distributed
bonds, bank loan participation agreements, bank certificates of deposit,
bankers' acceptances, debentures or other securities, whether or not the
purchase is made upon the original issuance of the securities, to be the making
of a loan.
In applying the industry concentration investment restriction
(no. 2 above), the Portfolio uses the industry groups designated by the
Financial Times World Index Service.
The trustees have adopted additional non-fundamental
investment restrictions for the Portfolio. These limitations may be changed by
the trustees without an investor vote. The non-fundamental investment
restrictions include the following:
1. The Portfolio may not purchase securities on margin from a
broker or dealer, except that the Portfolio may obtain such short-term credits
as may be necessary for the clearance of transactions, and may not make short
sales of securities. This limitation shall not prohibit or restrict the
Portfolio from entering into futures, forwards and options contracts or from
making margin payments and other deposits in connection therewith.
2. The Portfolio may not purchase the securities of any other
investment company, except by purchase in the open market involving no
commission or profit to a sponsor or dealer (other than the customary broker's
commission).
3. The Portfolio may not invest in companies for the purposes
of exercising control of management.
4. The Portfolio may not purchase any security, including any
repurchase agreement maturing in more than seven days, which is not readily
marketable, if more than 15% of the net assets of the Portfolio, taken at market
value at the time of purchase would be invested in such securities.
5. The Portfolio may not enter into any futures, forwards or
options, except that only for the purpose of hedging, the Portfolio may enter
into forward foreign currency exchange contracts with stated contract values of
up to the value of the Portfolio's assets.
6. The Portfolio may not purchase or sell securities on a
when-issued or delayed delivery basis, if as a result more than 5% of its net
assets taken at market value at the time of purchase would be invested in such
securities.
-9-
3. MANAGEMENT OF THE FUND
The Fund is supervised by trustees who are responsible for
major decisions about the Fund's policies and overall Fund oversight. The Fund's
board hires the companies that run day-to-day Fund operations, such as the
investment adviser, administrator, transfer agent and custodian.
The trustees and executive officers of the Fund are listed
below, together with information that includes their principal occupations
during the past five years and other principal business affiliations.
MICHAEL OWEN, 210 University Boulevard, Suite 800, Denver, CO 80206,
DOB: 1937. Dean of Zayed University (since September 2000).
Formerly self-employed as a financial and management
consultant, and in real estate development (from June 1999 to
September 2000). Dean (from 1993 to June 1999), and a member
of the Finance faculty (from 1989 to 1993), of the College of
Business, Montana State University. Formerly, Chairman and
Chief Executive Officer of Royal Gold, Inc. (mining) (1976 to
1989). Chairman of the Board of Berger Growth Fund and Berger
Large Cap Growth Fund. Chairman of the Trustees of Berger
Investment Portfolio Trust, Berger Institutional Products
Trust, Berger Worldwide Funds Trust, Berger Worldwide
Portfolios Trust and Berger Omni Investment Trust.
* JACK R. THOMPSON, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1949. President and a director since May 1999
(Executive Vice President from February 1999 to May 1999) of
Berger Growth Fund and Berger Large Cap Growth Fund. President
and a trustee since May 1999 (Executive Vice President from
February 1999 to May 1999) of Berger Investment Portfolio
Trust, Berger Institutional Products Trust, Berger Worldwide
Funds Trust, Berger Worldwide Portfolios Trust and Berger Omni
Investment Trust. President and Director since June 1999
(Executive Vice President from February 1999 to June 1999) of
Berger Financial Group LLC (formerly Berger LLC). Audit
Committee Member of the Public Employees' Retirement
Association of Colorado (pension plan) since November 1997.
Self-employed as a consultant from July 1995 through February
1999. Director of Wasatch Advisors (investment management)
from February 1997 to February 1999. Director of Janus Capital
Corporation (investment management) from June 1984 through
June 1995, and Executive Vice President of the Corporation
from April 1989 through June 1995. Treasurer of Janus Capital
Corporation from November 1983 through October 1989. Trustee
of the Janus Investment Funds from December 1990 through June
1995, and Senior Vice President of the Trust from May 1993
through June 1995. President and a director of Janus Service
Corporation (transfer agent) from January 1987 through June
1995. President and a director of Fillmore Agency, Inc.
(advertising agency), from January 1990 through June 1995.
Executive Vice President and a director of Janus Capital
International, Ltd. (investment adviser) from September 1994
through June 1995. President and a director of Janus
Distributors, Inc. (broker/dealer), from May 1991 through June
1995. Director of IDEX Management, Inc. (investment
management), from January 1985 through June 1995. Trustee and
Senior Vice President of the Janus Aspen Funds from May 1993
through June 1995.
DENNIS E. BALDWIN, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1928. President, Baldwin Financial Counseling
(since July 1991). Formerly, Vice President and Denver Office
Manager of Merrill Lynch Capital Markets (1978 to 1990).
Director of Berger Growth Fund and Berger Large Cap Growth
Fund. Trustee of Berger Investment Portfolio Trust, Berger
Institutional Products Trust, Berger Worldwide Funds Trust,
Berger Worldwide Portfolios Trust and Berger Omni Investment
Trust.
KATHERINE A. CATTANACH, 210 University Boulevard, Suite 800, Denver,
CO 80206, DOB: 1945. Managing Principal (since September
1987), Sovereign Financial Services, Inc. (investment
consulting firm). Executive Vice President (1981 to 1988),
Captiva Corporation, Denver, Colorado (private investment
management firm). Ph.D. in Finance (Arizona State University);
Chartered Financial Analyst (CFA). Director of Berger Growth
Fund and Berger Large Cap Growth Fund. Trustee of Berger
Investment Portfolio Trust, Berger Institutional Products
Trust, Berger Worldwide Funds Trust, Berger Worldwide
Portfolios Trust and Berger Omni Investment Trust.
PAUL R. KNAPP, 210 University Boulevard, Suite 800, Denver, CO 80206,
DOB: 1945. Executive
-10-
Officer of DST Systems, Inc. ("DST"), a publicly traded
information and transaction processing company, which acts as
the Funds' transfer agent (since October 2000). President of
Vermont Western Assurance, Inc., a wholly owned subsidiary of
DST Systems (since December 2000). Director and Vice President
(February 1998 to November 2000) of West Side Investments,
Inc. (investments), a wholly owned subsidiary of DST Systems,
Inc. President, Chief Executive Officer and a director
(September 1997 to October 2000) of DST Catalyst, Inc., an
international financial markets consulting, software and
computer services company, (now DST International, a
subsidiary of DST). Previously (1991 to October 2000),
Chairman, President, Chief Executive Officer and a director of
Catalyst Institute (international public policy research
organization focused primarily on financial markets and
institutions); also (1991 to September 1997), Chairman,
President, Chief Executive Officer and a director of Catalyst
Consulting (international financial institutions business
consulting firm). Prior thereto (1988 to 1991), President,
Chief Executive Officer and a director of Kessler Asher Group
(brokerage, clearing and trading firm). Director of Berger
Growth Fund and Berger Large Cap Growth Fund. Trustee of
Berger Investment Portfolio Trust, Berger Institutional
Products Trust, Berger Worldwide Funds Trust, Berger Worldwide
Portfolios Trust and Berger Omni Investment Trust.
HARRY T. LEWIS, JR., 210 University Boulevard, Suite 800, Denver,
CO 80206, DOB: 1933. Lewis Investments (since June 1988)
(self-employed private investor). Formerly, Senior Vice
President, Rocky Mountain Region, of Dain Bosworth
Incorporated and member of that firm's Management Committee
(1981 to 1988). Director (1995 to March 2002) of J.D. Edwards
& Co. (computer software company). Director of Berger Growth
Fund and Berger Large Cap Growth Fund. Trustee of Berger
Investment Portfolio Trust, Berger Institutional Products
Trust, Berger Worldwide Funds Trust, Berger Worldwide
Portfolios Trust and Berger Omni Investment Trust.
WILLIAM SINCLAIRE, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1928. President (since January 1998), Santa Clara
LLC (privately owned agriculture company). President (January
1963 to January 1998), Sinclaire Cattle Co. (privately owned
agriculture company). Director of Berger Growth Fund and
Berger Large Cap Growth Fund. Trustee of Berger Investment
Portfolio Trust, Berger Institutional Products Trust, Berger
Worldwide Funds Trust, Berger Worldwide Portfolios Trust and
Berger Omni Investment Trust.
ALBERT C. YATES, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1941. President (since 1990), Chancellor and
Professor of Chemistry Department of Chemistry, of Colorado
State University. Formerly Executive Vice President and
Provost (1983 to 1990) Academic Vice President and Provost
(1981 to 1983) and Professor of Chemistry (1981 to 1990) of
Washington State University. Vice President and University
Dean for Graduate Studies and Research and Professor of
Chemistry of the University of Cincinnati (1977 to 1981).
Director of the Berger Growth Fund and Berger Large Cap Growth
Fund. Trustee of Berger Investment Portfolio Trust, Berger
Institutional Products Trust, Berger Worldwide Funds Trust,
Berger Worldwide Portfolios Trust and Berger Omni Investment
Trust.
* JAY W. TRACEY CFA, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1954. Executive Vice President of the Berger Funds
(since August 2000). Executive Vice President and Chief
Investment Officer of Berger Financial Group LLC (since June
2000). Portfolio manager of the Berger Growth Fund (since
August 2000); team portfolio manager of the Berger Select Fund
(since June 2000) and the Berger Large Cap Growth Fund (from
January 2001 through December 2001). Team portfolio manager
(since December 2001) of the Berger Mid Cap Growth Fund and
team interim portfolio manager (since December 2001) of the
Berger New Generation Fund. Formerly, Vice President and
Portfolio Manager at Oppenheimer Funds, Inc. (September 1994
to May 2000) and Managing Director of Buckingham Capital
Management (February 1994 to September 1994).
* PAUL A. LAROCCO, CFA, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1958. Vice President (since February 2001) and
portfolio manager (since January 2001) of the Berger Small
Company Growth Fund. Vice President (since February 2001) and
team portfolio manager (since January 2001) of the Berger
Select Fund. Team portfolio manager (since December 2001) of
the Berger
-11-
Mid Cap Growth Fund and interim team portfolio manager (since
December 2001) of the Berger New Generation Fund. Vice
President of Berger Financial Group LLC (since December 2000).
Formerly, portfolio manager with Montgomery Asset Management
(from January 2000 through December 2000); senior portfolio
manager with Founders Asset Management (from March 1998
through December 1999); and portfolio manager with Oppenheimer
Funds (from January 1993 through March 1998).
* STEVEN L. FOSSEL, CFA, 210 University Boulevard, Suite 800, Denver,
CO 80206, DOB: 1968. Vice President (since August 2000) and
portfolio manager (since June 2000) of the Berger Balanced
Fund. Vice President (since August 2000) and team portfolio
manager (since June 2000) of the Berger Select Fund. Vice
President (since February 2001); portfolio manager (since
December 2001) of the Berger Large Cap Growth Fund; and team
portfolio manager (from January 2001 through December 2001) of
the Berger Large Cap Growth Fund. Interim portfolio manager
(from June 2000 to January 2001) of the Berger Large Cap
Growth Fund. Vice President and portfolio manager of Berger
Financial Group LLC (since June 2000); senior equity analyst
with Berger Financial Group LLC (from March 1998 to June
2000). Formerly, Analyst and Assistant portfolio manager with
Salomon Brothers Asset Management (from August 1992 to
February 1998).
* JANICE M. TEAGUE, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1954. Vice President and Secretary of Bay Isle
Financial LLC (since January 2002). Vice President (since
November 1998) and Assistant Secretary (since February 2000
and previously from September 1996 to November 1998) and
Secretary (November 1998 to February 2000) of the Berger
Funds. Vice President (since October 1997), Secretary (since
November 1998) and Assistant Secretary (October 1996 through
November 1998) with Berger Financial Group LLC. Vice President
and Secretary with Berger Distributors LLC (since August
1998). Formerly, self-employed as a business consultant (from
June 1995 through September 1996), Secretary of the Janus
Funds (from January 1990 to May 1995) and Assistant Secretary
of Janus Capital Corporation from (October 1989 to May 1995).
* ANDREW J. ISEMAN, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1964. Vice President of the Berger Funds (since
March 2001). Vice President (since September 1999) and Chief
Operating Officer (since November 2000) of Berger Financial
Group LLC. Manager (since September 1999) and Director (June
1999 to September 1999) of Berger Distributors LLC. Vice
President-Operations (February 1999 to November 2000) of
Berger Financial Group LLC. Associate (November 1998 to
February 1999) with DeRemer & Associates (a consulting firm).
Vice President-Operations (February 1997 to November 1998) and
Director of Research and Development (May 1996 to February
1997) of Berger Financial Group LLC.
* ANTHONY R. BOSCH, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1965. Vice President of Bay Isle Financial LLC
(since January 2002). Vice President of the Berger Funds
(since February 2000). Vice President (since June 1999) and
Chief Legal Officer (since August 2000) with Berger Financial
Group LLC. Chief Compliance Officer with Berger Distributors
LLC (since September 2001). Formerly, Assistant Vice President
of Federated Investors, Inc. (December 1996 through May 1999),
and Attorney with the U.S. Securities and Exchange Commission
(June 1990 through December 1996).
* BRIAN S. FERRIE, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1958. Vice President of the Berger Funds (since
November 1998). Vice President (since February 1997),
Treasurer and Chief Financial Officer (since March 2001) and
Chief Compliance Officer (from August 1994 to March 2001) with
Berger Financial Group LLC. Vice President (since May 1996),
Treasurer and Chief Financial Officer (since March 2001) and
Chief Compliance Officer (from May 1996 to September 2001)
with Berger Distributors LLC. Formerly, Compliance Officer
with United Services Advisor, Inc. (from January 1988 to July
1994) and Director of Internal Audit of United Services Funds
(from January 1987 to July 1994).
* JOHN PAGANELLI, 210 University Boulevard, Suite 800, Denver, CO
80206, DOB: 1967. Vice
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President (since November 1998), Treasurer (since March 2001)
and Assistant Treasurer (November 1998 to March 2001) of the
Berger Funds. Vice President (since November 1998) and Manager
of Accounting (January 1997 through November 1998) with Berger
Financial Group LLC. Formerly, Manager of Accounting (December
1994 through October 1996) and Senior Accountant (November
1991 through December 1994) with Palmeri Fund Administrators,
Inc.
* SUE VREELAND, 210 University Boulevard, Suite 800, Denver, CO 80206,
DOB: 1948. Secretary of the Berger Funds (since February
2000). Assistant Secretary of Berger Financial Group LLC and
Berger Distributors LLC (since June 1999) and Bay Isle
Financial LLC (since December 2001). Formerly, Assistant
Secretary of the Janus Funds (from March 1994 to May 1999),
Assistant Secretary of Janus Distributors, Inc. (from June
1995 to May 1997) and Manager of Fund Administration for Janus
Capital Corporation (from February 1992 to May 1999).
* Interested person (as defined in the Investment Company Act of 1940) of the
Fund and of the Portfolio's adviser or sub-adviser.
The trustees of the Trust have adopted a trustee retirement
age of 75 years.
TRUSTEE COMPENSATION
Officers of the Trust receive no compensation from the Trust.
However, trustees of the Trust who are not interested persons of the Portfolio's
adviser or sub-adviser, who are also trustees of Worldwide Portfolios, are
compensated for their services according to a fee schedule, allocated among the
Berger Funds. Neither the officers of the Trust nor the trustees receive any
form of pension or retirement benefit compensation from the Trust.
The following table sets forth information regarding
compensation paid or accrued during the fiscal year ended September 30, 2001,
for each trustee of the Trust and of the other Berger Funds.
<Table>
<Caption>
NAME AND POSITION
WITH BERGER FUNDS AGGREGATE COMPENSATION FROM
----------------- -------------------------------------------------------
BERGER INTERNATIONAL FUND(1) ALL BERGER FUNDS(2)
---------------------------- -------------------
Dennis E. Baldwin(3) $ 2,652 $57,984
Louis Bindner(6) $ 896 $19,234
Katherine A. Cattanach(3) $ 2,670 $58,400
Paul R. Knapp(3) $ 2,480 $54,234
Harry T. Lewis(3) $ 2,480 $54,234
Michael Owen(3) $ 3,084 $67,448
William Sinclaire(3) $ 2,480 $54,234
Albert C. Yates(3),(7) $ 1,584 $35,000
Jack R. Thompson(3),(4),(5) $ 0 $ 0
</Table>
(1) Trustee compensation is paid by Worldwide Portfolios to its trustees and
borne indirectly pro rata by the Fund and the other mutual funds invested
in the Portfolio.
(2) Includes the Berger Growth Fund, the Berger Large Cap Growth Fund, the
Berger Investment Portfolio Trust (including the Berger Mid Cap
-13-
Growth Fund, the Berger Small Company Growth Fund, the Berger New
Generation Fund, the Berger Select Fund, the Berger Information Technology
Fund, the Berger Mid Cap Value Fund, and the Berger Balanced Fund), the
Berger Institutional Products Trust (five series), the Berger Worldwide
Funds Trust (three series, including the Berger International Fund), the
Berger Worldwide Portfolios Trust (one series) and the Berger Omni
Investment Trust (one series). Aggregate compensation figures do not
include first-year estimates for any Fund in existence for less than one
year. Of the aggregate amounts shown for each director/trustee, the
following amounts were deferred under applicable deferred compensation
plans: Dennis E. Baldwin $31,960; Lou Bindner $2,499; Katherine A.
Cattanach $58,400; William Sinclaire $54,234; Albert C. Yates $17,500.
(3) Director of Berger Growth Fund and Berger Large Cap Growth Fund and trustee
of Berger Investment Portfolio Trust, Berger Institutional Products Trust,
Berger Worldwide Portfolios Trust, Berger Worldwide Funds Trust and Berger
Omni Investment Trust.
(4) Interested person of Berger Financial Group LLC.
(5) President of Berger Growth Fund, Berger Large Cap Growth Fund, Berger
Investment Portfolio Trust, Berger Institutional Products Trust, Berger
Worldwide Portfolios Trust, Berger Worldwide Funds Trust and Berger Omni
Investment Trust.
(6) Resigned effective March 1, 2001.
(7) Appointed Trustee effective March 1, 2001.
Trustees may elect to defer receipt of all or a portion of
their fees pursuant to a fee deferral plan adopted by the Berger Worldwide
Portfolios Trust. Under the plan, deferred fees are credited to an account and
adjusted thereafter to reflect the investment experience of whichever of the
Berger Funds (or approved money market funds) is designated by the trustees for
this purpose. Pursuant to an SEC exemptive order, Worldwide Portfolios is
permitted to purchase shares of the designated funds in order to offset its
obligation to the trustees participating in the plan. Purchases made pursuant to
the plan are excepted from any otherwise applicable investment restriction
limiting the purchase of securities of any other investment company. Worldwide
Portfolios' obligation to make payments of deferred fees under the plan is a
general obligation of Worldwide Portfolios.
As of December 31, 2001, the officers and trustees of the Fund
as a group owned, of record or beneficially, 1.04% of the outstanding shares of
the Fund. When combined with the outstanding shares of the Berger International
CORE Fund and International Equity Fund, officers and trustees of the Trust as a
group owned of record an aggregate of less than 1% of the outstanding shares of
the Trust.
The Trust, the Funds' investment adviser, sub-adviser and
principal underwriter have adopted Codes of Ethics under Rule 17j-1 of the
Investment Company Act. The Codes of Ethics permit personnel subject to the
Codes to invest in securities, including securities that may be purchased or
held by the Funds in certain circumstances. The Codes of Ethics are described
fully under Restrictions on Personal Trading in Section 4 of this SAI.
4. INVESTMENT ADVISER AND SUB-ADVISER
BERGER FINANCIAL GROUP LLC - INVESTMENT ADVISER
The investment adviser to the Portfolio is Berger Financial
Group LLC ("BFG" or the "adviser") (formerly Berger LLC), 210 University
Boulevard, Suite 800, Denver, Colorado 80206. The adviser oversees, evaluates
and monitors the investment advisory services provided to the Portfolio by the
Portfolio's sub-adviser and is responsible for furnishing general business
management and administrative services to the Portfolio.
BFG is a Nevada Limited Liability Company, and has been in the
investment advisory business since 1974. It serves as investment adviser or
sub-adviser to mutual funds and institutional investors and had assets under
management of approximately $8.7 billion as of December 31, 2001. BFG is a
subsidiary of Stilwell Management Inc. ("Stilwell"), which owns approximately
89.5% of BFG, and is an indirect subsidiary of Stilwell Financial, Inc.
("Stilwell Financial"), a publicly traded company. Stilwell also owns
approximately 33% of the outstanding shares of DST Systems, Inc. ("DST"), a
publicly traded information and transaction processing company, which acts as
the Fund's sub-transfer agent. DST, in turn, owns 100% of DST Securities, a
registered broker-dealer.
Stilwell Financial was previously a wholly owned subsidiary of
Kansas City Southern Industries, Inc. ("KCSI"). On July 12, 2000, KCSI completed
a separation of its transportation and financial services segments through a
dividend of stock of Stilwell Financial. On that date, KCSI shareholders
received two shares of Stilwell Financial for every KCSI share held as of June
28, 2000. The separation resulted in no change in the management or control of
the Fund or the adviser to the Fund.
-14-
BBOI WORLDWIDE LLC - INVESTMENT ADVISER
Prior to May 12, 2000, BBOI Worldwide LLC ("BBOI Worldwide"),
210 University Blvd., Suite 700, Denver, Colorado 80206, a joint venture between
BFG and Bank of Ireland Asset Management (U.S.) Limited (BIAM), served as
adviser and administrator to the Portfolio. Effective May 12, 2000, the Berger
International Portfolio entered into a new advisory agreement with BFG replacing
BBOI Worldwide LLC as the Fund's investment adviser and administrator, and BBOI
was subsequently dissolved. BFG is responsible for overseeing, evaluating and
monitoring the investment advisory services provided by BIAM as sub-adviser.
SUB-ADVISER
As permitted in its Investment Advisory Agreement with the
Portfolio, the adviser has delegated day-to-day portfolio management
responsibility to Bank of Ireland Asset Management (U.S.) Limited (the
"sub-adviser" or "BIAM"). As sub-adviser, BIAM manages the investments in the
Portfolio and determines what securities and other investments will be
purchased, retained, sold or loaned, consistent with the investment objective
and policies established by the trustees of Worldwide Portfolios. BIAM's main
offices are at 26 Fitzwilliam Place, Dublin 2, Ireland. BIAM maintains a
representative office at 75 Holly Hill Lane, Greenwich CT 06830. BIAM is an
indirect wholly owned subsidiary of Bank of Ireland, a publicly traded,
diversified financial services group with business operations worldwide. Bank of
Ireland provides investment management services through a network of related
companies, including BIAM, which serves primarily institutional clients in the
United States and Canada. As of September 30, 2001, Bank of Ireland and its
affiliates managed $42.6 billion in assets for clients worldwide.
Bank of Ireland or its affiliates may have deposit, loan or
other commercial or investment banking relationships with the issuers of
securities which may be purchased by the Portfolio, including outstanding loans
to such issuers which could be repaid in whole or in part with the proceeds of
securities purchased by the Portfolio. Federal law prohibits BIAM, in making
investment decisions, from using material non-public information in its
possession or in the possession of any of its affiliates. In addition, in making
investment decisions for the Portfolio, BIAM will not take into consideration
whether an issuer of securities proposed for purchase or sale by the Portfolio
is a customer of Bank of Ireland or its affiliates.
INVESTMENT ADVISORY AGREEMENT AND SUB-ADVISORY AGREEMENT
Under the Investment Advisory Agreement between the adviser
and Berger Worldwide Portfolios Trust with respect to the Portfolio, the adviser
oversees, evaluates and monitors the investment advisory services provided to
the Portfolio by the sub-adviser and is responsible for furnishing general
business management and administrative services to the Portfolio. Under the
Investment Advisory Agreement for the Portfolio, the adviser is compensated for
its services to the Portfolio by the payment of a fee in accordance with the
following schedule:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL RATE
------------------------ -----------
Berger International Portfolio First $500 million .85%
Next $500 million .80%
Over $1 billion .75%
</Table>
The following schedule reflects the advisory fees charged to
the Portfolio for the fiscal year ended September 30, 2001:
<Table>
<Caption>
FUND ADVISER INVESTMENT ADVISORY FEE
---- ------- -----------------------
Berger International Portfolio BFG 0.85%
</Table>
-15-
The Fund bears a pro rata portion of the fee paid by the
Portfolio to the adviser. The Investment Advisory Agreement provides that the
adviser shall not be liable for any error of judgment or mistake of law or for
any loss arising out of any investment or for any act or omission taken with
respect to the Portfolio, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties thereunder and except to the extent otherwise
provided by law.
Under a written agreement, the Portfolio's adviser waives its
investment advisory fee to the extent that the Portfolio's annual operating
expenses in any fiscal year, including the investment advisory fee and custodian
fees, but excluding brokerage commissions, interest, taxes and extraordinary
expenses, exceed 1.00% of the Portfolio's average daily net assets for that
fiscal year. The agreement may not be terminated without the prior written
consent of the Portfolio by a vote of its Board of Trustees. Any such reduction
in the advisory fee paid by the Portfolio will also reduce the pro rata share of
the advisory fee borne indirectly by the Fund.
The Investment Advisory Agreement will continue in effect
until April 2002, and thereafter from year to year if such continuation is
specifically approved at least annually by the trustees or by vote of a majority
of the outstanding shares of the Portfolio and in either case by vote of a
majority of the trustees of Worldwide Portfolios who are not "interested
persons" (as that term is defined in the Investment Company Act of 1940) of the
Portfolio or the adviser. The Agreement is subject to termination by the
Portfolio or the adviser on 60 days' written notice and terminates automatically
in the event of its assignment.
Under the Sub-Advisory Agreement between the adviser and the
sub-adviser, the adviser has delegated day-to-day portfolio management
responsibility to the sub-adviser. The sub-adviser manages the investments in
the Portfolio and determines what securities and other investments will be
purchased, retained, sold or loaned, consistent with the investment objective
and policies established by the trustees of Worldwide Portfolios. The Portfolio
pays no fees directly to the sub-adviser. The sub-adviser will receive from the
adviser a fee at the annual rate of 0.45% for the first $50 million of the
Fund's average daily net assets, 0.40% of the next $50 million and 0.30% of any
amount in excess of $100 million. During certain periods, the sub-adviser may
voluntarily waive all or a portion of its fee under the Sub-Advisory Agreement,
which will not affect the fee paid by the Portfolio to the adviser. The
Sub-Advisory Agreement provides that the sub-adviser shall not be liable for any
error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission taken with respect to the Portfolio,
except for willful misfeasance, bad faith or gross negligence in the performance
of its duties, or by reason of reckless disregard of its obligations and duties
thereunder and except to the extent otherwise provided by law.
The Sub-Advisory Agreement will continue in effect until the
last day of April 2002, and thereafter from year to year if such continuation is
specifically approved at least annually by the trustees or by vote of a majority
of the outstanding shares of the Portfolio and in either case by vote of a
majority of the trustees of Worldwide Portfolios who are not "interested
persons" (as that term is defined in the Investment Company Act of 1940) of the
Portfolio or the adviser or the sub-adviser. The Sub-Advisory Agreement is
subject to termination by the Portfolio, the adviser or the sub-adviser on 60
days' written notice and terminates automatically in the event of its assignment
and in the event of termination of the Investment Advisory Agreement.
TRADE ALLOCATIONS
Investment decisions for the Portfolio and other accounts
advised by the sub-adviser are made independently with a view to achieving each
of their respective investment objectives and after consideration of such
factors as their current holdings, availability of cash for investment and the
size of their investments generally. However, certain investment decisions may
be appropriate for the Portfolio and one or more such accounts. If the Portfolio
and other accounts advised by the sub-adviser are contemporaneously engaged in
the purchase or sale of the same security, the orders may be aggregated and/or
the transactions averaged as to price and allocated equitably to the Portfolio
and each participating account pursuant to procedures adopted by the Portfolio's
sub-adviser. Although in some cases this policy might adversely affect the price
paid or received by the Portfolio or other participating accounts, or the size
of the position obtained or liquidated, the sub-adviser will aggregate orders if
it believes that coordination of orders and the ability to participate in volume
transactions will result in the best overall combination of net price and
execution.
-16-
BFG has adopted procedures for allocating to its participating
accounts' securities purchased pursuant to a company's initial public offering
("IPO"). The procedures provide that such allocations must be effected in a
manner that is fair and equitable to all accounts. Generally, securities
received from participating in IPOs will be allocated to participating accounts
pro rata based on account size or total equity assets.
The key criterion for determining eligibility of the account
to participate in an offering is the suitability of the investment for the
account. An account may participate in an IPO allocation if BFG believes that,
based on the account's investment restrictions, risk profile, asset composition
and cash levels, the IPO is an appropriate investment. Accordingly, no account
will participate in every IPO allocation. In addition, an account generally will
not participate in an IPO if the securities available for allocation to the
account are insignificant relative to the account's net assets. As a result, any
fund or account whose assets are very large is not likely to participate in the
allocation of many IPOs.
RESTRICTIONS ON PERSONAL TRADING
BFG, the Berger Funds and Berger Distributors LLC each permits
its directors, officers and employees to purchase and sell securities for their
own accounts, including securities that may be purchased or held by the Funds,
in accordance with a policy regarding personal investing in each of the Codes of
Ethics for BFG, the Berger Funds and Berger Distributors LLC. The policy
requires all covered persons to conduct their personal securities transactions
in a manner that does not operate adversely to the interests of the Funds or
BFG's other advisory clients. Directors and officers of BFG and Berger
Distributors LLC, investment personnel and other designated persons deemed to
have access to current trading information ("access persons") are required to
pre-clear all transactions in securities not otherwise exempt under the policy.
Requests for authority to trade will be denied pre-clearance when, among other
reasons, the proposed personal transaction would be contrary to the provisions
of the policy or would be deemed to adversely affect any transaction then known
to be under consideration for or currently being effected on behalf of any
client account, including the Funds.
In addition to the pre-clearance requirements described here
for BFG and Berger Distributors LLC, the policy subjects directors and officers
of BFG, the Berger Funds and Berger Distributors LLC, investment personnel and
other access persons to various trading restrictions and reporting obligations.
All reportable transactions are reviewed for compliance with the policy. The
policy is administered by BFG and the provisions of the policy are subject to
interpretation by and exceptions authorized by its management.
BIAM has adopted a Code of Ethics that permits its directors,
officers and employees to purchase and sell securities for their own accounts,
including securities that may be held or acquired by the Berger International
Fund. BIAM's Code of Ethics restricts its officers, employees and other staff
from personal trading in specified circumstances, including among others
prohibiting participation in initial public offerings, prohibiting dealing in a
security for the seven days before and after any trade in that security on
behalf of clients, prohibiting trading in a security while an order is pending
for any client on that same security, and requiring profits from short-term
trading in securities (purchase and sale within a 60-day period) to be
forfeited. In addition, staff of BIAM must report all of their personal holdings
in securities annually and must disclose their holdings in any private company
if an investment in that same company is being considered for clients. Staff of
BIAM is required to pre-clear all transactions in securities not otherwise
exempt under the Code of Ethics and must instruct their broker to provide BIAM
with duplicate confirmations of all such personal trades.
5. EXPENSES OF THE FUND
The Fund is allocated and bears indirectly its pro rata share
of the aggregate annual operating expenses of the Portfolio, since all of the
investable assets of the Fund are invested in the Portfolio. Expenses of the
Portfolio include, among others, its pro rata share of the expenses of Worldwide
Portfolios of which the Portfolio is a series, such as: expenses of registering
Worldwide Portfolios with securities authorities; the compensation of its
Independent Trustees; expenses of preparing reports to investors and to
governmental offices and commissions; expenses of meetings of investors and
trustees of Worldwide Portfolios; legal fees; and insurance premiums of
Worldwide Portfolios. Expenses of the Portfolio also include, among others, the
fees payable to the adviser under the Investment Advisory Agreement; expenses
connected with the execution of portfolio transactions, including brokerage
commissions on purchases and sales of portfolio securities (which are considered
a cost of securities of the Portfolio);
-17-
custodian fees; auditors' fees; interest and taxes imposed on the Portfolio;
transfer agent, recordkeeping and pricing agent fees; and such other
non-recurring and extraordinary items as may arise from time to time.
Under a written agreement, the Portfolio's adviser waives its
investment advisory fee to the extent that the Portfolio's annual operating
expenses in any fiscal year, including the investment advisory fee and custodian
fees, but excluding brokerage commissions, interest, taxes and extraordinary
expenses, exceed 1.00% of the Portfolio's average daily net assets for that
fiscal year. The agreement may not be terminated without the prior written
consent of the Portfolio by a vote of its Board of Trustees. Any such reduction
in the advisory fee paid by the Portfolio will also reduce the pro rata share of
the advisory fee borne indirectly by the Fund.
Expenses of the Fund include, among others, its pro rata share
of the expenses of the Trust, such as expenses of meetings of the investors of
the Trust. Expenses of the Fund also include, among others, taxes imposed on the
Fund; the fee payable to the adviser under the Administrative Services
Agreement; and such other non-recurring and extraordinary items as may arise
from time to time.
Service Arrangements for the Fund
Under an Administrative Services Agreement with the Fund, BFG
serves as the administrator of the Fund. In this capacity, it is responsible for
administering and managing all aspects of the Fund's day-to-day operations,
subject to the oversight of the trustees of the Fund. Berger is responsible, at
its expense, for furnishing (or procuring other parties to furnish) all
administrative services reasonably necessary for the operation of the Fund,
including recordkeeping and pricing services, custodian services, transfer
agency and dividend disbursing services, tax and audit services, insurance,
printing and mailing to investors of prospectuses and other required
communications, and certain other administrative and recordkeeping services,
such as coordinating matters relating to the operations of the Fund, monitoring
the Fund's status as a "regulated investment company" under the Internal Revenue
Code, coordinating registration of sufficient Fund shares under federal and
state securities laws, arranging for and supervising the preparation of
registration statements, tax returns, proxy materials, financial statements and
reports for filing with regulatory authorities and distribution to investors of
the Fund. Under the Administrative Services Agreement, the Fund pays Berger a
fee at an annual rate equal to the lesser of (a) 0.45% of its average daily net
assets, or (b) Berger's annual cost to provide or procure these services
(including the fees of any services providers whose services are procured by
Berger), plus an additional 0.02% of the Fund's average daily net assets. The
trustees of the Fund regularly review amounts paid to and expenditures incurred
pursuant to the Administrative Services Agreement. In addition, in the event
that Berger's duties under the Administrative Services Agreement are delegated
to another party, Berger may take into account, in calculating the cost of such
services, only the costs incurred by such other party in discharging the
delegated duties. Prior to May 12, 2000 BBOI Worldwide served as the Fund's
administrator, in which capacity it was responsible for providing these
services.
Also prior to May 12, 2000, under a Sub-Administration
Agreement then in effect between BBOI Worldwide and BFG, Berger was delegated
the responsibility to perform certain of the administrative and recordkeeping
services required under the Administrative Services Agreement and to procure, at
BBOI Worldwide's expense, third parties to provide the services not provided by
BFG. Under the Sub-Administration Agreement, BFG was paid a fee of 0.25% of the
Fund's average daily net assets for its services. During certain periods, BFG
voluntarily waived all or a portion of its fee, which did not affect the fee
paid by the Fund to BBOI Worldwide.
The Fund and/or its adviser may enter into arrangements with
certain brokerage firms and other companies (such as recordkeepers and
administrators) to provide administrative services (such as sub-transfer agency,
recordkeeping, investor communications, sub-accounting and/or other services) to
investors purchasing shares of the Fund through those firms or companies. The
Fund's adviser may pay fees to these companies for their services. These
companies may also be appointed as agents for or authorized by the Fund to
accept on its behalf purchase and redemption requests that are received in good
order. Subject to Fund approval, certain of these companies may be authorized to
designate other entities to accept purchase and redemption orders on behalf of
the Fund.
State Street Bank and Trust Company ("State Street"), One
Heritage Drive, North Quincy, Massachusetts 02171, has been appointed to provide
recordkeeping and pricing services to the Fund, including calculating the daily
net asset value of the Fund, and to perform certain accounting and recordkeeping
functions that it requires. In addition, State Street has been appointed to
serve as the Portfolio's custodian. The Fund has appointed
-18-
DST Systems, Inc. ("DST"), P.O. Box 219958, Kansas City, Missouri 64121, as its
transfer agent and dividend-disbursing agent. Stilwell owns approximately 33% of
the outstanding shares of DST. The fees of BFG, State Street and DST are all
paid by the adviser.
Service Arrangements for the Portfolio
Under the Investment Advisory Agreement between the adviser
and the Portfolio, in addition to providing advisory services, the adviser is
responsible for providing or arranging for all managerial and administrative
services necessary for the operations of the Portfolio. The adviser is
responsible for providing certain of these services at its own expense, such as
compliance monitoring and preparing investor communications, which have been
delegated to BFG as part of the Sub-Administration Agreement discussed above.
Other services are procured from third party service providers at the
Portfolio's own expense, such as custody, recordkeeping and pricing services.
Prior to May 12, 2000, BBOI Worldwide served as the Fund's Administrator, in
which capacity it was responsible for providing these services. The Portfolio
has appointed State Street as recordkeeping and pricing agent to calculate the
daily net asset value of the Portfolio and to perform certain accounting and
recordkeeping functions required by the Portfolio. In addition, the Portfolio
has appointed State Street as its custodian. The Portfolio has appointed DST to
serve as its transfer agent. For custodian, recordkeeping and pricing services,
the Portfolio pays fees directly to State Street based on a percentage of its
net assets, subject to certain minimums, and reimburses State Street for certain
out-of-pocket expenses.
The following table shows the total dollar amounts of advisory
fees paid by the Portfolio to BFG or BBOI Worldwide for the periods indicated
and the amount of such fees waived on account of excess expenses under
applicable expense limitations. The investment advisory fee is paid by the
Portfolio and is borne indirectly pro rata by the Fund and the other mutual
funds invested in the Portfolio.
BERGER INTERNATIONAL PORTFOLIO
<Table>
<Caption>
FISCAL YEAR ENDED INVESTMENT(1) ADVISORY FEE
SEPTEMBER 30, ADVISORY FEE WAIVER TOTAL
----------------- ------------- ------------ ----------
2001 $2,444,000 $ 0 $2,444,000
2000 $2,816,000 $ 0 $2,816,000(2)
1999 $2,010,000 $(17,000) $1,993,000
</Table>
(1) Advisory fees prior to May 12, 2000 were paid to BBOI Worldwide.
(2) Under the investment advisory agreement in effect prior to May 12, 2000,
the Portfolio paid an advisory fee totaling $1,715,000 at an annual rate of
0.90% of its average daily net assets to BBOI Worldwide. Effective May 12,
2000, the investment advisory fee charged to the Portfolio by BFG was
reduced to 0.85% of the first $500 million of average net assets; 0.80% on
the next $500 million of average net assets; and 0.75% of average net
assets exceeding $1 billion.
In addition, the Fund paid BFG or BBOI Worldwide the following
amounts for its services under the Administrative Services Agreement.
BERGER INTERNATIONAL FUND
<Table>
<Caption>
FISCAL YEAR ENDED
SEPTEMBER 30 ADMINISTRATIVE SERVICE FEE(1)
----------------- -----------------------------
2001 $77,000
2000 $95,000(2)
1999 $87,000
</Table>
-19-
(1) Administrative service fees prior to May 12, 2000 were paid to BBOI
Worldwide.
(2) Under the administrative services agreement in effect prior to May 12,
2000, the Fund paid to BBOI Worldwide an administrative services fee
totaling $56,000.
All of State Street's fees are subject to reduction pursuant
to an agreed formula for certain earnings credits on the cash balances
maintained with it as custodian. Earnings credits received by the Portfolio are
disclosed on the Portfolio's Statement of Operations in the Annual Report
incorporated by reference into this Statement of Additional Information.
12b-1 PLANS
Each of the Funds has adopted a 12b-1 plan (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940, which provides
for the payment to BFG of a 12b-1 fee of 0.25% per annum of the Fund's average
daily net assets to finance activities primarily intended to result in the sale
of Fund shares. The Plans are intended to benefit the Funds by attracting new
assets into the Funds and thereby affording potential cost reductions due to
economies of scale.
The expenses paid by BFG may include, but are not limited to:
-- payments made to, and costs incurred by, a Fund's principal
underwriter in connection with the distribution of Fund
shares, including payments made to and expenses of officers
and registered representatives of the Distributor;
-- payments made to and expenses of other persons (including
employees of BFG) who are engaged in or provide support
services in connection with the distribution of Fund shares,
such as answering routine telephone inquiries and processing
investor requests for information;
-- compensation (including incentive compensation and/or
continuing compensation based on the amount of customer
assets maintained in a Fund) paid to securities dealers,
financial institutions and other organizations that render
distribution and administrative services in connection with
the distribution of Fund shares, including services to
holders of Fund shares and prospective investors;
-- costs related to the formulation and implementation of
marketing and promotional activities, including direct mail
promotions and television, radio, newspaper, magazine and
other mass media advertising;
-- costs of printing and distributing prospectuses and reports
to prospective investors of Fund shares;
-- costs involved in preparing, printing and distributing sales
literature for Fund shares;
-- costs involved in obtaining whatever information, analyses
and reports with respect to marketing and promotional
activities on behalf of a Fund relating to Fund shares that
BFG deems advisable;
-- and such other costs relating to Fund shares as the Fund may
from time to time reasonably deem necessary or appropriate in
order to finance activities primarily intended to result in
the sale of Fund shares.
Such 12b-1 fee payments are to be made by each Fund to BFG
with respect to each fiscal year of the Fund without regard to the actual
distribution expenses incurred by BFG in such year; that is, if the distribution
expenditures incurred by BFG are less than the total of such payments in such
year, the difference is not to be reimbursed to the Fund by BFG, and if the
distribution expenditures incurred by BFG are more than the total of such
payments, the excess is not to be reimbursed to BFG by the Fund.
From time to time a Fund may engage in activities that
jointly promote the sale of Fund shares and other funds that are or may in the
future be advised or administered by BFG, which costs are not readily
identifiable as related to any one fund. In such cases, a Fund's 12b-1 fees may
be used to finance the joint promotion of the shares
-20-
of that Fund, along with the shares of the other fund. BFG allocates the cost of
such joint promotional activity among the funds involved on the basis of their
respective net assets, unless otherwise directed by the directors or trustees.
The current 12b-1 Plans will continue in effect until the end
of April 2002 and from year to year thereafter if approved at least annually by
each Fund's directors or trustees and those directors or trustees who are not
interested persons of the Fund and have no direct or indirect financial interest
in the operation of the Plan or any related agreements by votes cast in person
at a meeting called for such purpose. The Plans may not be amended to increase
materially the amount to be spent on distribution of Fund shares without
investor approval.
For the fiscal year ended September 30, 2001, $89,000 was paid
to BFG pursuant to the Plan.
OTHER EXPENSE INFORMATION
The trustees of Worldwide Portfolios have authorized portfolio
transactions to be placed on an agency basis through DST Securities, Inc.
("DSTS"), a wholly owned broker-dealer subsidiary of DST. When transactions are
effected through DSTS, the commission received by DSTS is credited against, and
thereby reduces, certain operating expenses that the Portfolio would otherwise
be obligated to pay. No portion of the commission is retained by DSTS. DSTS may
be considered an affiliate of BFG due to the ownership interest of Stilwell in
both DST and BFG.
DISTRIBUTOR
The distributor (principal underwriter) of the Fund's shares
is Berger Distributors LLC (the "Distributor"), 210 University Boulevard, Suite
800, Denver, Colorado 80206. The Distributor may be reimbursed by BFG for its
costs in distributing the Fund's shares.
6. BROKERAGE POLICY
Although the Portfolio retains full control over its own
investment policies, the sub-adviser is authorized to place the portfolio
transactions of the Portfolio. A report on the placement of brokerage business
is given to the trustees of Worldwide Portfolios every quarter, indicating the
brokers with whom portfolio business was placed and the basis for such
placement. The brokerage commissions paid by the Portfolio during the past three
fiscal years were as follows:
BROKERAGE COMMISSIONS
<Table>
<Caption>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------ ------------------
BERGER INTERNATIONAL PORTFOLIO(1) $ 317,000 $ 244,000 $ 155,000
</Table>
(1) These are brokerage commissions paid by the Portfolio in which all the
Fund's investable assets are invested. Commissions paid the Portfolio are
borne indirectly pro rata by the Fund and the other mutual funds invested
in the Portfolio.
The Investment Advisory Agreement that the Portfolio has with
the adviser and the Sub-Advisory Agreement between the adviser and the
sub-adviser authorizes and directs portfolio transactions for the Portfolio to
be placed only with brokers and dealers who render satisfactory service in the
execution of orders at the most favorable prices and at reasonable commission
rates. However, the sub-adviser is specifically authorized to place such
transactions with a broker with whom it has negotiated a commission that is in
excess of the commission another broker or dealer would have charged for
effecting that transaction if the sub-adviser determines in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such broker viewed in terms of either that
particular transaction or the overall responsibilities of the sub-adviser.
In accordance with these provisions, the sub-adviser may place
portfolio brokerage business of the Portfolio with brokers who provide useful
research services to the sub-adviser. Such services could include
-21-
computerized on-line stock quotation systems and related data feeds from stock
exchanges, computerized trade order entry, execution and confirmation systems,
fundamental and technical analysis data and software, broker and other
third-party equity research, computerized stock market and business news
services, economic research, account performance data and computer hardware used
for the receipt of electronic research services.
Any brokerage and research services the sub-adviser may
receive from brokers could be helpful to the sub-adviser in performing its
investment advisory responsibilities to the Portfolio, but they are not
essential, and the availability of such services from brokers does not reduce
the responsibility of the sub-adviser's advisory personnel to analyze and
evaluate the securities in which the Portfolio invests. Any brokerage and
research services obtained as a result of the Portfolio's brokerage business may
also be useful to the sub-adviser in making investment decisions for its other
advisory accounts, and, conversely, information obtained by reason of placement
of brokerage business of such other accounts may be used by the sub-adviser in
rendering investment advice to the Portfolio. Although such brokerage and
research services may be deemed to be of value to the sub-adviser, they are not
expected to decrease the expenses that the sub-adviser would otherwise incur in
performing its investment advisory services for the Portfolio nor will the fee
that is received by the sub-adviser from the adviser or the advisory fee
received by the adviser from the Portfolio be reduced as a result of the
availability of such brokerage and research services from brokers.
If the sub-adviser determines that any such brokerage or
research service has a mixed use, such that it also serves functions that do not
assist the sub-adviser in the investment decision-making process or otherwise
benefits the Portfolio or the Fund, the sub-adviser may allocate the costs of
such service accordingly. Only that portion of the service that the sub-adviser
determines will assist it in the investment decision-making process or will
otherwise benefit the Portfolio or the Fund may be paid for by the placement of
the Portfolio's brokerage business. The decision whether and how to allocate the
costs of such service presents a conflict of interest for the sub-adviser.
The trustees of Worldwide Portfolios have authorized portfolio
transactions to be placed on an agency basis through DST Securities, Inc.
("DSTS"), a wholly owned broker-dealer subsidiary of DST. When transactions are
effected through DSTS, the commission received by DSTS is credited against, and
thereby reduces, certain operating expenses that the Portfolio would otherwise
be obligated to pay. No portion of the commission is retained by DSTS. DSTS may
be considered an affiliate of BFG due to the ownership interest of Stilwell in
both DST and BFG.
The Portfolio's sub-adviser places securities orders with a
limited number of major institutional brokerage firms chosen for the reliability
and quality of execution; commission rates; quality of research; coverage of
major companies, the U.S. economy and the securities markets; promptness; back
office capabilities; capital strength and financial stability; prior performance
in serving the sub-adviser and its clients; and knowledge of other buyers and
sellers. The sub-adviser selects the broker for each order based on the factors
above, as well as the size, difficulty, and other characteristics of the order.
The trustees of the Fund have also authorized sales of shares of the Fund by a
broker-dealer and the recommendations of a broker-dealer to its customers that
they purchase Fund shares to be considered as factors in the selection of
broker-dealers to execute portfolio transactions for the Fund. In addition, the
sub-adviser may also consider payments made by brokers to the Fund or to other
persons on behalf of the Fund for services provided to the Fund for which it
would otherwise be obligated to pay, such as transfer agency fees. In placing
portfolio business with any such broker or dealer, the sub-adviser will seek the
best execution of each transaction.
7. HOW TO PURCHASE AND REDEEM SHARES IN THE FUND
<Table>
MINIMUM INITIAL INVESTMENTS:
Regular investment $2,500
Low Minimum Investment Plan $ 50
IRA $ 500
MINIMUM SUBSEQUENT INVESTMENTS:
Regular investment $ 50
Regular systematic investment $ 50
Low Minimum Investment Plan
(required monthly systematic investments) $ 50
</Table>
-22-
To purchase shares in any of the Funds, simply complete the
application form enclosed with the Prospectus. Then mail it with a check payable
to "Berger Funds" to the following address:
Berger Funds
P.O. Box 219958
Kansas City, MO 64121-9958
If an investor is adding to an existing account that has
electronic funds transfer privileges, shares may be purchased online at
bergerfunds.com or by telephone to the Funds at 1-800-551-5849. In addition,
shares may be purchased by placing an order by telephone to the Funds. In order
to make sure that payment for telephone purchase orders is received on time,
investors are encouraged to remit payment by wire or by overnight delivery of a
check.
In addition, Fund shares may be purchased through certain
broker-dealers that have established mutual fund programs and certain other
organizations connected with pension and retirement plans. These broker-dealers
and other organizations may charge investors a transaction or other fee for
their services, may require different minimum initial and subsequent investments
than the Funds and may impose other charges or restrictions different from those
applicable to investors who invest in the Funds directly. Fees charged by these
organizations will have the effect of reducing an investor's total return on an
investment in Fund shares. No such charge will apply to an investor who
purchases Fund shares directly from a Fund as described here.
Procedures for purchasing, selling (redeeming) and exchanging
Fund shares by telephone and on-line are described in the Prospectus. The Funds
may terminate or modify those procedures and related requirements at any time.
BFG may, at its own risk, waive certain of those procedures and related
requirements.
The Fund also offers a Systematic Investment Plan (minimum
$50 per month) and a Systematic Withdrawal Plan (minimum of $50 withdrawn
monthly, quarterly, semiannually or annually). Forms for these plans may be
obtained online at bergerfunds.com or by calling 1-800-551-5849.
8. HOW THE NET ASSET VALUE IS DETERMINED
The net asset value of the Fund is determined once daily, at
the close of the regular trading session of the Exchange (normally 4:00 p.m.,
Eastern time, Monday through Friday) each day that the Exchange is open. The
Exchange is closed and the net asset value of the Fund is not determined on
weekends and on New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day each year. The per share net asset value of the Fund is determined
by dividing the total value of its assets, less liabilities, by the total number
of shares outstanding. Since the Fund invests all of its investable assets in
the Portfolio, the value of the Fund's investable assets will be equal to the
value of its beneficial interest in the Portfolio.
The Portfolio's securities and other assets are valued as
follows: securities listed or traded primarily on national exchanges, The Nasdaq
Stock Market and foreign exchanges are valued at the last sale price on such
markets, or, if such a price is lacking for the trading period immediately
preceding the time of determination, such securities are valued at the mean of
their current bid and asked prices. Securities that are traded in the
over-the-counter market are valued at the mean between their current bid and
asked prices. The market value of individual securities held by the Portfolio
will be determined by using prices provided by pricing services that provide
market prices to other mutual funds or, as needed, by obtaining market
quotations from independent broker/dealers. Short-term money market securities
maturing within 60 days are valued on the amortized cost basis, which
approximates market value. All assets and liabilities initially expressed in
terms of non-U.S. dollar currencies are translated into U.S. dollars at the
prevailing market rates as quoted by one or more banks or dealers shortly before
the close of the Exchange. Securities and assets for which quotations are not
readily available or are not representative of market value may be valued at
fair values determined in good faith pursuant to consistently applied procedures
established by the trustees. Examples would be when events occur that materially
affect the value of a security at a time when the security is not trading or
when the securities are illiquid.
Generally, trading in foreign securities markets is
substantially completed each day at various times prior to the close of the
Exchange. The values of foreign securities used in computing the net asset value
of the shares
-23-
of the Portfolio are determined as of the earlier of such market close or the
closing time of the Exchange. Occasionally, events affecting the value of such
securities may occur between the times at which they are determined and the
close of the Exchange, or when the foreign market on which such securities trade
is closed but the Exchange is open, which will not be reflected in the
computation of net asset value. If during such periods, events occur that
materially affect the value of such securities, the securities may be valued at
their fair value as determined in good faith pursuant to consistently applied
procedures established by the trustees.
The Portfolio's securities may be listed primarily on foreign
exchanges or over-the-counter dealer markets that may trade on days when the
Exchange is closed (such as a customary U.S. holiday) and on which the Fund's
net asset value is not calculated. As a result, the net asset value of the Fund
may be significantly affected by such trading on days when investors cannot
purchase or redeem shares of the Fund.
9. INCOME DIVIDENDS, CAPITAL GAINS, DISTRIBUTIONS AND TAX
TREATMENT
This discussion summarizes certain federal income tax issues
relating to the Fund and the Portfolio. As a summary, it is not an exhaustive
discussion of all possible tax ramifications. Accordingly, investors are urged
to consult with their tax advisers with respect to their particular tax
consequences.
TAX STATUS OF THE FUND AND THE PORTFOLIO. If the Fund meets
certain investment and distribution requirements, it will be treated as a
"regulated investment company" (a "RIC") under the Internal Revenue Code and
will not be subject to federal income tax on earnings that it distributes in a
timely manner to investors. It may be subject to an excise tax on undistributed
income if it does not meet certain timing requirements for distributions. The
Fund intends to qualify as a RIC annually and to make timely distributions in
order to avoid income and excise tax liabilities.
The Trust anticipates that (a) the Portfolio will be treated
for federal income tax purposes as a partnership, and (b) for purposes of
determining whether the Fund satisfies the income and diversification
requirements to maintain its status as a RIC, the Fund, as an investor in the
Portfolio, will be deemed to own an allocable share of the Portfolio's assets
and will be deemed to be entitled to the Portfolio's income or loss attributable
to that share. The Portfolio has advised the Fund that it intends to conduct its
operations so as to enable its investors, including the Fund, to satisfy those
requirements.
TAX ON FUND DISTRIBUTIONS. With certain exceptions provided by
law, the Fund will report annually to the Internal Revenue Service, and to each
investor, information about the tax treatment of the investor's distributions.
Dividends paid by the Fund, whether received in cash or reinvested in additional
Fund shares, will be treated as ordinary income to the investors. Distributions
of net capital gain, whether received in cash or reinvested in Fund shares, will
be taxable to the investors, but the rate of tax will vary depending upon the
Fund's holding periods in the assets whose sale resulted in the capital gain.
Dividends and distributions that are declared in October, November or December
but not distributed until the following January will be considered to be
received by the investors on December 31.
In general, net capital gains from assets held by the Fund for
more than 12 months will be subject to the applicable long-term capital gains
rates and net capital gains from assets held for 12 months or less will be taxed
as ordinary income. Distributions will be subject to these capital gains rates,
regardless of how long an investor has held Fund shares.
If the Fund's distributions for a taxable year exceeds its tax
earnings and profits available for distribution, all or a portion of its
distributions may be treated as a return of capital. To the extent a
distribution is treated as a return of capital, an investor's basis in his or
her Fund shares will be reduced by that amount.
Under the Internal Revenue Code, gains recognized by the
Portfolio upon a disposition of assets contributed in-kind to it by the Fund
will be specially allocated to the Fund and not to other investors in the
Portfolio to the extent of the unrealized appreciation in those assets at the
time of their transfer. As a result, investors of the Fund may receive
distributions of a greater amount of gains than if the Portfolio had purchased
those assets in the open market upon commencement of Fund operations or in a
transaction that did not involve contributions of assets in-kind.
-24-
If a investor has elected to receive dividends and/or capital
gain distributions in cash and the U.S. Postal Service is unable to deliver
checks to the investor's address of record or if a investor's checks remain
uncashed for six months, the Fund reserves the right to reinvest the amount
distributed in shares of the applicable Fund at the NAV next computed after the
check is canceled, and to convert the investor's distribution option from
receiving cash to having all dividend and other distributions reinvested in
additional shares. In addition, no interest will accrue on amounts represented
by uncashed distribution or redemption checks.
Additionally, the Funds reserve the right to reinvest
distributions of less than $10 in shares of the applicable Fund at the next
computed NAV.
TAX ON REDEMPTIONS OF FUND SHARES. Investors may be subject to
tax on the redemption of their Fund shares. In general, redemptions may give
rise to a capital gain or loss, the treatment of which will depend on the
investor's holding period in the Fund shares. Tax laws may prevent the deduction
of a loss on the sale of Fund shares if the investor reinvests in the Fund
shortly before or after the sale giving rise to the loss. Any loss on the
redemption or other sale or exchange of Fund shares held for six months or less
will be treated as a long-term capital loss to the extent of any long-term
capital gain distribution received on the shares.
INCOME FROM FOREIGN SOURCES. Dividends and interest received
by the Fund on foreign securities may give rise to withholding and other taxes
imposed by foreign countries, although these taxes may be reduced by applicable
tax treaties. Foreign taxes will generally be treated as expenses of the Fund,
unless the Fund has more than 50% of its assets invested in foreign corporate
securities at the end of the Fund's taxable year. In that case, if the Fund
makes an election, investors of the Fund may be able to deduct (as an itemized
deduction) or claim a foreign tax credit for their share of foreign taxes,
subject to limitations prescribed in the tax law.
If the Portfolio invests in a foreign corporation that is a
passive foreign investment company (a "PFIC"), special rules apply that may
affect the tax treatment of gains from the sale of the stock and may cause the
Portfolio to incur tax and IRS interest charges. However, the Portfolio may be
eligible to elect one of two alternative tax treatments with respect to PFIC
shares that would avoid these taxes and charges, but also may affect, among
other things, the amount and character of gain or loss and the timing of the
recognition of income with respect to PFIC shares. Accordingly, the amounts,
character and timing of income distributed to investors of the Portfolio holding
PFIC shares may differ substantially as compared to a fund that did not invest
in PFIC shares.
INCOME FROM CERTAIN TRANSACTIONS. Some or all of the
Portfolio's investments may include transactions that are subject to special tax
rules. Gains or losses attributable to transactions in foreign currency may be
treated as ordinary income or loss. Investment in certain financial instruments,
such as options, futures contracts and forward contracts, may require annual
recognition of unrealized gains and losses. Transactions that are treated as
"straddles" may affect the character and/or timing of other gains and losses of
the Portfolio. If the Portfolio enters into a transaction (such as a "short sale
against the box") that reduces the risk of loss on an appreciated financial
position that it already holds, the entry into the transaction may constitute a
constructive sale and require immediate recognition of gain.
BACKUP WITHHOLDING. In general, if an investor is subject to
backup withholding, the Fund will be required to withhold federal income tax at
the applicable rate from distributions to that investor. These payments are
creditable against the investor's federal income tax liability.
FOREIGN INVESTORS. Foreign investors of the Fund generally
will be subject to the applicable U.S. withholding tax on dividends paid by the
Fund from ordinary income and short-term capital gain, although the rate may be
reduced by a tax treaty. If a foreign investor dies while owning Fund shares,
those shares may be subject to U.S. estate taxes.
TAX STATUS OF THE BERGER INTERNATIONAL PORTFOLIO. The Berger
International Portfolio, in which the Berger International fund invests all of
its investable assets, has in previous years been classified as a partnership
for U.S. federal income tax purposes, and it intends to retain that
classification. The Berger International Fund is treated for various federal tax
purposes as owning an allocable share of the Portfolio's assets and will be
allocated a share of the Portfolio's income, gain and loss.
-25-
10. SUSPENSION OF REDEMPTION RIGHTS
The Fund may not suspend the right of redemption, or postpone
the date of payment or satisfaction upon redemption of any redeemable shares for
more than seven days except for any period during which the New York Stock
Exchange is closed or the Securities and Exchange Commission determines that
trading on the Exchange is restricted or when there is an emergency as
determined by the Securities and Exchange Commission as a result of which it is
not reasonably practicable for the Portfolio to dispose of securities owned by
it or to determine the value of its net assets, or for such other period as the
Securities and Exchange Commission may by order permit for the protection of
investors of the Fund.
The Fund intends to redeem its shares only for cash, although
it retains the right to redeem its shares in-kind under unusual circumstances,
in order to protect the interests of the remaining investors, by the delivery of
securities selected from its assets at its discretion. The Fund is, however,
governed by Rule 18f-1 under the Investment Company Act of 1940 pursuant to
which the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net assets of the Fund during any 90-day period for any
one investor. For purposes of this threshold, each underlying account holder
whose shares are held of record in certain omnibus accounts is treated as one
investor. Should redemptions by any investor during any 90-day period exceed
such limitation, the Fund will have the option of redeeming the excess in cash
or in-kind. If shares are redeemed in-kind, the redeeming investor generally
will incur brokerage costs in converting the assets to cash. The redeeming
investor may have difficulty selling the securities and recovering the amount of
the redemption if the securities are illiquid. The method of valuing securities
used to make redemption in-kind will be the same as the method of valuing
portfolio securities described under Section 8.
11. TAX-SHELTERED RETIREMENT PLANS
The Funds offer several tax-qualified retirement plans for
individuals, businesses and non-profit organizations, including a Profit-Sharing
Plan, a Money Purchase Pension Plan, an Individual Retirement Account (IRA), a
Roth IRA, a Coverdell Education Savings Account (formerly the Education IRA) and
a 403(b) Custodial Account, a SEP-IRA or SIMPLE IRA for adoption by employers
and individuals who wish to participate in such Plans. For information on other
types of retirement plans offered by the Funds, please call 1-800-333-1001, or
write to the Berger Funds, c/o Berger Financial Group LLC, P.O. Box 5005,
Denver, CO 80217-5005.
PROFIT SHARING AND MONEY PURCHASE PENSION PLANS
Employers, self-employed individuals and partnerships may make
tax-deductible contributions to the tax-qualified retirement plans offered by
the Funds. All income and capital gains accumulated in the Plans are tax free
until withdrawn. The amounts that are deductible depend upon the type of Plan or
Plans adopted.
If you, as an employer, self-employed person or partnership,
adopt the Profit-Sharing Plan, you may vary the amount of your contributions
from year to year and may elect to make no contribution at all for some years.
If you adopt the Money Purchase Pension Plan, you must commit yourself to make a
contribution each year according to a formula in the Plan that is based upon
your employees' compensation or your earned income. By adopting both the Profit
Sharing and the Money Purchase Pension Plan, you can increase the amount of
contributions that you may deduct in any one year.
If you wish to purchase shares of any Fund in conjunction with
one or both of these tax-qualified plans, you may use an Internal Revenue
Service approved prototype Trust Agreement and Retirement Plan available from
the Funds. State Street serves as trustee of the Plan, for which it charges an
annual trustee's fee for each Fund or Cash Account Trust Money Portfolio
(discussed below) in which the participant's account is invested. Contributions
under the Plans are invested exclusively in shares of the Funds or the Cash
Account Trust Money Market Portfolios, which are then held by the trustee under
the terms of the Plans to create a retirement fund in accordance with the tax
code.
Distributions from the Profit Sharing and Money Purchase
Pension Plans generally may not be made
-26-
without penalty until the participant reaches age 59 1/2 and must begin no later
than April 1 of the calendar year following the year in which the participant
attains age 70 1/2. A participant who is not a 5% owner of the employer may
postpone such distributions to April 1 of the calendar year following the year
of retirement. This exception does not apply to distributions from an individual
retirement account (IRA). Except for required distributions after age 70 1/2,
periodic distributions over more than 10 years and the distribution of any
after-tax contributions, distributions are subject to 20% federal income tax
withholding unless those distributions are rolled directly to another qualified
plan or an IRA. Participants may not be able to receive distributions
immediately upon request because of certain requirements under federal tax law.
Since distributions that do not satisfy these requirements can result in adverse
tax consequences, consultation with an attorney or tax adviser regarding the
Plans is recommended. You should also consult with your tax adviser regarding
state tax law implications of participation in the Plans.
In order to receive the necessary materials to establish a
Profit Sharing or Money Purchase Pension Plan, please write to the Berger Funds,
c/o Berger Financial Group LLC, P.O. Box 5005, Denver, CO 80217-5005, or call
1-800-333-1001. Trustees for 401(k) or other existing plans interested in
utilizing Fund shares as an investment or investment alternative in their plans
should contact the Berger Funds at 1-800-333-1001.
INDIVIDUAL RETIREMENT ACCOUNT (IRA)
If you are an individual with compensation or earned income,
whether or not you are actively participating in an existing qualified
retirement plan, you may be able to provide for your own retirement by adopting
an IRA. The Economic Growth and Tax Relief Reconciliation Act of 2001 presents a
number of changes related to IRA's in general, including increases in
contribution limits. As an example, between 2002 and 2008, the individual limit
on annual contributions to traditional IRAs is scheduled to gradually rise from
$2,000 to $5,000. After 2008, the limits may be adjusted annually for inflation.
In addition, individuals aged 50 and older may be able to take advantage of new
"catch-up" contributions to IRAs. Catch-up contributions to traditional IRAs may
be tax deductible, depending on whether the individual meets certain income
restrictions. For information regarding how these changes may impact you, you
should consult a qualified tax or financial professional.
Generally, if neither you nor your spouse is an active
participant in an existing qualified retirement plan or if your income does not
exceed certain amounts, the amounts contributed to your IRA can be deducted for
federal income tax purposes whether or not your deductions are itemized. If you
or your spouse are covered by an existing qualified retirement plan, the
deductibility of your IRA contributions will be phased out for federal income
tax purposes if your income exceeds specified amounts, although the income level
at which your IRA contributions will no longer be deductible is higher if only
your spouse (but not you) is an active participant. However, whether your
contributions are deductible or not, the income and capital gains accumulated in
your IRA are not taxed until the account is distributed.
If you wish to create an IRA to invest in shares of any Fund,
you may use the Fund's IRA custodial agreement form, which is an adaptation of
the form provided by the Internal Revenue Service. Under the IRA custodial
agreement, State Street will serve as custodian for the Fund and for each Fund
or Cash Account Trust Money Market Portfolio in which the IRA is invested.
Distributions from an IRA generally may not be made without
penalty until you reach age 59 1/2 and must begin no later than April 1 of the
calendar year following the year in which you attain age 70 1/2. Since
distributions that do not satisfy these requirements can result in adverse tax
consequences, consultation with an attorney or tax adviser is recommended. You
should also consult with your tax adviser about state taxation of your account.
In order to receive the necessary materials to establish an
IRA account, please write to the Berger Funds, c/o Berger Financial Group LLC,
P.O. Box 5005, Denver, CO 80217-5005, or call 1-800-333-1001.
ROTH IRA
If you are an individual with compensation or earned income,
you may contribute to a Roth IRA, as long as your income does not exceed
specified income levels. A Roth IRA is similar in many respects to a traditional
IRA, as described above. The Economic Growth and Tax Relief Reconciliation Act
of 2001 presents a number of changes related to Roth IRAs, as well as
traditional IRAs. The maximum amount you may contribute to a Roth IRA is phased
out between specified income levels, and you may not make any contribution at
all to a Roth IRA if your
-27-
income exceeds the maximum income amount. Generally, you can make contributions
to a Roth IRA even after you reach age 70 1/2, and you are not required to take
distributions from a Roth IRA prior to your death. For information regarding how
these changes may impact you, you should consult a qualified tax or financial
professional.
Contributions to a Roth IRA are not deductible for federal
income tax purposes. However, the income and capital gains accumulated in a Roth
IRA are not taxed while held in the IRA, and distributions can be taken tax-free
if the Roth IRA has been established for a minimum of five years and the
distribution is after age 59-1/2, for a first-time home purchase, or upon death
or disability.
An individual with a modified adjusted gross income (AGI) of
$100,000 or less (single or joint filing status) may be eligible to roll his or
her existing IRA into a Roth IRA. However, the individual may have to pay taxes
on the fair market value of the existing IRA on the date of the rollover. Please
consult a qualified tax or financial professional concerning Roth IRA rollovers.
In order to receive the necessary materials to establish a
Roth IRA account, please write to the Berger Funds, c/o Berger Financial Group
LLC, P.O. Box 5005, Denver, CO 80217-5005, or call 1-800-333-1001.
COVERDELL EDUCATION SAVINGS ACCOUNT
A parent or legal guardian may open a Coverdell Education
Savings Account (formerly the Education IRA) as long as it is established on
behalf of a child who is less than 18 years of age at the time of contribution.
Contributions up to $2,000 may be made by anyone for the benefit of any one
student as long as the contributors' income does not exceed the specified income
levels. Like a Roth IRA, the maximum amount you may contribute to a Coverdell
Education Savings Account is phased out between specified income levels, and you
may not make any contribution at all to a Coverdell Education Savings Account if
your income exceeds the maximum income amount.
Contributions to a Coverdell Education Savings Account are not
deductible for federal income tax purposes, and any amount contributed to a
Coverdell Education Savings Account above the maximum of $2,000 for any one
student is considered "excess contribution", which is subject to an excise tax.
Withdrawals from a Coverdell Education Savings Account are tax
free if the amounts withdrawn are made to cover the cost of qualified education
expenses of a student who is attending an eligible educational institution, so
long as the amount withdrawn in a year does not exceed the qualified education
expenses for that year. If the withdrawal does not meet the tax-free
requirements, the portion of the account attributable to dividends or gains may
be subject to a withdrawal penalty. For more information on Coverdell Education
Savings Account withdrawals, please consult a qualified tax or financial
professional.
403(b) CUSTODIAL ACCOUNTS
If you are employed by a public school system or certain
federally tax-exempt private schools, colleges, universities, hospitals,
religious and charitable or other nonprofit organizations, you may establish a
403(b) Custodial Account. Your employer must participate in the establishment of
the account.
If your employer participates, it will automatically deduct
the amount you designate from your gross salary and contribute it to your 403(b)
Custodial Account. You should consult with a qualified tax or financial
professional regarding the amount you can contribute. There is a $50 minimum
investment in the 403(b) Custodial Account. Contributions made to the account
reduce the amount of your current income subject to federal income tax. Federal
income tax is not paid on your contribution until you begin making withdrawals.
In addition, all income and capital gains accumulated in the account are
tax-free until withdrawn.
Withdrawals from your 403(b) Custodial Agreement may begin as
soon as you reach age 59 1/2 and must begin no later than April 1 of the year
following the later of the calendar year in which you attain age 70 1/2 or the
calendar year in which you retire. Except for required distributions after age
70 1/2 and periodic distributions over more than 10 years, distributions are
subject to 20% federal income tax withholding unless those distributions are
rolled directly to another 403(b) account or annuity or an individual retirement
account (IRA). You may not be able to receive distributions immediately upon
request because of certain notice requirements under federal tax law. Since
distributions
-28-
that do not satisfy these requirements can result in adverse tax consequences,
consultation with an attorney or qualified tax or financial professional
regarding the 403(b) Custodial Account is recommended. You should also consult
with a qualified tax or financial professional about state taxation of your
account.
Individuals who wish to purchase shares of a Fund in
conjunction with a 403(b) Custodial Account may use a Custodian Account
Agreement and related forms available from the Funds. State Street serves as
custodian of the 403(b) Custodial Account and for each Fund or Cash Account
Trust Money Market Portfolio in which the participant's account is invested.
In order to receive the necessary materials to establish a
403(b) Custodial Account, please write to the Berger Funds, c/o Berger Financial
Group LLC, P.O. Box 5005, Denver, CO 80217-5005, or call 1-800-333-1001.
12. EXCHANGE PRIVILEGE AND SYSTEMATIC WITHDRAWAL PLAN
Any investor may exchange any or all of the investor's shares
in any of the Funds, subject to stated minimums, for shares of any of the other
available Berger Funds or for shares of the Money Market Portfolio, the
Government Securities Portfolio or the Tax-Exempt Portfolio of the Cash Account
Trust ("CAT Portfolios"), separately managed, unaffiliated money market funds,
without charge, after receiving a current prospectus of the other Fund or CAT
Portfolio. The exchange privilege with the CAT Portfolios does not constitute an
offering or recommendation of the shares of any such CAT Portfolio by any of the
Funds or BFG. BFG is compensated for administrative services it performs with
respect to the CAT Portfolios.
Exchanges into or out of the Funds are made at the net asset
value per share next determined after the exchange request is received. Each
exchange represents the sale of shares from one Fund and the purchase of shares
in another, which may produce a gain or loss for income tax purposes. As
described in the Prospectus, the Berger Information Technology Fund will deduct
a 1% exchange fee from an investor's exchange proceeds if the investor exchanges
out shares of that Fund held less than 6 months. This fee will not be charged to
reinvested dividends and capital gains, certain retirement plan accounts (such
as 401(k)s and 403(b)s) or in the case of redemptions resulting from the death
of the investor. These fees are paid to the Fund and are intended to discourage
investors from short-term trading of share of the Fund, and to offset the cost
to the Fund of excess brokerage and other costs incurred as a result of such
trading. If the investor has purchased shares on different days, shares held the
longest will be redeemed first for purposes of determining if a fee is
applicable. The Fund may modify, terminate or waive these fees at any time.
An exchange of shares may be made by written request, via
on-line access or simply by telephoning the Berger Funds at 1-800-551-5849. This
privilege may be terminated or amended by any of the Funds and is not available
in any state in which the shares of the Fund or CAT Portfolio being acquired in
the exchange are not eligible for sale. Investors automatically have telephone
and on-line privileges to authorize exchanges unless they specifically decline
this service in the account application or in writing.
An investor who owns shares of any of the Funds worth at least
$5,000 at the current net asset value may establish a Systematic Withdrawal
account from which a fixed sum will be paid to the investor at regular intervals
by the Fund in which the investor is invested.
To establish a Systematic Withdrawal account, the investor
deposits Fund shares with the Fund and appoints the Fund as agent to redeem
shares in the investor's account in order to make monthly, quarterly,
semi-annual or annual withdrawal payments to the investor of a fixed amount. The
minimum withdrawal payment is $50.00. These payments generally will be made on
the 25th day of the month.
Withdrawal payments are not yield or income on the investor's
investment, since portions of each payment will normally consist of a return of
the investor's investment. Depending on the size of the disbursements requested
and the fluctuation in value of the Fund's portfolio, redemptions for the
purpose of making such disbursements may reduce or even exhaust the investor's
account.
The investor may vary the amount or frequency of withdrawal
payments, temporarily discontinue them, or change the designated payee or
payee's address, by notifying the Fund. The investor may, of course, make
additional deposits of Fund shares in the investor's account at any time.
-29-
Since redemption of shares to make withdrawal payments is a
taxable event, each investor should consult a tax adviser concerning proper tax
treatment of the redemption.
13. PERFORMANCE INFORMATION
From time to time in advertisements, the Fund may discuss its
performance ratings as published by recognized mutual fund statistical services,
such as Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.,
Morningstar, Inc. or Value Line Investment Survey or by publications of general
interest such as The Wall Street Journal, Investor's Business Daily, Money,
Barron's, Financial World or Kiplinger's Personal Finance Magazine. In addition,
the Fund may compare its performance to that of recognized broad-based
securities market indices, including the Standard & Poor's 500 Stock Index, the
Dow Jones Industrial Average, the Wilshire 5000 Index, the Russell 2000 Stock
Index, Russell 1000 Growth Index, Russell Mid Cap Growth, Russell 2000 Growth
Index, Russell 3000 Growth Index, Russell 2000 Value Index, Russell Mid Cap
Value Index, the Standard & Poor's 400 Mid-Cap Index, the Standard & Poor's 600
Small Cap Index, Morgan Stanley Capital International EAFE (Europe, Australasia,
Far East) Index, the Dow Jones World Index, the Standard & Poor's/BARRA Value
Index, the Nasdaq Composite Index, the Nasdaq 100, the Lehman Brothers
Intermediate Term Government/Corporate Bond Index or the InformationWeek 100
Index, or more narrowly based or blended indices that reflect the market sectors
in which that Fund invests.
The total return of the Fund is calculated for any specified
period of time by assuming the purchase of shares of the Fund at the net asset
value at the beginning of the period. Each dividend or other distribution paid
by the Fund is assumed to have been reinvested at the net asset value on the
reinvestment date. The total number of shares then owned as a result of this
process is valued at the net asset value at the end of the period. The
percentage increase is determined by subtracting the initial value of the
investment from the ending value and dividing the remainder by the initial
value.
The Fund's total return reflects the Fund's performance over a
stated period of time. An average annual total return reflects the hypothetical
annually compounded return that would have produced the same total return if the
Fund's performance had been constant over the entire period. Total return
figures are based on the overall change in value of a hypothetical investment in
the Fund. Because average annual total returns for more than one year tend to
smooth out variations in the Fund's return, investors should recognize that such
figures are not the same as actual year-by-year results.
All performance figures for the Fund are based upon historical
results and do not assure future performance. The investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Quotations of average annual total return for the Fund will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund over periods of 1, 3, 5 and 10 years, or for
the life of the Fund, if shorter. These are the rates of return that would
equate the initial amount invested to the ending redeemable value. These rates
of return are calculated pursuant to the following formula:
n
P(1 + T) = ERV
Where P = a hypothetical initial payment of $1,000
T = the average annual total return
n = the number of years
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at the
beginning of the period).
All total return figures reflect the deduction of a
proportional share of Fund expenses on an annual basis, and assume that all
dividends and distributions are reinvested when paid.
-30-
The Portfolio commenced operations in October 1996, upon the
transfer to the Portfolio of assets held in a pooled trust (the "Pool")
maintained by Citizens Bank New Hampshire, for which BIAM has provided
day-to-day portfolio management as sub-adviser since the inception of the Pool.
At that time, BIAM's bank holding company parent indirectly owned a 23.5%
interest in the parent of Citizens Bank New Hampshire. The investment objective,
policies, limitations, guidelines and strategies of the Pool were materially
equivalent to those of the Fund and the Portfolio. Assets from the Pool were
transferred on October 11, 1996, to a separate "feeder" fund investing in the
Portfolio, which, in turn, transferred those assets to the Portfolio in exchange
for an interest in the Portfolio. As a result of this transaction, the
investment holdings in the Portfolio (in which the Fund invests all of its
investable assets) were the same as the investment holdings in the portfolio of
the Pool immediately prior to the transfer, except for the seed capital provided
by BFG.
The Pool was not a registered investment company since it was
exempt from registration under the Investment Company Act of 1940. Since, in a
practical sense, the Pool constitutes the "predecessor" of the Portfolio, the
Fund calculates its performance for periods commencing prior to the transfer of
the Pool's assets to the Portfolio by including the Pool's total return,
adjusted at the time of the transfer to reflect any anticipated increase in fees
and expenses for the Fund (that is, adjusted to reflect any anticipated increase
in expenses, including the Fund's pro rata share of the aggregate annual
operating expenses, net of fee waivers, of the Portfolio in which all of the
investable assets of the Fund are invested).
For the 1-year, 3-year, 5-year and 10-year periods ended
September 30, 2001, and for the period from July 31, 1989 (inception of the
Pool) through September 30, 2001, the average annual total returns for the Fund
were (28.43)%, 0.51%, 1.46%, 7.53% and 8.15%, respectively.
14. ADDITIONAL INFORMATION
BERGER WORLDWIDE FUNDS TRUST AND THE FUND
The Trust is a Delaware business trust organized on May 31,
1996, under the name Berger/BIAM Worldwide Funds Trust. In May 2000, the Trust
changed its name to Berger Worldwide Funds Trust. The Berger International Fund
was established on May 31, 1996, as a series of the Trust. The Fund was
originally named the Berger/BIAM International Fund and changed its name in May
2000 to the Berger International Fund.
The Trust is authorized to issue an unlimited number of shares
of beneficial interest in series or portfolios. Currently, the series comprising
the Fund is one of three series established under the Trust, although others may
be added in the future. The Trust is also authorized to establish multiple
classes of shares representing differing interests in an existing or new series.
Shares of the Fund are fully paid and non-assessable when issued. Each share has
a par value of $.01. All shares issued by the Fund participate equally in
dividends and other distributions by the Fund, and in the residual assets of the
Fund in the event of its liquidation.
Each investor in the Portfolio, including the Fund, is
entitled to a vote in proportion to the amount of its investment in the
Portfolio. Whenever the Fund is requested to vote as an investor in the
Portfolio on matters pertaining to the Portfolio (other than a vote by the Fund
to continue the operation of the Portfolio upon the withdrawal of another
investor in the Portfolio), the Fund will hold a meeting of its investors and
will cast all of its votes as an investor in the Portfolio in the same
proportion as directed by the votes of the Fund's investors. Fund investors who
do not vote will not affect the votes cast by the Fund at the meeting of the
Portfolio investors. The percentage of the votes representing the Fund's
investors who do not vote will be voted by the Fund in the same proportion as
the Fund's investors who do, in fact, vote.
Under Delaware law, investors of the Trust will enjoy the same
limitations on personal liability as extended to stockholders of a Delaware
corporation. Further, the Trust Instrument of the Trust provides that no
investor shall be personally liable for the debts, liabilities, obligations and
expenses incurred by, contracted for or otherwise existing with respect to, the
Trust or any particular series (fund) of the Trust. However, the principles of
law governing the limitations of liability of beneficiaries of a business trust
have not been authoritatively established as to business trusts organized under
the laws of one jurisdiction but operating or owning property in other
jurisdictions. In states that have adopted legislation containing provisions
comparable to the Delaware Business Trust Act, it is believed that the
-31-
limitation of liability of beneficial owners provided by Delaware law should be
respected. In those jurisdictions that have not adopted similar legislative
provisions, it is possible that a court might hold that the investors of the
Trust are not entitled to the limitations of liability set forth in Delaware law
or the Trust Instrument and, accordingly, that they may be personally liable for
the obligations of the Trust.
In order to protect investors from such potential liability,
the Trust Instrument requires that every written obligation of the Trust or any
series thereof contain a statement to the effect that such obligation may only
be enforced against the assets of the Trust or such series. The Trust Instrument
also provides for indemnification from the assets of the relevant series for all
losses and expenses incurred by any investor by reason of being or having been a
investor, and that the Trust shall, upon request, assume the defense of any such
claim made against such investor for any act or obligation of the relevant
series and satisfy any judgment thereon from the assets of that series.
As a result, the risk of a Berger International Fund investor
incurring financial loss on account of investor liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
The Trust believes that, in view of the above, the risk of personal liability to
investors of the Fund is remote. The trustees intend to conduct the operations
of the Trust and the Fund so as to avoid, to the extent possible, liability of
investors for liabilities of the Trust or the Fund.
BERGER WORLDWIDE PORTFOLIOS TRUST AND THE PORTFOLIO
Worldwide Portfolios is also a Delaware business trust
organized on May 31, 1996. The Portfolio was established on May 31, 1996, as a
series of Worldwide Portfolios. The Portfolio commenced operations upon the
transfer to the Portfolio of assets held in a pooled trust. See Section
13-Performance Information for additional information on the asset transfer.
Worldwide Portfolios is authorized to sell unlimited interests
in series or portfolios. Currently, the series comprising the Portfolio is the
only series established under Worldwide Portfolios, although others may be added
in the future. The Delaware law information set forth above with respect to the
Trust also applies to Worldwide Portfolios and investors in the Portfolio. Each
investor in the Portfolio, including the Fund, is entitled to a vote in
proportion to the amount of its investment in the Portfolio.
CORPORATE GOVERNANCE AND OTHER INFORMATION
The Fund is not required to hold annual investor meetings
unless required by the Investment Company Act of 1940 or other applicable law or
unless called by the trustees. If investors owning at least 10% of the
outstanding shares of the Trust so request, a special investor meeting of the
Trust will be held for the purpose of considering the removal of a trustee.
Special meetings will be held for other purposes if the holders of at least 25%
of the outstanding shares of the Trust so request. Subject to certain
limitations, the Trust will facilitate appropriate communications by investors
desiring to call a special meeting for the purpose of considering the removal of
a trustee.
Investors of the Fund and, when applicable, the other series
of the Trust, generally vote separately on matters relating to those respective
series, although they vote together and with the holders of any other series of
the Trust in the election of trustees of the Trust and on all matters relating
to the Trust as a whole. Each full share of the Fund has one vote.
Shares of the Fund have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election of
trustees can elect 100% of the trustees if they choose to do so, and, in such
event, the holders of the remaining less than 50% of the shares voting for the
election of trustees will not be able to elect any person or persons as
trustees.
Shares of the Fund have no preemptive rights. There are no
sinking funds or arrearage provisions that may affect the rights of the Fund
shares. Fund shares have no subscription rights or conversion rights. Shares of
the Fund may be transferred by endorsement, or other customary methods, but the
Fund is not bound to recognize any transfer until it is recorded on its books.
-32-
Under governing corporate law, the Fund may enter into a
variety of corporate transactions, such as reorganizations, conversions, mergers
and asset transfers, or may be liquidated. Any such transaction would be subject
to a determination from the trustees that the transaction was in the best
interests of the Fund and its investors, and may require obtaining investor
approval.
MORE INFORMATION ON SPECIAL FUND STRUCTURE
MASTER/FEEDER. Unlike other mutual funds that directly acquire
and manage their own portfolios of securities, the Fund (referred to as a feeder
fund) seeks to achieve its investment objective by investing all of its
investable assets in the Berger International Portfolio (referred to as a master
fund). This two-tier structure is commonly known as a master/feeder. The Fund
has the same investment objective and policies as the Portfolio. The Fund will
invest only in the Portfolio, and the Fund's investors will therefore acquire
only an indirect interest in the investments of the Portfolio.
In addition to selling a beneficial interest to the Fund, the
Portfolio may sell beneficial interests to other mutual funds or institutional
investors (that is, other feeder funds). Such investors will invest in the
Portfolio on the same terms and conditions and will pay their proportionate
share of the Portfolio's expenses. However, the other investors investing in the
Portfolio are not required to issue their shares at the same public offering
price as the Fund due to potential differences in expense structures.
Accordingly, investors in the Fund should be aware that these differences might
result in differences in returns experienced by investors in the different funds
that invest in the Portfolio. Such differences in returns are common in this
type of mutual fund structure and are also present in other mutual fund
structures. Currently, there are two other feeder funds that also invest all of
their investable assets in the Portfolio: the International Equity Fund
(designed for eligible trusts or bank trust departments) which has a minimum
balance requirement of $1,000,000, and the Berger International CORE Fund, which
has a minimum balance requirement of $250,000.
The investment objective of the Fund may not be changed
without the approval of the Fund's investors. The investment objective of the
Portfolio may not be changed without the approval of the investors in the
Portfolio, including the Fund. If the objective of the Portfolio changes and the
investors of the Fund do not approve a parallel change in the Fund's investment
objective, the trustees of the Trust will consider other alternatives, including
seeking an alternative investment vehicle or directly retaining the Fund's own
investment adviser.
Smaller funds investing in the Portfolio may be materially
affected by the actions of larger funds investing in the Portfolio. For example,
if a larger fund invests or withdraws from the Portfolio, the remaining funds
may experience lower or higher pro rata operating expenses. Lower returns could
possibly result from a large withdrawal. However, this possibility also exists
for traditionally structured funds that have large or institutional investors.
Also, a fund with a greater pro rata ownership in the Portfolio could have
effective voting control over the operations of the Portfolio.
Whenever the Fund is requested to vote as an investor in the
Portfolio on matters pertaining to the Portfolio (other than a vote by the Fund
to continue the operation of the Portfolio upon the withdrawal of another
investor in the Portfolio), the Fund will hold a meeting of its investors and
will cast all of its votes as an investor in the Portfolio in the same
proportion as directed by the votes of the Fund's investors. Fund investors who
do not vote will not affect the votes cast by the Fund at the meeting of the
Portfolio investors. The percentage of the votes representing the Fund's
investors who do not vote will be voted by the Fund in the same proportion as
the Fund's investors who do, in fact, vote.
The Fund may withdraw its investment in the Portfolio at any
time, if the trustees of the Trust determine that it is in the best interests of
the Fund to do so. Certain changes in the Portfolio's investment objective,
policies and limitations may require the Fund to withdraw its investment in the
Portfolio. Upon any such withdrawal, the trustees would consider what action
might be taken, including investing the Fund's assets in another pooled
investment entity having the same investment objective and policies as the Fund
or retaining an investment adviser to manage the Fund's assets in accordance
with the investment policies described above with respect to the Portfolio. Any
such withdrawal could result in a distribution in-kind of portfolio securities
(as opposed to a cash distribution) from the Portfolio. If
-33-
securities are distributed, the Fund could incur brokerage, tax or other charges
in converting the securities to cash. In addition, a distribution in-kind may
adversely affect the liquidity of the Fund.
The trustees of the Berger Worldwide Funds Trust and the
Berger Worldwide Portfolios Trust are the same individuals. A majority of the
trustees of each of those Trusts who are not "interested persons" (as defined in
the Investment Company Act of 1940) of either Trust have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are trustees of both Trusts, up
to and including creating a new board of trustees for one or the other of the
Trusts.
DISTRIBUTION
The Distributor is the principal underwriter of the Fund's
shares. The Distributor is a registered broker-dealer under the Securities
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc. The Distributor acts as the agent of the Fund in connection with
the sale of its shares in all states in which the shares are registered and in
which the Distributor is qualified as a broker-dealer. Janice M. Teague, Vice
President and Secretary of the Distributor, is also Vice President and Assistant
Secretary of the Fund. Brian Ferrie, Vice President and Chief Financial Officer
of the Distributor, is also Vice President of the Fund. Anthony Bosch, Vice
President and Chief Compliance Officer of the Distributor is also Vice President
of the Fund. Sue Vreeland, Assistant Secretary of the Distributor, is also
Secretary of the Fund.
The Trust, on behalf of the Fund, and the Distributor are
parties to a Distribution Agreement that continues through April 2002, and
thereafter from year to year if such continuation is specifically approved at
least annually by the trustees or by vote of a majority of the outstanding
shares of the Fund and in either case by vote of a majority of the trustees of
the Trust who are not "interested persons" (as that term is defined in the
Investment Company Act of 1940) of the Trust or the Distributor. The
Distribution Agreement is subject to termination by the Fund or the Distributor
on 60 days' prior written notice and terminates automatically in the event of
its assignment. Under the Distribution Agreement, the Distributor continuously
offers the Fund's shares and solicits orders to purchase Fund shares at net
asset value.
PRINCIPAL INVESTORS
Insofar as the management of the Fund is aware, as of December
31, 2001, no person owned, beneficially or of record, more than 5% of the
outstanding shares of the Fund, except for the following:
<Table>
<Caption>
OWNER PERCENTAGE OF THE FUND
- ----- ----------------------
Charles Schwab & Co., Inc. ("Schwab") 29.90%
101 Montgomery Street
San Francisco, CA 94104
National Investor Services Corporation 5.33%
55 Water Street, 32nd Flr
New York, NY 10041-0028
National Financial Svcs. Corporation ("Fidelity") 5.07%
200 Liberty St., Fl. 5
New York NY 10281-5500
</Table>
Any person owning more than 25% of the outstanding securities
of the Fund may be deemed to control it. Schwab is believed to hold its shares
of the Funds as nominees for the benefit of its clients.
In addition, the following investors own shares of other funds
(series) of the Trust constituting more than 5% of the total outstanding shares
of the Trust:
-34-
<Table>
<Caption>
OWNER PERCENTAGE OF THE TRUST
- ----- -----------------------
Charles Schwab & Co., Inc. 8.69%
101 Montgomery Street
San Francisco, CA 94104
Atlantic Trust Co. NA 6.37%
Nominee Account
100 Federal St., Fl. 37
Boston, MA 02110
Pell Rudman Trust Co. NA 10.67%
Nominee Account
100 Federal St., 37th Fl.
Boston, MA 02110
Allmerica Financial 7.36%
105 Rosemont Rd.
Westwood, MA 02090-2318
</Table>
OTHER INFORMATION
The Berger Worldwide Funds Trust has filed with the Securities
and Exchange Commission, Washington, D.C., a Registration Statement under the
Securities Act of 1933, as amended, with respect to the securities of the Berger
International Fund, of which this SAI is a part. If further information is
desired with respect to the Fund or its securities, reference is made to the
Registration Statement and the exhibits filed as a part thereof.
Davis Graham & Stubbs LLP, 1550 Seventeenth Street, Suite 500,
Denver, Colorado, has acted as counsel for the Trust and the Fund.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1670 Broadway, Suite 1000, Denver,
Colorado, acted as independent accountants for the Fund for the fiscal year
ended September 30, 2001. In that capacity, PricewaterhouseCoopers LLP audited
the financial statements of the Fund referenced below under "Financial
Information" and assisted the Fund in connection with the preparation of its
2000 tax return.
PricewaterhouseCoopers LLP has been appointed to act as
independent accountants for the Fund for the fiscal year ended September 30,
2002. In that capacity, PricewaterhouseCoopers LLP will audit the financial
statements of the Fund and assist the Fund in connection with the preparation of
its 2001 income tax return.
FINANCIAL INFORMATION
A copy of the Annual Report referenced below is enclosed with
a copy of this SAI. Additional copies of that Annual Report may be obtained upon
request without charge by calling the Fund at 1-800-259-2820.
Year-End Financial Statements
The following financial statements are incorporated herein by
reference from the Annual Report to Shareholders of the Fund dated September 30,
2001, in each case along with the Report of Independent Accountants thereon
dated November 7, 2001.
-35-
For the Berger International Fund:
Statement of Assets and Liabilities as of September 30, 2001
Statement of Operations for the Year Ended September 30, 2001
Statements of Changes in Net Assets for the Years Ended
September 30, 2001 and 2000 Notes to Financial Statements,
September 30, 2001
Financial Highlights for each of the periods indicated
For the Berger International Portfolio:
Schedule of Investments as of September 30, 2001
Statement of Assets and Liabilities as of September 30, 2001
Statement of Operations for the Year Ended September 30, 2001
Statements of Changes in Net Assets for the Years Ended
September 30, 2001 and 2000
Ratios/Supplementary Data for each of the periods indicated
Notes to Financial Statements, September 30, 2001
-36-
APPENDIX A
HIGH-YIELD/HIGH RISK CONVERTIBLE BONDS
The Portfolio may invest in convertible securities of any quality,
including unrated securities or securities rated below investment grade (Ba or
lower by Moody's, BB or lower by S&P). However, the Portfolio will not purchase
any security in default at the time of purchase. The Portfolio will not invest
more than 20% of the market value of its assets at the time of purchase in
convertible securities rated below investment grade.
Securities rated below investment grade are subject to greater risk
that adverse changes in the financial condition of their issuers, or in general
economic conditions or an unanticipated rise in interest rates, may impair the
ability of their issuers to make payments of interest and principal or
dividends. The market prices of lower grade securities are generally less
sensitive to interest rate changes than higher-rated investments, but more
sensitive to economic changes or individual corporate developments. Periods of
economic uncertainty and change can be expected to result in volatility of
prices of these securities. Lower rated securities may also have less liquid
markets than higher rated securities, and their liquidity as well as their value
may be adversely affected by poor economic conditions. Adverse publicity and
investor perceptions as well as new or proposed laws may also have a negative
impact on the market for high-yield/high-risk bonds. In the event of an
unanticipated default, the Portfolio will experience a reduction in its income
and could expect a decline in the market value of the securities affected. The
prices of these securities may be more volatile and the markets for them may be
less liquid than those for higher-rated securities.
Unrated securities, while not necessarily of lower quality than rated
securities, may not have as broad a market. Unrated securities will be included
in the Portfolio's percentage limits for investments rated below investment
grade, unless the Portfolio's sub-adviser deems such securities to be the
equivalent of investment grade. If securities purchased by the Portfolio are
downgraded following purchase or if other circumstances cause the Portfolio to
exceed its percentage limits on assets invested in securities rated below
investment grade, the trustees of the Portfolio, in consultation with the
Portfolio's sub-adviser, will determine what action, if any, is appropriate in
light of all relevant circumstances.
Relying in part on ratings assigned by credit agencies in making
investments will not protect the Portfolio from the risk that the securities
will decline in value, because credit ratings represent evaluations of the
safety of principal, dividend and/or interest payments and not the market values
of such securities. Moreover, such ratings may not be changed on a timely basis
to reflect subsequent events.
Although the market for high-yield debt securities has been in
existence for many years and from time to time has experienced economic
downturns, this market has involved a significant increase in the use of
high-yield debt securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not, therefore, provide an accurate
indication of future performance of the high-yield debt securities market,
particularly during periods of economic recession.
Expenses incurred in recovering an investment in a defaulted security
may adversely affect the Portfolio's net asset value. Moreover, the reduced
liquidity of the secondary market for such securities may adversely affect the
market price of, and the ability of the Portfolio to value, particular
securities at certain times, thereby making it difficult to make specific
valuation determinations.
CORPORATE BOND RATINGS
The ratings of fixed-income securities by Moody's and Standard & Poor's
are a generally accepted measurement of credit risk. However, they are subject
to certain limitations. Ratings are generally based upon historical events and
do not necessarily reflect the future. In addition, there is a period of time
between the issuance of a rating and the update of the rating, during which time
a published rating may be inaccurate.
-37-
KEY TO MOODY'S CORPORATE RATINGS
Aaa-Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa-Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than in Aaa securities.
A-Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present that suggest a susceptibility to impairment sometime in the future.
Baa-Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba-Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds of this class.
B-Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa-Bonds that are rated Caa are of poor standing. Such issues may be
in default, or there may be present elements of danger with respect to principal
or interest.
Ca-Bonds that are rated Ca represent obligations that are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds that are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic category.
KEY TO STANDARD & POOR'S CORPORATE RATINGS
AAA-Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
-38-
BBB-Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC AND C-Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation, and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are out-weighed by the large uncertainties or major risk exposures to adverse
conditions.
C1-The rating C1 is reserved for income bonds on which no interest is
being paid.
D-Debt rated D is in default, and payment of interest and/or repayment
of principal is in arrears.
PLUS (+) OR MINUS (-)-The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
-39-
September 30, 2002
Annual Report
[BERGER FUNDS LOGO]
BERGER GROWTH FUND
BERGER LARGE CAP GROWTH FUND
BERGER MID CAP GROWTH FUND
BERGER SMALL COMPANY GROWTH FUND
BERGER INFORMATION TECHNOLOGY FUND
BERGER INTERNATIONAL FUND
BERGER SMALL CAP VALUE FUND
BERGER SMALL CAP VALUE FUND II
BERGER MID CAP VALUE FUND
BERGER LARGE CAP VALUE FUND
BERGER BALANCED FUND
Berger Funds are presenting a combined Annual Report which includes Berger
Growth Fund, Berger Large Cap Growth Fund, Berger Mid Cap Growth Fund, Berger
Small Company Growth Fund, Berger Information Technology Fund, Berger
International Fund, Berger Small Cap Value Fund, Berger Small Cap Value Fund II,
Berger Mid Cap Value Fund, Berger Large Cap Value Fund, and Berger Balanced
Fund. This report reflects the financial position of each Fund at September 30,
2002 and the results of their operations and changes in their net assets and
financial highlights for the periods indicated, in a single document.
3
Berger Funds
TABLE OF CONTENTS
================================================================================
A Message To Our Shareholders ........................................ 4
BERGER FUNDS
Berger Growth Fund ................................................... 5
Berger Large Cap Growth Fund ......................................... 10
Berger Mid Cap Growth Fund ........................................... 14
Berger Small Company Growth Fund ..................................... 19
Berger Information Technology Fund ................................... 25
Berger International Fund ............................................ 29
Berger Small Cap Value Fund .......................................... 31
Berger Small Cap Value Fund II ....................................... 36
Berger Mid Cap Value Fund ............................................ 41
Berger Large Cap Value Fund .......................................... 46
Berger Balanced Fund ................................................. 49
FINANCIAL STATEMENTS AND NOTES
Statements Of Assets And Liabilities ................................. 52
Statements Of Operations ............................................. 54
Statements Of Changes In Net Assets .................................. 56
Berger International Fund Financial Statements ....................... 60
Berger Funds Notes To Financial Statements ........................... 62
Berger International Portfolio Financial Statements .................. 70
(to be read in conjunction with the Berger International Fund)
Berger International Portfolio Notes To Financial Statements ......... 75
FINANCIAL HIGHLIGHTS ................................................. 78
Report Of Independent Accountants .................................... 89
Other Matters (Unaudited) ............................................ 90
Fund Directors/Trustees And Officers (Unaudited) ..................... 91
This material must be preceded or accompanied by a prospectus for the Berger
Funds, which contains more complete information, including risks, fees and
expenses. Please read it carefully before you invest. Berger Distributors LLC
(11/02) www.berger.com
Berger Funds o September 30, 2002 Combined Annual Report
4
A MESSAGE TO OUR
SHAREHOLDERS
================================================================================
DEAR BERGER INVESTOR:
As I am sure you aware by now, Stilwell Financial Inc., the parent company of
Berger Financial Group, is in the process of consolidating all of its investment
advisory operations under Janus Capital Management. The Independent Trustees of
the Berger Funds are in the process of evaluating options for the future
management and servicing of the Berger Funds. We anticipate a decision by early
December and you will receive further information about their decision and the
proxy process by mail.
As we have told you in previous communications, we do not anticipate any change
in the investment manager of Berger Small Cap Value Fund, Berger Mid Cap Value
Fund or Berger Small Cap Value Fund II. This is still the outcome we expect and
this would be good news for our investors in these funds. The future of Berger
Large Cap Value Fund and the International portfolios is being deliberated along
with the future of the growth funds.
During the difficult markets of the past three years, the Berger team that
manages our growth products has produced abysmal results in spite of their hard
work to perform more competitively. We here at Berger are investors along with
you and know exactly how painful it is to open a Berger growth fund statement.
Based upon these results, I believe the transition of these products to a new
manager will be a positive event for our investors.
We will remain in touch with you regarding the Trustees' decision and the next
steps. In the meantime, Berger Financial Group LLC will continue to provide
investment advisory and administrative services to the Berger Funds until the
completion of the transaction.
We appreciate your continued patience.
Sincerely,
/s/ JACK R. THOMPSON
Jack R.Thompson
President
This material must be preceded or accompanied by a prospectus for Berger Funds
that contains more complete information including risks, fees and expenses.
Please read it carefully before you invest. Berger Distributors LLC (11/02)
Berger Funds o September 30, 2002 Combined Annual Report
5
Berger Funds
Ticker Symbol BEONX
BERGER Fund Number 43
GROWTH FUND PORTFOLIO MANAGER COMMENTARY JAY W.TRACEY, CFA
STEVEN L. FOSSEL, CFA
================================================================================
MARKET CONDITIONS
After reaching a peak in March of 2000, U.S. stocks have been locked in the
grips of one of the worst bear markets on record. The current bear market in the
United States has now exceeded in both time and severity the 1973/74 bear
market, and has become nearly as long--and as ugly--as 1929-32. It began in 2000
when an overheated economy started to run out of gas. It continued as the
recession of 2001 unfolded and collapsed in the aftermath of the 9/11 terrorist
attacks. Investors saw some relief in December of 2001, when the market rallied
as the news of the economy improved. Despite this positive news, the bear market
resumed early in 2002 as the Enron debacle and many other corporate scandals and
bankruptcies brought about a new crisis of confidence. The market crisis
worsened through the third quarter of 2002 as tensions in the Middle East, the
prospect of war with Iraq, and concerns about a possible slump back into
recession further undermined what little investor confidence was left.
FUND PERFORMANCE
The Berger Growth Fund (the "Fund") declined in value by 28.34% during the
fiscal year, compared with a 22.22% decline posted by its benchmark, the Russell
3000 Growth Index.(1) Clearly, these results have been very disappointing. The
effort we made during the past year to lower the Fund's risk profile did succeed
in reducing the extent of the Fund's underperformance on the downside, compared
with the previous year, but we remain unsatisfied nevertheless.
By mid-year 2002, many technology companies, including some in the Fund's
portfolio, had announced surprising weaknesses in their businesses and little
hope for improvement in the foreseeable future, which resulted in significant
declines in their stock prices. Enterprise software vendors such as VeriSign and
Advent Software hurt performance when their stock prices collapsed in the wake
of negative earnings news and diminished outlooks. Both stocks were sold, but
regrettably, not before they caused significant damage to relative performance.
The Fund's performance also suffered from some of its holdings in financial
services. Concord EFS, which has a track record of consistent growth,
experienced a significant decline in its stock price when the company guided
earnings estimates down for this year and next. As one of the Fund's larger
holdings, that decline hurt relative performance, and the stock was sold.
Concerns about deteriorating credit quality and slowing growth drove Americredit
Corp.'s stock price down. The Fund's position was sold immediately following the
company's announcement that it would seek additional equity capital, but again,
not before the decline had a negative impact on relative performance.
The Fund's single-most important disappointment was Tyco International Corp. A
large position going into 2002, the stock began to decline in the wake of the
Enron debacle as a result of allegations of improper accounting and its
relatively large debt load, a decline that had a negative impact on Fund
performance. Because of the company's long record of success and its positive
cash flow characteristics, we continued to hold the Fund's position. However,
after Tyco's CEO was indicted for tax evasion, raising serious management and
corporate governance issues, the position was sold.
The Fund's largest sector, healthcare, made a positive contribution to relative
performance during the fiscal year. This was largely a result of gains in
healthcare services. Hospitals, HMOs and distributors were generally good
performers. The Fund did particularly well with Tenet Healthcare Corp., a
leading operator of hospitals and related facilities, Wellpoint Health Networks,
a major managed-care company, and AmerisourceBergen Corp., the nation's largest
distributor of pharmaceuticals. However, the Fund's investments in biotechnology
and pharmaceuticals companies had a negative impact on performance. Amgen,
Abgenix and King Pharmaceuticals are examples of Fund holdings that suffered
significant price declines during the year. The Fund maintained an overweighted
position in the healthcare sector, but over the course of the year, we
decreased the Fund's positions in the drug and biotechnology industries and
increased its services holdings.
The Fund posted mixed results in the consumer sector. Thanks to strong operating
trends, the Fund's holdings in education services, including Corinthian Colleges
and Education Management; restaurants, including P.F. Chang's China Bistro and
Brinker International; and consumer electronics, including Take-Two Interactive
Software and Electronic Arts, contributed positively to performance. Positive
results in retail were tougher to come by. The Fund's position in Bed Bath and
Beyond, for example, did well, but Best Buy did not.
OUTLOOK
It is difficult to imagine a period of greater uncertainty than we have
experienced in the past few months. However, despite the many challenges we
face, we believe our nation will ultimately prevail. We believe that the economy
is on the bumpy road to recovery, that corporate profits will respond positively
to that recovery, and that corporations are taking the necessary steps to
restore accountability and investor confidence. In the meantime, we will
continue to seek out and invest in those companies that are succeeding in this
tough environment and that we believe are now or will be leaders in the growth
markets of the future.
Berger Funds o September 30, 2002 Combined Annual Report
6
PERFORMANCE OVERVIEW
================================================================================
BERGER GROWTH FUND - GROWTH OF $10,000
[GRAPH]
Berger Growth Fund $12,165
Russell 3000 Growth Index $18,486
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2002
One Year (28.34)%
Five Year (11.39)%
Ten Year 1.98%
(1) The Russell 3000(R) Growth Index measures the performance of those Russell
3000(R) Index companies with higher price-to-book ratios and higher forecasted
growth values. The stocks in this index are also members of either the Russell
1000(R) Growth or the Russell 2000(R) Growth Index. The Index is unmanaged and
includes reinvestment of dividends and capital gains, but does not reflect
management fees, trading costs and other expenses. Investors cannot actually
make investments in the Index.
OPINIONS AND FORECASTS REGARDING SECTORS, INDUSTRIES, COMPANIES AND/OR THEMES
ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET CONDITIONS AND SHOULD NOT BE
CONSTRUED AS A RECOMMENDATION OF ANY SPECIFIC SECURITY. PORTFOLIO HOLDINGS AND
COMPOSITION ARE SUBJECT TO CHANGE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment returns and
principal value will fluctuate, and you may have a gain or loss when you sell
shares. Performance information provided in this report does not reflect the
deduction of taxes shareholders may pay on Fund distributions or the redemption
of Fund shares. Due to market volatility, the Fund's current performance may be
lower than the figures shown. Please visit our web site at www.berger.com for
more current performance information.
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (96.43%)
Auto/Truck - Original Equipment (0.28%)
27,150 Superior Industries
International, Inc. $ 1,278,222
- --------------------------------------------------------------------------------
Banks - Northeast (0.35%)
91,400 Staten Islands BanCorp., Inc. 1,590,360
- --------------------------------------------------------------------------------
Banks - Southeast (0.23%)
27,161 First BanCorp. 1,035,377
- --------------------------------------------------------------------------------
Banks - West/Southwest (1.09%)
66,755 Southwest Bancorp. of Texas, Inc.* 2,430,550
63,590 UCBH Holdings, Inc. 2,502,266
- --------------------------------------------------------------------------------
4,932,816
- --------------------------------------------------------------------------------
Building - Construction Products/Miscellaneous (0.25%)
58,197 Masco Corp. 1,137,751
- --------------------------------------------------------------------------------
Building - Mobile/Manufactured/RV (0.55%)
36,165 Thor Industries, Inc. 1,257,095
31,414 Winnebago Industries, Inc. 1,241,796
- --------------------------------------------------------------------------------
2,498,891
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (96.43%) - CONTINUED
Building - Residential/Commercial (1.17%)
36,400 Hovnanian Enterprises, Inc. -
Class A* $ 1,230,320
48,781 Lennar Corp. 2,721,004
4,513 NVR, Inc.* 1,353,133
- --------------------------------------------------------------------------------
5,304,457
- --------------------------------------------------------------------------------
Commercial Services - Healthcare (0.51%)
74,122 Pediatrix Medical Group, Inc.* 2,297,041
- --------------------------------------------------------------------------------
Commercial Services - Miscellaneous (0.87%)
32,939 FTI Consulting, Inc.* 1,309,655
91,361 The Corporate Executive Board Co.* 2,608,356
- --------------------------------------------------------------------------------
3,918,011
- --------------------------------------------------------------------------------
Commercial Services - Schools (2.93%)
67,485 Apollo Group, Inc. - Class A* 2,930,873
105,966 Career Education Corp.* 5,087,216
69,786 Corinthian Colleges, Inc.* 2,633,724
139,551 ITT Educational Services, Inc.* 2,619,372
- --------------------------------------------------------------------------------
13,271,185
- --------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
7
Berger Berger Funds
Growth Fund
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (96.43%) - CONTINUED
Computer - Graphics (0.53%)
63,303 Synopsys, Inc.* $ 2,415,009
- --------------------------------------------------------------------------------
Computer - Manufacturers (2.27%)
438,250 Dell Computer Corp.* 10,303,258
- --------------------------------------------------------------------------------
Computer - Networking (2.23%)
963,117 Cisco Systems, Inc.* 10,093,466
- --------------------------------------------------------------------------------
Computer - Peripheral Equipment (0.65%)
62,174 Lexmark International, Inc.* 2,922,178
- --------------------------------------------------------------------------------
Computer - Services (0.77%)
81,489 Affiliated Computer Services, Inc. -
Class A* 3,467,357
- --------------------------------------------------------------------------------
Computer Software - Desktop (4.47%)
463,189 Microsoft Corp.* 20,236,727
- --------------------------------------------------------------------------------
Computer Software - Educational/Entertainment (2.79%)
84,840 Electronic Arts, Inc.* 5,596,046
159,081 Take-Two Interactive Software, Inc.* 4,613,349
117,796 THQ, Inc.* 2,450,157
- --------------------------------------------------------------------------------
12,659,552
- --------------------------------------------------------------------------------
Computer Software - Finance (1.32%)
92,701 Fair, Isaac, and Co., Inc. 3,031,323
151,047 Sungard Data Systems, Inc.* 2,937,864
- --------------------------------------------------------------------------------
5,969,187
- --------------------------------------------------------------------------------
Cosmetics/Personal Care (0.26%)
90,209 NBTY, Inc.* 1,170,913
- --------------------------------------------------------------------------------
Diversified Operations (5.73%)
51,446 3M Co. 5,657,517
64,400 Carlisle Companies, Inc. 2,362,192
711,162 General Electric Co. 17,530,143
15,105 The Manitowoc Co., Inc. 413,122
- --------------------------------------------------------------------------------
25,962,974
- --------------------------------------------------------------------------------
Electrical - Control Instruments (0.54%)
70,888 Roper Industries, Inc. 2,445,636
- --------------------------------------------------------------------------------
Electronics - Measuring Instruments (0.21%)
52,404 Itron, Inc.* 963,710
- --------------------------------------------------------------------------------
Electronics - Miscellaneous Products (0.49%)
76,400 AMETEK, Inc. 2,224,768
- --------------------------------------------------------------------------------
Electronics - Scientific Instruments (0.95%)
64,529 Flir Systems, Inc.* 2,248,836
75,041 Varian, Inc.* 2,071,882
- --------------------------------------------------------------------------------
4,320,718
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (96.43%) - CONTINUED
Electronics - Semiconductor Equipment (0.45%)
55,045 Cabot Microelectronics Corp.* $ 2,049,876
- --------------------------------------------------------------------------------
Electronics - Semiconductor Manufacturing (2.73%)
891,132 Intel Corp. 12,377,823
- --------------------------------------------------------------------------------
Finance - Consumer/Commercial Loans (0.69%)
89,729 Capital One Financial Corp. 3,133,337
- --------------------------------------------------------------------------------
Finance - Mortgage & Related Services (3.57%)
121,500 Doral Financial Corp. 2,933,010
183,250 Fannie Mae 10,910,705
99,681 New Century Financial Corp. 2,332,535
- --------------------------------------------------------------------------------
16,176,250
- --------------------------------------------------------------------------------
Finance - REIT (0.56%)
74,884 Chelsea Property Group, Inc. 2,527,335
- --------------------------------------------------------------------------------
Financial Services - Miscellaneous (1.36%)
105,031 Fiserv, Inc.* 2,949,271
76,347 H&R Block, Inc. 3,207,337
- --------------------------------------------------------------------------------
6,156,608
- --------------------------------------------------------------------------------
Household - Appliances (0.56%)
108,739 Maytag Corp. 2,520,570
- --------------------------------------------------------------------------------
Insurance - Brokers (1.22%)
104,372 Brown & Brown, Inc. 3,131,160
58,243 Hilb, Rogal & Hamilton Co. 2,402,524
- --------------------------------------------------------------------------------
5,533,684
- --------------------------------------------------------------------------------
Internet - Content (0.59%)
113,851 Overture Services, Inc.* 2,683,468
- --------------------------------------------------------------------------------
Internet - E*Commerce (0.67%)
57,851 eBay, Inc.* 3,055,111
- --------------------------------------------------------------------------------
Leisure - Gaming/Equipment (1.67%)
62,176 Harrah's Entertainment, Inc.* 2,997,505
52,568 International Game Technology* 3,634,552
48,290 Multimedia Games, Inc.* 950,878
- --------------------------------------------------------------------------------
7,582,935
- --------------------------------------------------------------------------------
Leisure - Products (0.87%)
84,395 Harley-Davidson, Inc. 3,920,148
- --------------------------------------------------------------------------------
Leisure - Toys/Games/Hobby (0.55%)
96,835 Action Performance Companies, Inc.* 2,488,660
- --------------------------------------------------------------------------------
Machine - Tools & Related Products (0.50%)
101,524 Lincoln Electric Holdings, Inc. 2,268,046
- --------------------------------------------------------------------------------
Medical - Biomedical/Biotechnology (1.36%)
183,680 Gilead Sciences, Inc.* 6,158,790
- --------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
8
BERGER
GROWTH FUND
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (96.43%) - CONTINUED
Medical - Drug/Diversified (4.26%)
357,315 Johnson & Johnson $19,323,595
- --------------------------------------------------------------------------------
Medical - Ethical Drugs (5.91%)
61,908 Forest Laboratories, Inc.* 5,077,075
748,486 Pfizer, Inc. 21,721,064
- --------------------------------------------------------------------------------
26,798,139
- --------------------------------------------------------------------------------
Medical - Generic Drugs (1.36%)
59,310 Barr Laboratories, Inc.* 3,694,420
88,251 Pharmaceutical Resources, Inc.* 2,469,263
- --------------------------------------------------------------------------------
6,163,683
- --------------------------------------------------------------------------------
Medical - Health Maintenance Organizations (1.42%)
87,955 Wellpoint Health Networks, Inc.* 6,447,102
- --------------------------------------------------------------------------------
Medical - Hospitals (1.85%)
176,151 HCA, Inc. 8,386,549
- --------------------------------------------------------------------------------
Medical - Outpatient/Home Care (0.83%)
49,374 Amsurg Corp.* 1,489,614
95,900 Apria Healthcare Group, Inc.* 2,259,404
- --------------------------------------------------------------------------------
3,749,018
- --------------------------------------------------------------------------------
Medical - Products (2.23%)
51,920 Bio-Rad Laboratories, Inc.* 1,955,307
49,600 Mentor Corp. 1,581,248
74,300 Respironics, Inc.* 2,378,343
116,896 St. Jude Medical, Inc.* 4,173,187
- --------------------------------------------------------------------------------
10,088,085
- --------------------------------------------------------------------------------
Medical - Wholesale Drugs/Supplies (2.05%)
81,532 AmerisourceBergen Corp. 5,823,016
138,026 Priority Healthcare Corp. - Class B* 3,478,255
- --------------------------------------------------------------------------------
9,301,271
- --------------------------------------------------------------------------------
Medical/Dental - Services (1.72%)
134,806 Caremark Rx, Inc.* 2,291,702
118,600 Covance, Inc.* 2,321,002
58,713 Express Scripts, Inc. - Class A* 3,201,033
- --------------------------------------------------------------------------------
7,813,737
- --------------------------------------------------------------------------------
Medical/Dental - Supplies (0.58%)
50,001 The Cooper Companies, Inc. 2,625,053
- --------------------------------------------------------------------------------
Pollution Control - Equipment (0.63%)
93,500 Clarcor, Inc. 2,870,450
- --------------------------------------------------------------------------------
Pollution Control - Services (0.95%)
81,457 Stericycle, Inc.* 2,763,021
44,200 Waste Connections, Inc.* 1,537,718
- --------------------------------------------------------------------------------
4,300,739
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (96.43%) - CONTINUED
Retail - Apparel/Shoe (1.53%)
61,306 Abercrombie & Fitch Co. - Class A* $ 1,205,889
39,973 Christopher & Banks Corp.* 1,004,122
53,475 Pacific Sunwear of California, Inc.* 1,088,751
39,666 Ross Stores, Inc. 1,413,696
47,600 Too, Inc.* 1,108,128
46,598 Urban Outfitters, Inc.* 1,131,865
- --------------------------------------------------------------------------------
6,952,451
- --------------------------------------------------------------------------------
Retail - Department Stores (0.91%)
67,431 Kohls Corp.* 4,100,479
- --------------------------------------------------------------------------------
Retail - Discount & Variety (0.27%)
40,198 Fred's, Inc. 1,200,232
- --------------------------------------------------------------------------------
Retail - Home Furnishings (1.55%)
95,402 Bed Bath & Beyond, Inc.* 3,107,243
65,938 Linens `n Things, Inc.* 1,211,281
52,018 Rent-A-Center, Inc.* 2,702,335
- --------------------------------------------------------------------------------
7,020,859
- --------------------------------------------------------------------------------
Retail - Mail Order & Direct (0.24%)
61,376 J. Jill Group, Inc.* 1,069,170
- --------------------------------------------------------------------------------
Retail - Major Discount Chains (5.39%)
173,494 Target Corp. 5,121,543
392,028 Wal-Mart Stores, Inc. 19,303,459
- --------------------------------------------------------------------------------
24,425,002
- --------------------------------------------------------------------------------
Retail - Miscellaneous/Diversified (1.39%)
86,757 Movie Gallery, Inc. 1,302,223
89,485 Regis Corp. 2,531,531
142,720 Yankee Candle Co., Inc.* 2,450,502
- --------------------------------------------------------------------------------
6,284,256
- --------------------------------------------------------------------------------
Retail - Restaurants (2.47%)
111,106 California Pizza Kitchen, Inc.* 2,556,549
84,297 P.F. Chang's China Bistro, Inc.* 2,447,142
106,403 Sonic Corp.* 2,457,909
179,474 Starbucks Corp.* 3,716,907
- --------------------------------------------------------------------------------
11,178,507
- --------------------------------------------------------------------------------
Retail - Super/Mini Markets (1.58%)
322,270 Kroger Co.* 4,544,007
61,536 Whole Foods Market, Inc.* 2,636,202
- --------------------------------------------------------------------------------
7,180,209
- --------------------------------------------------------------------------------
Retail/Wholesale - Auto Parts (0.27%)
23,256 Advance Auto Parts, Inc.* 1,226,521
- --------------------------------------------------------------------------------
Retail/Wholesale - Building Products (2.82%)
262,249 Home Depot, Inc. 6,844,699
143,579 Lowe's Companies, Inc. 5,944,170
- --------------------------------------------------------------------------------
12,788,869
- --------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
9
Berger Funds
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (96.43%) - CONTINUED
Retail/Wholesale - Food (0.66%)
88,633 Performance Food Group Co.* $ 3,009,977
- --------------------------------------------------------------------------------
Retail/Wholesale - Office Supplies (0.64%)
228,081 Staples, Inc.* 2,917,156
- --------------------------------------------------------------------------------
Shoes & Related Apparel (0.35%)
78,100 Fossil, Inc.* 1,565,905
- --------------------------------------------------------------------------------
Telecommunications - Equipment (0.62%)
184,600 UTStarcom, Inc.* 2,818,842
- --------------------------------------------------------------------------------
Tobacco (1.92%)
223,830 Philip Morris Cos., Inc. 8,684,604
- --------------------------------------------------------------------------------
Transportation - Airlines (0.44%)
151,700 SkyWest, Inc. 1,987,270
- --------------------------------------------------------------------------------
Transportation - Truck (0.52%)
48,164 Landstar System, Inc.* 2,369,669
- --------------------------------------------------------------------------------
Trucks & Parts - Heavy Duty (0.28%)
22,781 Oshkosh Truck Corp. 1,284,848
- --------------------------------------------------------------------------------
Total Common Stock
(Cost $482,696,651) 436,984,452
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Par Value Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (7.72%)
$35,000,000 FHLB Discount Note;
1.83%, 10/01/02 $35,000,000
- --------------------------------------------------------------------------------
Total U.S. Government Agency Obligations
(Cost $35,000,000) 35,000,000
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (7.57%)
$34,284,000 State Street Repurchase Agreement,
1.88%, dated 9/30/02, due 10/1/02,
to be repurchased at $34,285,790# 34,284,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $34,284,000) 34,284,000
- --------------------------------------------------------------------------------
Total Investments (Cost $551,980,651) (111.72%) 506,268,452
Total Other Assets, Less Liabilities (-11.72%) (53,104,097)
- --------------------------------------------------------------------------------
Net Assets (100.00%) $453,164,355
- --------------------------------------------------------------------------------
* Non-income producing security
# - The repurchase agreement is fully collateralized by FHLB Agency Note with a
value of $34,970,376.
FHLB - Federal Home Loan Bank.
REIT - Real Estate Investment Trust.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
10
BERGER LARGE CAP
GROWTH FUND Ticker Symbol BEOOX
Fund Number 44
PORTFOLIO MANAGER COMMENTARY STEVEN L. FOSSEL, CFA
================================================================================
MARKET CONDITIONS
After reaching a peak in March of 2000, U.S. stocks have been locked in the
grips of one of the worst bear markets on record. The current bear market in the
United States has now exceeded in both time and severity the 1973/74 bear
market, and has become nearly as long--and as ugly--as 1929-32. It began in 2000
when an overheated economy started to run out of gas. It continued as the
recession of 2001 unfolded and collapsed in the aftermath of the 9/11 terrorist
attacks. Investors saw some relief in December of 2001, when the market rallied
as the news of the economy improved. Despite this positive news, the bear market
resumed early in 2002 as the Enron debacle and many other corporate scandals and
bankruptcies brought about a new crisis of confidence. The market crisis
worsened through the third quarter of 2002 as tensions in the Middle East, the
prospect of war with Iraq, and concerns about a possible slump back into
recession further undermined what little investor confidence was left.
FUND PERFORMANCE
Against this backdrop the Berger Large Cap Growth Fund (the "Fund") declined
28.78% compared with a 22.51% decline in its benchmark, the Russell 1000 Growth
Index.(1) Clearly, these results are very disappointing. We have reduced the
Fund's risk profile to some extent by reducing large sector bets but were still
hurt severely by individual stock selection. To this end, Tyco International was
the largest cause of this underperformance. We were late in selling the stock,
believing that its business was solid and the price was attractive, despite
accounting and liquidity questions. We were wrong, and after Tyco's CEO was
indicted for tax evasion, raising serious management and corporate governance
issues, the position was sold.
The technology sector was the worst-performing major sector in the market again
this year and severely hurt the Fund's performance. Capital spending in general
and technology spending in particular did not rebound with the improving
economy. This resulted in many stocks posting disappointing earnings results.
Software stocks performed very poorly as a result of a slump in technology
spending. VeriSign and Adobe were two of the Fund's worst-performing stocks in
this arena. Both stocks were sold after reporting poor results and large
declines. Semiconductor stocks including Analog Devices also hurt the Fund's
performance and were sold after reporting disappointing earnings. Some
technology companies, such as Fund holding Dell Computer Corp., are beginning to
experience improvement in their results. They are outperforming their
competitors, and we believe are well-positioned for the future.
Healthcare, the Fund's largest sector, was a bright spot this year. Healthcare
services companies performed particularly well for the Fund. Both hospitals and
managed-care companies had strong pricing momentum that resulted in
better-than-expected earnings growth. The Fund's position in Wellpoint Health
Networks, a leading managed-care company, and Tenet Healthcare Corp., a leading
hospital company, both contributed positively to performance this period. The
Fund also profited from its investment in Eli Lilly Corp., which was sold after
it reached our price target. The Fund continues to maintain an overweight
position in health-care services, in which we believe the underlying growth
fundamentals should remain very strong.
On the consumer front, results were mixed. Economically sensitive areas such as
retail weakened late in the year as investors questioned the sustainability of
strong consumer spending. Best Buy, a leading electronics retailer, and Home
Depot both hurt the Fund's performance as same-store sales slowed. More
defensive names with less economic sensitivity performed better this year.
Procter & Gamble Co., a new holding, performed well as both revenue and earnings
growth increased.
Financial stocks generally declined in line with the market.
Growth was difficult to come by as loan growth slowed and fee income was
pressured by the market's decline. Deteriorating credit quality was a problem
for many consumer finance companies, particularly credit card issuers. These
trends impacted Capital One Financial Corp., a once fast-growing card issuer,
resulting in a steep price decline. We sold the stock following this
decline. Fifth Third Bancorp. was able to buck these trends and continue to
perform well.
OUTLOOK
It is difficult to imagine a period of greater uncertainty than we have
experienced in the last year. In spite of the many challenges we face, we
believe our nation, its economy and its markets will ultimately prevail. We
believe the economy is on a bumpy road to recovery and that corporate profits
will respond positively to that recovery. We also believe corporations are
taking the necessary steps to restore accountability and investor confidence. In
the meantime, we will continue to seek out and invest in those companies that
are succeeding in this tough environment and that we believe are currently or
will be leaders in the growth markets of the future.
Berger Funds o September 30, 2002 Combined Annual Report
11
Berger Funds
PERFORMANCE OVERVIEW
================================================================================
BERGER LARGE CAP GROWTH FUND - GROWTH OF $10,000
[GRAPH]
9/30/02
Berger Large Cap Growth Fund $17,508
Russell 1000 Growth Index $19,101
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30,2002
One Year (28.78)%
Five Year (4.56)%
Ten Year 5.76%
(1) The Russell 1000(R) Growth Index measures the performance of those Russell
1000 companies with higher price-to-book ratios and higher forecasted growth
values. The Index is unmanaged and includes reinvestment of dividends and
capital gains, but does not reflect management fees, trading costs and other
expenses. Investors cannot actually make investments in the Index.
Opinions and forecasts regarding sectors, industries, companies and/or themes
are subject to change at any time based on market conditions and should not be
construed as a recommendation of any specific security. Portfolio holdings and
composition are subject to change. Past performance is no guarantee of future
results.
Investment returns and principal value will fluctuate, and you may have a gain
or loss when you sell shares. Performance information provided in this report
does not reflect the deduction of taxes shareholders may pay on Fund
distributions or the redemption of Fund shares. Due to market volatility, the
Fund's current performance may be lower than the figures shown. Please visit our
web site at www.berger.com for more current performance information.
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (98.68%)
Aerospace/Defense (1.82%)
37,857 Boeing Co. $1,292,059
6,011 General Dynamics Corp. 488,875
7,613 Lockheed Martin Corp. 492,333
8,873 Northrop Grumman Corp. 1,100,607
- --------------------------------------------------------------------------------
3,373,874
- --------------------------------------------------------------------------------
Beverages - Alcoholic (1.04%)
38,319 Anheuser-Busch Companies, Inc. 1,938,941
- --------------------------------------------------------------------------------
Beverages - Soft Drinks (1.83%)
70,752 Coca-Cola Co. 3,393,266
- --------------------------------------------------------------------------------
Banks - Money Center (0.72%)
45,177 Citigroup, Inc. 1,339,498
- --------------------------------------------------------------------------------
Banks - Super Regional (1.87%)
49,002 Fifth Third Bancorp. 3,000,393
9,846 Wells Fargo & Co. 474,183
- --------------------------------------------------------------------------------
3,474,576
- --------------------------------------------------------------------------------
<Caption>
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (98.68%) - CONTINUED
Building - Construction Products/Miscellaneous (0.23%)
21,653 Masco Corp. $ 423,316
- --------------------------------------------------------------------------------
Building - Residential/Commercial (1.13%)
18,371 Lennar Corp. 1,024,735
3,557 NVR, Inc.* 1,066,495
- --------------------------------------------------------------------------------
2,091,230
- --------------------------------------------------------------------------------
Computer - Manufacturers (3.24%)
163,000 Dell Computer Corp.* 3,832,130
37,374 International Business
Machines Corp. 2,182,268
- --------------------------------------------------------------------------------
6,014,398
- --------------------------------------------------------------------------------
Computer - Networking (1.49%)
263,900 Cisco Systems, Inc.* 2,765,672
- --------------------------------------------------------------------------------
Computer Software - Desktop (5.00%)
212,464 Microsoft Corp.* 9,282,552
- --------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
12
BERGER LARGE CAP
GROWTH FUND
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (98.68%) - CONTINUED
Computer Software - Educational/Entertainment (1.12%)
31,611 Electronic Arts, Inc.* $ 2,085,062
- --------------------------------------------------------------------------------
Computer Software - Finance (0.53%)
30,076 Fair, Isaac, and Co., Inc. 983,485
- --------------------------------------------------------------------------------
Cosmetics/Personal Care (2.36%)
33,148 Colgate-Palmolive Co. 1,788,334
46,593 Gillette Co. 1,379,153
21,331 Kimberly-Clark Corp. 1,208,188
- --------------------------------------------------------------------------------
4,375,675
- --------------------------------------------------------------------------------
Diversified Operations (5.76%)
18,051 3M Co. 1,985,068
331,041 General Electric Co. 8,160,161
3,452 Honeywell International, Inc. 74,770
8,599 United Technologies Corp. 485,758
- --------------------------------------------------------------------------------
10,705,757
- --------------------------------------------------------------------------------
Electronics - Semiconductor Equipment (0.48%)
77,900 Applied Materials, Inc.* 899,745
- --------------------------------------------------------------------------------
Electronics - Semiconductor Manufacturing (3.29%)
351,902 Intel Corp. 4,887,919
82,263 Texas Instruments, Inc. 1,215,024
- --------------------------------------------------------------------------------
6,102,943
- --------------------------------------------------------------------------------
Finance - Consumer/Commercial Loans (1.28%)
26,037 Capital One Financial Corp. 909,212
79,712 MBNA Corp. 1,465,107
- --------------------------------------------------------------------------------
2,374,319
- --------------------------------------------------------------------------------
Finance - Mortgage & Related Services (4.29%)
25,065 Doral Financial Corp. 605,069
69,434 Fannie Mae 4,134,101
57,707 Freddie Mac 3,225,821
- --------------------------------------------------------------------------------
7,964,991
- --------------------------------------------------------------------------------
Finance - Savings & Loan (0.47%)
27,736 Washington Mutual, Inc. 872,852
- --------------------------------------------------------------------------------
Financial Services - Miscellaneous (1.81%)
48,901 American Express Co. 1,524,733
24,200 Concord EFS, Inc.* 384,296
51,943 First Data Corp. 1,451,807
- --------------------------------------------------------------------------------
3,360,836
- --------------------------------------------------------------------------------
Food - Miscellaneous Preparation (1.97%)
14,794 Kellogg Co. 491,901
72,633 Pepsico, Inc. 2,683,789
26,736 Sara Lee Corp. 489,001
- --------------------------------------------------------------------------------
3,664,691
- --------------------------------------------------------------------------------
<Caption>
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (98.68%) - CONTINUED
Insurance - Accident & Health (0.27%)
16,438 AFLAC, Inc. $ 504,482
- --------------------------------------------------------------------------------
Insurance - Brokers (1.36%)
35,001 Brown & Brown, Inc. 1,050,030
35,265 Marsh & McLennan Companies, Inc. 1,468,435
- --------------------------------------------------------------------------------
2,518,465
- --------------------------------------------------------------------------------
Insurance - Diversified (1.60%)
54,450 American International Group, Inc. 2,978,415
- --------------------------------------------------------------------------------
Insurance - Life (0.47%)
38,442 Metlife, Inc. 874,940
- --------------------------------------------------------------------------------
Insurance - Property/Casualty/Title (0.75%)
21,107 The Hartford Financial Services
Group, Inc. 865,387
10,254 The Progressive Corp. 519,160
- --------------------------------------------------------------------------------
1,384,547
- --------------------------------------------------------------------------------
Internet - E*Commerce (0.25%)
8,732 eBay, Inc.* 461,137
- --------------------------------------------------------------------------------
Leisure - Products (0.60%)
24,200 Harley-Davidson, Inc. 1,124,090
- --------------------------------------------------------------------------------
Leisure Services (1.00%)
40,489 Carnival Corp. 1,016,274
77,773 Cendant Corp.* 836,837
- --------------------------------------------------------------------------------
1,853,111
- --------------------------------------------------------------------------------
Machinery - Farm (0.56%)
22,719 Deere & Co. 1,032,579
- --------------------------------------------------------------------------------
Media - Books (0.27%)
8,323 McGraw-Hill Companies, Inc. 509,534
- --------------------------------------------------------------------------------
Media - Cable/Satellite TV (0.27%)
23,841 Comcast Corp. - Special Class A* 497,323
- --------------------------------------------------------------------------------
Media - Newspapers (0.57%)
25,417 Tribune Co. 1,062,685
- --------------------------------------------------------------------------------
Media - Radio/TV (1.29%)
17,826 Clear Channel Communications, Inc.* 619,454
43,619 Viacom, Inc. - Class B* 1,768,750
- --------------------------------------------------------------------------------
2,388,204
- --------------------------------------------------------------------------------
Medical - Biomedical/Biotechnology (2.02%)
90,055 Amgen, Inc.* 3,755,293
- --------------------------------------------------------------------------------
Medical - Drug/Diversified (6.30%)
88,020 Abbott Laboratories 3,556,008
150,715 Johnson & Johnson 8,150,667
- --------------------------------------------------------------------------------
11,706,675
- --------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
13
Berger Funds
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (98.68%) - CONTINUED
Medical - Ethical Drugs (10.45%)
14,095 Forest Laboratories, Inc.* $ 1,155,931
73,276 Merck & Co., Inc. 3,349,446
317,654 Pfizer, Inc. 9,218,319
96,330 Pharmacia Corp. 3,745,310
61,107 Wyeth 1,943,203
- --------------------------------------------------------------------------------
19,412,209
- --------------------------------------------------------------------------------
Medical - Health Maintenance Organizations (2.50%)
31,144 UnitedHealth Group, Inc. 2,716,380
26,420 Wellpoint Health Networks, Inc.* 1,936,586
- --------------------------------------------------------------------------------
4,652,966
- --------------------------------------------------------------------------------
Medical - Hospitals (2.33%)
55,381 HCA, Inc. 2,636,689
34,138 Tenet Healthcare Corp. * 1,689,831
- --------------------------------------------------------------------------------
4,326,520
- --------------------------------------------------------------------------------
Medical - Products (3.38%)
41,941 Baxter International, Inc. 1,281,298
17,408 Boston Scientific Corp.* 549,396
29,384 Guidant Corp.* 949,397
70,100 Medtronic, Inc. 2,952,612
9,529 Stryker Corp.* 548,870
- --------------------------------------------------------------------------------
6,281,573
- --------------------------------------------------------------------------------
Medical - Wholesale Drugs/Supplies (1.51%)
45,195 Cardinal Health, Inc. 2,811,129
- --------------------------------------------------------------------------------
Metal Products - Fasteners (0.25%)
7,891 Illinois Tool Works, Inc. 460,282
- --------------------------------------------------------------------------------
Oil & Gas - U.S. Exploration & Production (0.28%)
11,822 Anadarko Petroleum Corp. 526,552
- --------------------------------------------------------------------------------
Pollution Control - Services (0.25%)
20,005 Waste Management, Inc. 466,517
- --------------------------------------------------------------------------------
Real Estate (0.45%)
49,257 The TJX Companies, Inc. 837,369
- --------------------------------------------------------------------------------
Retail - Department Stores (0.73%)
22,389 Kohls Corp.* 1,361,475
- --------------------------------------------------------------------------------
Retail - Drug Stores (1.05%)
63,299 Walgreen Co. 1,947,077
- --------------------------------------------------------------------------------
Retail - Home Furnishings (0.86%)
15,303 Bed Bath & Beyond, Inc.* 498,419
20,984 Rent-A-Center, Inc.* 1,090,119
- --------------------------------------------------------------------------------
1,588,538
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Shares/Par Value Value
- --------------------------------------------------------------------------------
COMMON STOCK (98.68%) - CONTINUED
Retail - Major Discount Chains (5.44%)
15,700 Costco Wholesale Corp.* $ 508,209
57,274 Target Corp. 1,690,728
160,557 Wal-Mart Stores, Inc. 7,905,827
- --------------------------------------------------------------------------------
10,104,76
- --------------------------------------------------------------------------------
Retail - Super/Mini Markets (0.22%)
29,100 Kroger Co.* 410,310
- --------------------------------------------------------------------------------
Retail/Wholesale - Building Products (2.41%)
95,098 Home Depot, Inc. 2,482,058
48,225 Lowe's Companies, Inc. 1,996,515
- --------------------------------------------------------------------------------
4,478,573
- --------------------------------------------------------------------------------
Retail/Wholesale - Food (1.35%)
31,800 Performance Food Group Co.* 1,079,928
50,333 Sysco Corp. 1,428,954
- --------------------------------------------------------------------------------
2,508,882
- --------------------------------------------------------------------------------
Soap & Cleaning Preparations (2.01%)
41,800 Procter & Gamble Co. 3,736,084
- --------------------------------------------------------------------------------
Telecommunications - Equipment (1.24%)
70,300 Motorola, Inc. 715,654
57,704 QUALCOMM, Inc.* 1,593,784
- --------------------------------------------------------------------------------
2,309,438
- --------------------------------------------------------------------------------
Tobacco (1.55%)
74,223 Philip Morris Cos., Inc. 2,879,852
- --------------------------------------------------------------------------------
Transportation - Air Freight (0.57%)
21,200 FedEx Corp. 1,061,484
- --------------------------------------------------------------------------------
Transportation - Rail (0.54%)
17,326 Union Pacific Corp. 1,002,656
- --------------------------------------------------------------------------------
Total Common Stock
(Cost $215,690,088) 183,303,409
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (0.86%)
$1,592,000 State Street Repurchase Agreement,
1.88%, dated 9/30/02, due 10/1/02,
to be repurchased at $1,592,083# 1,592,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $1,592,000) 1,592,000
- --------------------------------------------------------------------------------
Total Investments (Cost $217,282,088) (99.54%) 184,895,409
Total Other Assets, Less Liabilities (0.46%) 863,182
- --------------------------------------------------------------------------------
Net Assets (100.00%) $185,758,591
- --------------------------------------------------------------------------------
* Non-income producing security
# - The repurchase agreement is fully collateralized by Sallie Mae
Agency Note with a value of $1,625,000.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
14
Ticker Symbol BEMGX
BERGER MID CAP Fund Number 215
GROWTH FUND PORTFOLIO MANAGER COMMENTARY JAY W.TRACEY, CFA
STEVEN L. FOSSEL, CFA
================================================================================
MARKET CONDITIONS
After reaching a peak in March of 2000, U.S. stocks have been locked in the
grips of one of the worst bear markets on record. The current bear market in the
United States has now exceeded in both time and severity the 1973/74 bear
market, and has become nearly as long -- and as ugly -- as 1929-32. It began in
2000 when an over-heated economy started to run out of gas. It continued as the
recession of 2001 unfolded and collapsed in the aftermath of the 9/11 terrorist
attacks. Investors saw some relief in December of 2001, when the market rallied
as the news of the economy improved. Despite this positive news, the bear market
resumed early in 2002 as the Enron debacle and many other corporate scandals and
bankruptcies brought about a new crisis of confidence. The market crisis
worsened through the third quarter of 2002 as tensions in the Middle East, the
prospect of war with Iraq, and concerns about a possible slump back into
recession further undermined what little investor confidence was left.
FUND PERFORMANCE
The Berger Mid Cap Growth Fund (the "Fund") declined by 28.62% this period,
significantly worse than the 15.50% decline posted by its benchmark, the Russell
Midcap Growth Index.1 Clearly, these results are very disappointing. Changes in
portfolio managers and risk profile were made during the year; however, we
remain unsatisfied by results for the year as a whole. In general, the Fund's
underperformance had more to do with declines in specific Fund holdings than
with the Fund's sector weightings.
The consumer sector was a significant source of the Fund's underperformance. The
shares of consumer electronics retailer Best Buy declined when it became
apparent that the company's revenues were slowing and that earnings expectations
for this year were too high. The Fund's position was sold, but not before it had
an adverse impact on relative performance. Another disappointment was Univision
Communications, a leading Spanish-language media company. Concerns about
advertising revenue growth, underperformance in their radio stations, and
uncertainties surrounding their proposed acquisition of Hispanic Broadcasting
Corp. resulted in poor stock performance. Cable T.V. stocks in general performed
poorly primarily because of concerns about debt on their balance sheets. These
concerns caused a significant decline in the value of the Fund's cable holdings,
including Charter Communications and Cox Communications.
The Fund's performance also suffered from its financial services holdings,
including NextCard, a provider of Internet-based consumer credit, which
collapsed late last year when the company reported that its losses caused by
fraud were much higher than previously disclosed. The integrity and credibility
of management, as well as the viability of the company, in our opinion, became
suspect, and we sold the position. On the positive side, securities broker Legg
Mason performed well for the Fund, as did asset manager John Nuveen Co.
The Fund's wireless services stocks, including Alamosa Holdings and Intrado,
were significant underperformers. The stocks first declined early in 2002 when
investors became concerned about debt, because these companies had been
financing the build-out of their networks with a significant amount of debt. We
reduced the Fund's positions but did not sell out of them entirely because we
believed the price weakness was overdone. Later in the period, when the
companies' subscriber-growth problems worsened, with negative cash flow
implications, we sold the remaining positions.
The Fund's largest sector, healthcare, made a modestly negative contribution to
relative performance during the fiscal year. This was largely a result of
weakness in the Fund's biotechnology and specialty pharmaceuticals holdings. A
tougher regulatory environment, disappointing product news and uncertainties
about future growth all caused valuations to contract in these areas.
Invitrogen, Cell Therapeutics and King Pharmaceuticals are examples of Fund
holdings that suffered significant price declines during the year. On the other
hand, hospitals, HMOs and distributors were generally good performers. The Fund
benefited from its holdings in Triad Hospitals, a major facilities
operator, Wellpoint Health Networks, a large managed-care provider, and
AmerisourceBergen Corp., one of the nation's largest distributors of
pharmaceuticals.
The Fund was moderately underweighted in technology over the fiscal year.
Enterprise software vendors such as VeriSign, Amdocs and Advent Software hurt
performance when their stock prices collapsed in the wake of negative earnings
news and diminished outlooks. Those stocks were sold, but, regrettably, not
before they caused significant damage to relative performance. Semiconductor and
components manufacturers such as Fund holdings Amkor Technology and Atmel also
hurt performance.
OUTLOOK
It is difficult to imagine a period of greater uncertainty than we have
experienced in the past few months. However, despite the many challenges we
face, we believe our nation will ultimately prevail. We believe that the economy
is on the bumpy road to recovery, that corporate profits will respond positively
to that recovery, and that corporations are taking the necessary steps to
restore accountability and investor confidence.In the meantime, we will continue
to seek out and invest in those companies that are succeeding in this tough
environment and that we believe are now or will be leaders in the growth markets
of the future.
Berger Funds - September 30, 2002 Combined Annual Report
15
Berger Funds
PERFORMANCE OVERVIEW
================================================================================
BERGER MID CAP GROWTH FUND -
GROWTH OF $10,000
[GRAPH]
9/30/02
Berger Mid Cap Growth Fund $9,810
Russell Midcap Growth Index $8,357
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30,2002
One Year (28.62)%
Life of Fund (12/31/97) (0.40)%
(1) Russell Midcap(R) Growth Index measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted growth
values. The stocks are also members of the Russell 1000(R) Growth index. The
Index is unmanaged and includes reinvestment of dividends and capital gains, but
does not reflect management fees, trading costs and other expenses. Investors
cannot actually make investments in the Index.
Opinions and forecasts regarding sectors, industries, companies and/or themes
are subject to change at any time based on market conditions and should not be
construed as a recommendation of any specific security. Portfolio holdings and
composition are subject to change.
Past performance is no guarantee of future results. Investment returns and
principal value will fluctuate, and you may have a gain or loss when you sell
shares. Performance information provided in this report does not reflect the
deduction of taxes shareholders may pay on Fund distributions or the redemption
of Fund shares. Due to market volatility, the Fund's current performance may be
lower than the figures shown. Please visit our web site at www.berger.com for
more current performance information.
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (91.32%)
Aerospace/Defense Equipment (0.89%)
11,701 Alliant Techsystems, Inc.* $ 810,294
- --------------------------------------------------------------------------------
Beverages - Alcoholic (0.62%)
24,528 Constellation Brands, Inc. - Class A* 566,597
- --------------------------------------------------------------------------------
Beverages - Soft Drinks (0.52%)
20,200 Pepsi Bottling Group, Inc. 472,680
- --------------------------------------------------------------------------------
Banks - Northeast (0.85%)
18,750 Commerce Bancorp., Inc. 778,312
- --------------------------------------------------------------------------------
Building - Heavy Construction (1.27%)
21,287 Fluor Corp. 520,255
20,523 Jacobs Engineering Group, Inc.* 633,750
- --------------------------------------------------------------------------------
1,154,005
- --------------------------------------------------------------------------------
Building - Paint & Allied Products (0.65%)
15,832 The Valspar Corp. 590,534
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (91.32%) - CONTINUED
Building - Residential/Commercial (1.35%)
9,655 Lennar Corp. $ 538,556
2,292 NVR, Inc.* 687,210
- --------------------------------------------------------------------------------
1,225,766
- --------------------------------------------------------------------------------
Chemicals - Specialty (1.21%)
10,275 OM Group, Inc. 439,770
13,500 Sigma-Aldrich Corp. 665,145
- --------------------------------------------------------------------------------
1,104,915
- --------------------------------------------------------------------------------
Commercial Services - Advertising (0.67%)
21,608 Catalina Marketing Corp.* 606,753
- --------------------------------------------------------------------------------
Commercial Services - Miscellaneous (2.11%)
9,905 ChoicePoint, Inc.* 353,014
26,480 Cintas Corp. 1,110,042
9,536 Moody's Corp. 462,496
- --------------------------------------------------------------------------------
1,925,552
- --------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
16
BERGER MID CAP
GROWTH FUND
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (91.32%) - CONTINUED
Commercial Services - Schools (3.77%)
14,908 Apollo Group, Inc. - Class A* $ 647,454
27,859 Career Education Corp.* 1,337,455
35,492 Devry, Inc.* 660,861
17,792 Education Management Corp.* 787,652
- --------------------------------------------------------------------------------
3,433,422
- --------------------------------------------------------------------------------
Computer - Graphics (1.50%)
43,027 Autodesk, Inc. 545,152
21,630 Synopsys, Inc.* 825,185
- --------------------------------------------------------------------------------
1,370,337
- --------------------------------------------------------------------------------
Computer - Integrated Systems (1.34%)
47,656 Henry (Jack) & Associates, Inc. 592,364
28,085 The Reynolds & Reynolds Co. - Class A 630,227
- --------------------------------------------------------------------------------
1,222,591
- --------------------------------------------------------------------------------
Computer - Networking (0.29%)
10,200 QLogic Corp.* 265,608
- --------------------------------------------------------------------------------
Computer - Peripheral Equipment (2.08%)
26,331 Lexmark International, Inc.* 1,237,557
12,485 Zebra Technologies Corp. - Class A* 657,836
- --------------------------------------------------------------------------------
1,895,393
- --------------------------------------------------------------------------------
Computer - Services (1.07%)
22,820 Affiliated Computer Services, Inc. -
Class A* 970,991
- --------------------------------------------------------------------------------
Computer Software - Educational/Entertainment (3.33%)
44,092 Activision, Inc.* 1,055,122
29,937 Electronic Arts, Inc.* 1,974,644
- --------------------------------------------------------------------------------
3,029,766
- --------------------------------------------------------------------------------
Computer Software - Enterprise (0.69%)
104,118 Citrix Systems, Inc.* 627,832
- --------------------------------------------------------------------------------
Computer Software - Finance (3.12%)
21,077 Fair, Isaac, and Co., Inc. 689,218
33,293 Intuit, Inc.* 1,515,830
32,780 Sungard Data Systems, Inc.* 637,571
- --------------------------------------------------------------------------------
2,842,619
- --------------------------------------------------------------------------------
Cosmetics/Personal Care (1.57%)
33,373 Dial Corp. 716,185
22,339 International Flavors & Fragrances, Inc. 711,497
- --------------------------------------------------------------------------------
1,427,682
- --------------------------------------------------------------------------------
Diversified Operations (0.75%)
6,805 SPX Corp.* 686,624
- --------------------------------------------------------------------------------
Electronics - Measuring Instruments (0.67%)
23,502 Mettler Toledo International, Inc.* 611,052
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (91.32%) - CONTINUED
Electronics - Scientific Instruments (0.46%)
17,146 Waters Corp.* $ 415,791
- --------------------------------------------------------------------------------
Electronics - Semiconductor Equipment (0.68%)
22,200 KLA-Tencor Corp.* 620,268
- --------------------------------------------------------------------------------
Finance - Investment Brokers (0.18%)
5,700 Investment Technology Group, Inc.* 166,782
- --------------------------------------------------------------------------------
Finance - Investment Management (0.71%)
28,326 The John Nuveen Co. - Class A 644,417
- --------------------------------------------------------------------------------
Finance - Mortgage & Related Services (0.65%)
24,529 Doral Financial Corp. 592,130
- --------------------------------------------------------------------------------
Financial Services - Miscellaneous (2.98%)
22,267 Fiserv, Inc.* 625,257
31,730 H&R Block, Inc. 1,332,977
28,022 Investors Financial Services Corp. 758,556
- --------------------------------------------------------------------------------
2,716,790
- --------------------------------------------------------------------------------
Household - Appliances (0.23%)
9,000 Maytag Corp. 208,620
- --------------------------------------------------------------------------------
Insurance - Brokers (0.89%)
27,132 Brown & Brown, Inc. 813,960
- --------------------------------------------------------------------------------
Insurance - Property/Casualty/Title (0.63%)
10,646 Ambac Financial Group, Inc. 573,713
- --------------------------------------------------------------------------------
Internet - E*Commerce (0.69%)
12,364 Hotels.com - Class A* 625,371
- --------------------------------------------------------------------------------
Leisure - Gaming/Equipment (2.65%)
23,493 Harrah's Entertainment, Inc.* 1,132,598
18,503 International Game Technology* 1,279,297
- --------------------------------------------------------------------------------
2,411,895
- --------------------------------------------------------------------------------
Leisure - Toys/Games/Hobby (1.45%)
73,213 Mattel, Inc. 1,318,566
- --------------------------------------------------------------------------------
Machinery - Farm (0.73%)
28,705 Agco Corp.* 665,956
- --------------------------------------------------------------------------------
Machinery - General Industrial (0.70%)
25,667 Graco, Inc. 636,542
- --------------------------------------------------------------------------------
Medical - Biomedical/Biotechnology (1.91%)
52,007 Gilead Sciences, Inc.* 1,743,795
- --------------------------------------------------------------------------------
Medical - Ethical Drugs (0.57%)
28,767 King Pharmaceuticals, Inc.* 522,696
- --------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
17
Berger Funds
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (91.32%) - CONTINUED
Medical - Generic Drugs (3.03%)
48,526 Andrx Group* $ 1,074,851
11,219 Barr Laboratories, Inc.* 698,832
30,045 Mylan Laboratories, Inc. 983,673
- --------------------------------------------------------------------------------
2,757,356
- --------------------------------------------------------------------------------
Medical - Health Maintenance Organizations (4.40%)
18,765 Coventry Health Care, Inc.* 609,863
33,077 Mid Atlantic Medical Services, Inc.* 1,197,387
30,000 Wellpoint Health Networks, Inc.* 2,199,000
- --------------------------------------------------------------------------------
4,006,250
- --------------------------------------------------------------------------------
Medical - Hospitals (0.85%)
20,478 Triad Hospitals, Inc.* 777,140
- --------------------------------------------------------------------------------
Medical - Outpatient/Home Care (1.01%)
29,533 Lincare Holdings, Inc.* 916,704
- --------------------------------------------------------------------------------
Medical - Products (3.00%)
18,988 Charles River Laboratories
International, Inc.* 745,279
14,968 Diagnostic Products Corp. 688,528
36,290 St. Jude Medical, Inc.* 1,295,553
- --------------------------------------------------------------------------------
2,729,360
- --------------------------------------------------------------------------------
Medical - Wholesale Drugs/Supplies (1.83%)
23,305 AmerisourceBergen Corp. 1,664,443
- --------------------------------------------------------------------------------
Medical/Dental - Services (4.55%)
23,643 Accredo Health, Inc.* 1,126,731
56,847 Caremark Rx, Inc.* 966,399
17,300 Express Scripts, Inc. - Class A* 943,196
32,690 Laboratory Corp. of America Holdings* 1,104,268
- --------------------------------------------------------------------------------
4,140,594
- --------------------------------------------------------------------------------
Medical/Dental - Supplies (0.66%)
32,191 Apogent Technologies, Inc.* 600,684
- --------------------------------------------------------------------------------
Oil & Gas - Drilling (0.96%)
34,893 ENSCO International, Inc. 873,721
- --------------------------------------------------------------------------------
Oil & Gas - Machinery & Equipment (1.64%)
33,560 National-Oilwell, Inc.* 650,393
28,802 Smith International, Inc.* 844,186
- --------------------------------------------------------------------------------
1,494,579
- --------------------------------------------------------------------------------
Pollution Control - Equipment (0.66%)
17,419 Donaldson Co., Inc. 597,994
- --------------------------------------------------------------------------------
Retail - Apparel/shoe (1.60%)
34,448 Abercrombie & Fitch Co. - Class A* 677,592
22,002 Ross Stores, Inc. 784,151
- --------------------------------------------------------------------------------
1,461,743
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (91.32%) - CONTINUED
Retail - Discount & Variety (0.95%)
28,157 99 Cents Only Stores* $ 582,850
12,700 Dollar Tree Stores, Inc.* 279,908
- --------------------------------------------------------------------------------
862,758
- --------------------------------------------------------------------------------
Retail - Home Furnishings (3.92%)
47,366 Bed Bath & Beyond, Inc.* 1,542,711
30,336 Pier 1 Imports, Inc. 578,507
13,034 Rent-A-Center, Inc.* 677,116
32,603 Williams-Sonoma, Inc.* 770,409
- --------------------------------------------------------------------------------
3,568,743
- --------------------------------------------------------------------------------
Retail - Major Discount Chains (0.66%)
37,722 Big Lots, Inc.* 597,139
- --------------------------------------------------------------------------------
Retail - Miscellaneous/Diversified (2.34%)
18,885 Michaels Stores, Inc.* 863,045
71,409 PETsMART, Inc.* 1,271,794
- --------------------------------------------------------------------------------
2,134,839
- --------------------------------------------------------------------------------
Retail - Restaurants (4.41%)
22,154 Krispy Kreme Doughnuts, Inc.* 692,534
22,292 Outback Steakhouse, Inc.* 612,584
70,000 Starbucks Corp.* 1,449,700
45,626 Yum! Brands, Inc.* 1,264,297
- --------------------------------------------------------------------------------
4,019,115
- --------------------------------------------------------------------------------
Retail - Super/Mini Markets (0.81%)
17,321 Whole Foods Market, Inc.* 742,032
- --------------------------------------------------------------------------------
Retail/Wholesale - Auto Parts (2.20%)
13,102 Advance Auto Parts, Inc.* 690,999
16,672 Autozone, Inc.* 1,314,754
- --------------------------------------------------------------------------------
2,005,753
- --------------------------------------------------------------------------------
Retail/Wholesale - Building Products (0.79%)
22,791 Fastenal Co. 719,740
- --------------------------------------------------------------------------------
Retail/Wholesale - Food (0.75%)
20,025 Performance Food Group Co.* 680,049
- --------------------------------------------------------------------------------
Retail/Wholesale - Office Supplies (0.78%)
55,400 Staples, Inc.* 708,566
- --------------------------------------------------------------------------------
Soap & Cleaning Preparations (0.71%)
19,496 Church & Dwight, Inc. 646,292
- --------------------------------------------------------------------------------
Telecommunications - Equipment (1.27%)
75,655 UTStarcom, Inc.* 1,155,252
- --------------------------------------------------------------------------------
Textile - Apparel Manufacturing (0.59%)
15,592 Columbia Sportswear Co.* 541,354
- --------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
18
BERGER MID CAP
GROWTH FUND
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares/Par Value Value
- --------------------------------------------------------------------------------
COMMON STOCK (91.32%) - CONTINUED
Transportation - Airlines (0.52%)
35,990 SkyWest, Inc. $ 471,469
- --------------------------------------------------------------------------------
Total Common Stock
(Cost $86,734,833) 83,170,286
- --------------------------------------------------------------------------------
PREFERRED STOCK - CONVERTIBLE (0.00%)
Telecommunications - Equipment (0.00%)
425,071 Cidera, Inc. - Series D*@o --
173,950 LuxN, Inc. - Series E*@o 3,409
- --------------------------------------------------------------------------------
Total Preferred Stock - Convertible
(Cost $2,487,485) 3,409
- --------------------------------------------------------------------------------
CORPORATE DEBT - CONVERTIBLE (0.05%)
Computer - Services (0.05%)
$2,000,000 Kestrel Solutions, Inc.;
5.50%, 07/15/05@o 47,800
- --------------------------------------------------------------------------------
Total Corporate Debt - Convertible
(Cost $2,170,000) 47,800
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (8.38%)
$7,627,000 State Street Repurchase Agreement,
1.88%, dated 9/30/02, due 10/1/02,
to be repurchased at $7,627,398# 7,627,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $7,627,000) 7,627,000
- --------------------------------------------------------------------------------
Total Investments (Cost $99,019,318) (99.75%) 90,848,495
Total Other Assets, Less Liabilities (0.25%) 226,029
- --------------------------------------------------------------------------------
Net Assets (100.00%) $91,074,524
- --------------------------------------------------------------------------------
* Non-income producing security
@ - Security valued at fair value determined in good faith pursuant to
procedures established by and under the supervision of the Fund's trustees.
# - The repurchase agreement is fully collateralized by Fannie Mae Agency Note
with a value of $7,784,358.
o Schedule of Restricted Securities and/or Illiquid Securities
Fair Value
Date Fair as a %
Acquired Cost Value of Net Assets
- --------------------------------------------------------------------------------
Cidera, Inc. -
Series D -
Preferred Stock 9/1/2000 -- -- --
Kestrel Solutions, Inc. -
Corp. Debt -
Convertible 8/8/2000 $2,170,000 $47,800 0.05%
LuxN, Inc. -
Series E -
Preferred Stock 12/20/2000 2,487,485 3,409 --
- --------------------------------------------------------------------------------
$51,209 0.05%
- --------------------------------------------------------------------------------
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
19
Berger Funds
Ticker Symbol - Investor Shares BESCX
- Institutional Shares BSGIX
BERGER SMALL COMPANY Fund Number - Investor Shares 345
GROWTH FUND - Institutional Shares 915
PORTFOLIO MANAGER COMMENTARY JAY W.TRACEY, CFA
================================================================================
MARKET CONDITIONS
After reaching a peak in March of 2000, U.S. stocks have been locked in the
grips of one of the worst bear markets on record. The current bear market in the
United States has now exceeded in both time and severity the 1973/74 bear
market, and has become nearly as long -- and as ugly -- as 1929 - 32. It began
in 2000 when an over-heated economy started to run out of gas. It continued as
the recession of 2001 unfolded and collapsed in the aftermath of the 9/11
terrorist attacks. Investors saw some relief in December of 2001, when the
market rallied as the news of the economy improved. Despite this positive news,
the bear market resumed early in 2002 as the Enron debacle and many other
corporate scandals and bankruptcies brought about a new crisis of confidence.
The market crisis worsened through the third quarter of 2002 as tensions in the
Middle East, the prospect of war with Iraq, and concerns about a possible slump
back into recession further undermined what little investor confidence was left.
FUND PERFORMANCE
The Berger Small Company Growth Fund (the "Fund") declined by 34.15% (Investor
Shares); and 33.47% (Institutional Shares) during the fiscal year, significantly
worse than the 18.16% decline posted by its benchmark, the Russell 2000 Growth
Index.1 Clearly, these results are very disappointing. The effort we made during
the past year to lower the Fund's risk profile did not improve the Fund's
downside relative performance until late in the fiscal year, and we remain
unsatisfied. In general, the Fund's underperformance had more to do with
declines in specific Fund holdings than with the Fund's sector weightings.
The financial services sector was a source of underperformance for the year.
This was largely the result of poor performance by specific Fund holdings.
NextCard, for example, a provider of Internet-based consumer credit, collapsed
late last year when the company reported that its losses caused by fraud were
much larger than previously disclosed. The integrity and credibility of
management, as well as the viability of the company, in our opinion, became
suspect, and we sold the position. The Fund did have a few successes, including
Investors Financial Services, which is a leading provider of asset
administration services to the financial services industry. Unfortunately, the
losers hurt more than the winners helped.
The Fund also suffered from its holdings in the technology sector,one of the
worst-performing sectors in the market this past fiscal year. Enterprise
software vendors such as SeeBeyond and JDA Software hurt performance when their
stock prices collapsed in the wake of negative earnings news and diminished
outlooks. Both stocks were sold, but, regrettably, not before they caused
significant damage to relative performance. Semiconductor equipment and
components manufacturers such as Fund holdings ChipPAC and RF Micro Devices also
hurt performance.
The Fund's wireless services stocks, including Airgate PCS and UbiquiTel, were
significant underperformers. The stocks first declined early in 2002 when
investors became concerned about debt. These companies had been financing the
build-out of their networks with a significant amount of debt. We reduced the
Fund's positions, but did not sell out of them entirely because we believed the
price weakness was overdone. Later, when the companies developed
subscriber-growth problems, which had negative cash flow implications, we sold
the remaining positions.
One of the Fund's largest sectors, healthcare, made a modestly negative
contribution to relative performance during the fiscal year. This was largely a
result of weakness in the Fund's biotechnology and specialty pharmaceutical
holdings. Icos Corp., Celgene and First Horizon Pharmaceutical are examples of
Fund holdings that suffered significant price declines during the year. On the
other hand, thanks to strong operating trends, services companies such as
hospitals, HMOs and distributors were generally good performers. The Fund
benefited from its holdings in Mid Atlantic Medical Services, for example, a
well-run managed-care company, and Priority Healthcare, a national distributor
of specialty pharmaceuticals and related medical supplies. Throughout the year,
we significantly decreased the Fund's positions in the biotechnology area,
increased holdings in health care services and broadened diversification in the
sector. The Fund posted mixed results in the consumer sector. Thanks to strong
operating trends, the Fund's holdings in education services (e.g., Corinthian
Colleges and Strayer Education), restaurants (e.g., P.F. Chang's China Bistro
and Panera Bread) and consumer electronics (e.g., Take-Two Interactive Software
and Harmon International) contributed positively to performance. Good results in
retail were tougher to come by. Broadcasters such as Fund holdings Radio One and
Cumulus Media suffered from concerns about advertising trends.
OUTLOOK
It is difficult to imagine a period of greater uncertainty than we have
experienced in the past few months. However, despite the many challenges we
face, we believe our nation will ultimately prevail. We believe that the economy
is on the bumpy road to recovery, that corporate profits will respond positively
to that recovery, and that corporations are taking the necessary steps to
restore accountability and investor confidence. In the meantime,we will continue
to seek out and invest in those companies that are succeeding in this tough
environment, that we believe are now or will be leaders in the growth markets of
the future.
Berger Funds o September 30, 2002 Combined Annual Report
20
PERFORMANCE OVERVIEW
================================================================================
BERGER SMALL COMPANY GROWTH FUND - INVESTOR SHARES - GROWTH OF $10,000
[GRAPH]
9/30/02
Berger Small Company Growth Fund - Investor Shares $13,504
Russell 2000 Growth Index $10,755
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30,2002
One Year (34.15)%
Five Year (9.58)%
Life of Fund (12/30/93) 3.49%
BERGER SMALL COMPANY GROWTH FUND - INSTITUTIONAL SHARES - GROWTH OF $250,000
[GRAPH]
9/30/02
Berger Small Company Growth Fund - Institutional Shares $345,682
Russell 2000 Growth Index $268,869
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30,2002
One Year (33.47)%
Five Year (9.15)%
Life of Fund (12/30/93) 3.77%
(1) Russell 2000(R) Growth Index measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth
values. The Index is unmanaged and includes reinvestment of dividends and
capital gains, but does not reflect management fees, trading costs and other
expenses. Investors cannot actually make investments in the Index.
Opinions and forecasts regarding sectors, industries, companies and/or themes
are subject to change at any time based on market conditions and should not be
construed as a recommendation of any specific security. Portfolio holdings and
composition are subject to change.
Past performance is no guarantee of future results. Investment returns and
principal value will fluctuate,and you may have a gain or loss when you sell
shares. Performance information provided in this report does not reflect the
deduction of taxes shareholders may pay on Fund distributions or the redemption
of Fund shares. Due to market volatility, the Fund's current performance may be
lower than the figures shown. Please visit our web site at www.berger.com for
more current performance information.
Berger Funds o September 30, 2002 Combined Annual Report
21
Berger Funds
BERGER SMALL COMPANY
GROWTH FUND
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (92.16%)
Aerospace/Defense Equipment (0.05%)
50,919 Orbital Sciences Corp.* $ 173,125
- --------------------------------------------------------------------------------
Auto/Truck - Original Equipment (0.67%)
46,300 Superior Industries International, Inc. 2,179,804
- --------------------------------------------------------------------------------
Banks - Northeast (0.67%)
37,197 Chittenden Corp. 1,101,031
62,259 Staten Islands BanCorp., Inc. 1,083,307
- --------------------------------------------------------------------------------
2,184,338
- --------------------------------------------------------------------------------
Banks - Southeast (1.95%)
46,880 First BanCorp. 1,787,066
76,130 R&G Financial Corp. 1,661,157
100,030 United Bankshares, Inc. 2,901,870
- --------------------------------------------------------------------------------
6,350,093
- --------------------------------------------------------------------------------
Banks - West/Southwest (3.56%)
56,100 Cathay Bancorp., Inc. 2,187,900
61,600 East West Bancorp., Inc. 2,079,616
98,330 Pacific Capital Bancorp. 2,670,446
63,061 Southwest Bancorp. of Texas, Inc.* 2,296,051
60,420 UCBH Holdings, Inc. 2,377,527
- --------------------------------------------------------------------------------
11,611,540
- --------------------------------------------------------------------------------
Building - Construction Products/Miscellaneous (1.62%)
35,106 American Woodmark Corp. 1,781,278
98,737 Insituform Technologies, Inc. - Class A* 1,416,876
65,943 Simpson Manufacturing Co., Inc.* 2,069,951
- --------------------------------------------------------------------------------
5,268,105
- --------------------------------------------------------------------------------
Building - Maintenance & Services (0.20%)
45,660 ABM Industries, Inc. 643,806
- --------------------------------------------------------------------------------
Building - Mobile/Manufactured/RV (1.92%)
100,590 Monaco Coach Corp.* 2,014,818
72,250 Thor Industries, Inc. 2,511,410
43,755 Winnebago Industries, Inc. 1,729,635
- --------------------------------------------------------------------------------
6,255,863
- --------------------------------------------------------------------------------
Building - Paint & Allied Products (0.67%)
75,387 WD-40 Co. 2,178,684
- --------------------------------------------------------------------------------
Building - Residential/Commercial (0.51%)
49,259 Hovnanian Enterprises, Inc. - Class A* 1,664,954
- --------------------------------------------------------------------------------
Chemicals - Specialty (0.66%)
162,780 Airgas, Inc.* 2,137,301
- --------------------------------------------------------------------------------
Commercial Services - Healthcare (0.82%)
27,426 NDCHealth Corp. 426,474
72,299 Pediatrix Medical Group, Inc.* 2,240,546
- --------------------------------------------------------------------------------
2,667,020
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (92.16%) - CONTINUED
Commercial Services - Miscellaneous (2.42%)
25,150 Factset Research Systems, Inc. $ 667,732
64,874 FTI Consulting, Inc.* 2,579,390
146,870 PRG-Shultz International, Inc.* 1,818,251
99,378 The Corporate Executive Board Co.* 2,837,242
- --------------------------------------------------------------------------------
7,902,615
- --------------------------------------------------------------------------------
Commercial Services - Schools (2.70%)
93,903 Corinthian Colleges, Inc.* 3,543,899
169,730 ITT Educational Services, Inc.* 3,185,832
34,612 Strayer Education, Inc. 2,059,068
- --------------------------------------------------------------------------------
8,788,799
- --------------------------------------------------------------------------------
Commercial Services - Security/Safety (1.76%)
123,612 Armor Holdings, Inc.* 1,852,944
60,450 InVision Technologies, Inc.* 1,935,004
97,560 Kroll, Inc.* 1,934,615
- --------------------------------------------------------------------------------
5,722,563
- --------------------------------------------------------------------------------
Computer - Graphics (1.72%)
23,400 Ansys, Inc.* 403,182
156,880 Intergraph Corp.* 2,681,079
233,219 Pinnacle Systems, Inc.* 2,518,765
- --------------------------------------------------------------------------------
5,603,026
Computer - Integrated Systems (0.76%)
25,310 Kronos, Inc.* 623,385
80,070 MICROS Systems, Inc.* 1,856,824
- --------------------------------------------------------------------------------
2,480,209
- --------------------------------------------------------------------------------
Computer - Networking (0.26%)
17,607 Black Box Corp.* 584,552
30,217 Echelon Corp.* 262,888
- --------------------------------------------------------------------------------
847,440
- --------------------------------------------------------------------------------
Computer - Peripheral Equipment (0.08%)
16,477 Planar Systems, Inc.* 262,643
- --------------------------------------------------------------------------------
Computer - Services (1.47%)
79,555 CACI International, Inc.* 2,820,225
34,404 Cognizant Technology Solutions Corp.* 1,977,198
- --------------------------------------------------------------------------------
4,797,423
- --------------------------------------------------------------------------------
Computer Software - Desktop (0.81%)
73,284 Borland Software Corp.* 570,882
439,014 Red Hat, Inc.* 2,085,317
- --------------------------------------------------------------------------------
2,656,199
- --------------------------------------------------------------------------------
Computer Software - Educational/Entertainment (1.84%)
169,400 Take-Two Interactive Software, Inc.* 4,912,600
51,800 THQ, Inc.* 1,077,440
- --------------------------------------------------------------------------------
5,990,040
- --------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
22
BERGER SMALL COMPANY
GROWTH FUND
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (92.16%) - CONTINUED
Computer Software - Enterprise (0.99%)
225,940 HPL Technologies, Inc.* $ 11,297
136,808 Progress Software Corp.* 1,655,377
118,620 TALX Corp. 1,562,225
- --------------------------------------------------------------------------------
3,228,899
- --------------------------------------------------------------------------------
Computer Software - Finance (0.73%)
18,053 Barra, Inc.* 493,208
120,588 Digital Insight Corp.* 1,895,643
- --------------------------------------------------------------------------------
2,388,851
- --------------------------------------------------------------------------------
Containers (0.61%)
72,960 Jarden Corp.* 1,980,864
- --------------------------------------------------------------------------------
Cosmetics/Personal Care (1.85%)
48,660 Chattem, Inc.* 1,986,788
143,793 NBTY, Inc.* 1,866,433
204,300 Perrigo Co.* 2,171,709
- --------------------------------------------------------------------------------
6,024,930
- --------------------------------------------------------------------------------
Diversified Operations (1.12%)
52,020 Carlisle Companies, Inc. 1,908,094
63,760 The Manitowoc Co., Inc. 1,743,836
- --------------------------------------------------------------------------------
3,651,930
- --------------------------------------------------------------------------------
Electrical - Control Instruments (0.83%)
78,820 Roper Industries, Inc. 2,719,290
- --------------------------------------------------------------------------------
Electronics - Measuring Instruments (0.17%)
29,290 Itron, Inc.* 538,643
- --------------------------------------------------------------------------------
Electronics - Military Systems (1.79%)
55,740 DRS Technologies, Inc.* 2,074,643
38,720 Engineered Support Systems, Inc. 2,208,589
84,260 Herley Industries, Inc.* 1,564,708
- --------------------------------------------------------------------------------
5,847,940
- --------------------------------------------------------------------------------
Electronics - Miscellaneous Products (1.06%)
90,230 AMETEK, Inc. 2,627,497
51,049 Plantronics, Inc.* 832,099
- --------------------------------------------------------------------------------
3,459,596
- --------------------------------------------------------------------------------
Electronics - Scientific Instruments (1.50%)
33,840 FEI Co.* 488,988
51,369 Flir Systems, Inc.* 1,790,210
94,726 Varian, Inc.* 2,615,385
- --------------------------------------------------------------------------------
4,894,583
- --------------------------------------------------------------------------------
Electronics - Semiconductor Equipment (0.35%)
30,910 Cabot Microelectronics Corp.* 1,151,088
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (92.16%) - CONTINUED
Electronics - Semiconductor Manufacturing (1.09%)
36,607 ESS Technology, Inc.* $ 225,133
43,820 Exar Corp.* 506,121
221,970 Genesis Microchip, Inc.* 1,702,510
100,430 Rambus, Inc.* 435,866
36,660 Silicon Laboratories, Inc.* 671,978
- --------------------------------------------------------------------------------
3,541,608
- --------------------------------------------------------------------------------
Energy - Other (0.54%)
126,350 Headwaters, Inc.* 1,746,157
- --------------------------------------------------------------------------------
Finance - Mortgage & Related Services (0.56%)
130,254 American Home Mortgage
Holdings, Inc. 1,436,702
16,264 New Century Financial Corp. 380,577
- --------------------------------------------------------------------------------
1,817,279
- --------------------------------------------------------------------------------
Finance - Reit (4.85%)
55,620 Alexandria Real Estate Equities, Inc. 2,362,738
85,650 Chelsea Property Group, Inc. 2,890,687
101,360 Federal Realty Investment Trust 2,736,720
73,100 Shurgard Storage
Centers, Inc. - Class A 2,311,422
94,010 The Macerich Co. 2,912,430
102,714 Washington Real Estate
Investment Trust 2,606,881
- --------------------------------------------------------------------------------
15,820,878
- --------------------------------------------------------------------------------
Food - Miscellaneous Preparation (0.19%)
17,260 American Italian Pasta Co. - Class A* 616,009
- --------------------------------------------------------------------------------
Funeral Services & Related (0.68%)
94,520 Matthews International Corp. -
Class A 2,208,932
- --------------------------------------------------------------------------------
Insurance - Brokers (1.09%)
85,740 Hilb, Rogal & Hamilton Co. 3,536,775
- --------------------------------------------------------------------------------
Internet - Content (0.58%)
37,620 Alloy, Inc.* 312,622
67,210 Overture Services, Inc.* 1,584,140
- --------------------------------------------------------------------------------
1,896,762
- --------------------------------------------------------------------------------
Internet - Software (0.21%)
37,167 Filenet Corp.* 384,679
26,405 Websense, Inc.* 306,562
- --------------------------------------------------------------------------------
691,241
- --------------------------------------------------------------------------------
Leisure - Gaming/Equipment (0.08%)
13,410 Multimedia Games, Inc.* 264,056
- --------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
23
Berger Funds
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (92.16%) - CONTINUED
Leisure - Toys/Games/Hobby (0.15%)
18,871 Action Performance Companies, Inc.* $ 484,985
- --------------------------------------------------------------------------------
Machine - Tools & Related Products (0.63%)
91,818 Lincoln Electric Holdings, Inc. 2,051,214
- --------------------------------------------------------------------------------
Machinery - General Industrial (1.06%)
55,000 Idex Corp. 1,570,250
129,557 Paxar Corp.* 1,883,759
- --------------------------------------------------------------------------------
3,454,009
- --------------------------------------------------------------------------------
Medical - Biomedical/Biotechnology (2.31%)
56,560 Enzon, Inc.* 1,088,214
71,461 Neurocrine Biosciences, Inc.* 2,929,901
60,610 Scios, Inc.* 1,542,525
59,816 Techne Corp.* 1,961,367
- --------------------------------------------------------------------------------
7,522,007
- --------------------------------------------------------------------------------
Medical - Ethical Drugs (0.54%)
143,160 Noven Pharmaceuticals, Inc.* 1,752,278
- --------------------------------------------------------------------------------
Medical - Generic Drugs (0.71%)
82,668 Pharmaceutical Resources, Inc.* 2,313,051
- --------------------------------------------------------------------------------
Medical - Genetics (0.69%)
69,430 Transkaryotic Therapies, Inc.* 2,264,668
- --------------------------------------------------------------------------------
Medical - Health Maintenance Organizations (0.62%)
112,703 Sierra Health Services, Inc.* 2,021,892
- --------------------------------------------------------------------------------
Medical - Hospitals (0.33%)
62,275 Province Healthcare Co.* 1,068,016
- --------------------------------------------------------------------------------
Medical - Outpatient/Home Care (1.62%)
84,470 Amsurg Corp.* 2,548,460
115,294 Apria Healthcare Group, Inc.* 2,716,327
- --------------------------------------------------------------------------------
5,264,787
- --------------------------------------------------------------------------------
Medical - Products (5.18%)
91,080 American Medical Systems
Holdings, Inc.* 1,889,910
88,507 Bio-Rad Laboratories, Inc.* 3,333,174
86,027 Biosite, Inc.* 2,493,923
70,540 Mentor Corp. 2,248,815
86,047 ResMed, Inc.* 2,460,944
139,070 Respironics, Inc.* 4,451,631
- --------------------------------------------------------------------------------
16,878,397
- --------------------------------------------------------------------------------
Medical - Systems/Equipment (0.40%)
32,396 IDEXX Laboratories, Inc.* 1,002,592
15,310 Ventana Medical Systems, Inc.* 286,756
- --------------------------------------------------------------------------------
1,289,348
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (92.16%) - CONTINUED
Medical - Wholesale Drugs/Supplies (1.20%)
155,284 Priority Healthcare Corp. - Class B* $ 3,913,157
- --------------------------------------------------------------------------------
Medical/Dental - Services (2.84%)
101,326 Albany Molecular Research, Inc.* 1,725,582
118,390 American Healthways, Inc.* 1,914,366
159,521 Covance, Inc.* 3,121,826
52,685 DIANON Systems, Inc.* 2,492,527
- --------------------------------------------------------------------------------
9,254,301
- --------------------------------------------------------------------------------
Medical/Dental - Supplies (1.59%)
76,480 Invacare Corp. 2,619,440
48,760 The Cooper Companies, Inc. 2,559,900
- --------------------------------------------------------------------------------
5,179,340
- --------------------------------------------------------------------------------
Office Supplies Manufacturing (0.65%)
78,580 John H. Harland Co. 2,133,447
- --------------------------------------------------------------------------------
Oil & Gas - Drilling (0.45%)
50,154 Atwood Oceanics, Inc.* 1,467,005
- --------------------------------------------------------------------------------
Oil & Gas - Field Services (1.88%)
116,180 Cal Dive International, Inc.* 2,342,189
252,650 Key Energy Services, Inc.* 1,990,882
69,900 Oceaneering International, Inc.* 1,778,955
- --------------------------------------------------------------------------------
6,112,026
- --------------------------------------------------------------------------------
Oil & Gas - Machinery & Equipment (0.54%)
71,381 Hydril Co.* 1,775,959
- --------------------------------------------------------------------------------
Oil & Gas - U.S. Exploration & Production (1.67%)
68,503 Evergreen Resources, Inc.* 2,807,253
92,230 Patina Oil & Gas Corp. 2,628,555
- --------------------------------------------------------------------------------
5,435,808
- --------------------------------------------------------------------------------
Paper & Paper Products (0.50%)
86,566 Albany International Corp. - Class A 1,643,023
- --------------------------------------------------------------------------------
Pollution Control - Equipment (1.36%)
82,690 Clarcor, Inc. 2,538,583
61,325 Cuno, Inc.* 1,891,876
- --------------------------------------------------------------------------------
4,430,459
- --------------------------------------------------------------------------------
Pollution Control - Services (1.80%)
89,405 Stericycle, Inc.* 3,032,617
81,620 Waste Connections, Inc.* 2,839,560
- --------------------------------------------------------------------------------
5,872,177
- --------------------------------------------------------------------------------
Retail - Apparel/Shoe (3.07%)
65,710 AnnTaylor Stores Corp.* 1,513,301
66,178 Christopher & Banks Corp.* 1,662,391
100,314 Gymboree Corp.* 1,636,121
- --------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
24
BERGER SMALL COMPANY
GROWTH FUND
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (92.16%) - CONTINUED
Retail - Apparel/Shoe (3.07%) - Continued
98,162 Hot Topic, Inc.* $ 1,769,861
32,877 Pacific Sunwear of California, Inc.* 669,376
96,010 The Cato Corp. 1,822,270
30,334 Too, Inc.* 706,176
9,813 Urban Outfitters, Inc.* 238,358
- --------------------------------------------------------------------------------
10,017,854
- --------------------------------------------------------------------------------
Retail - Consumer Electronics (0.46%)
54,303 Electronics Boutique Holdings Corp.* 1,490,617
- --------------------------------------------------------------------------------
Retail - Discount & Variety (0.79%)
86,530 Fred's, Inc. 2,583,613
- --------------------------------------------------------------------------------
Retail - Home Furnishings (0.82%)
71,204 Cost Plus, Inc.* 1,911,827
41,391 Linens `n Things, Inc.* 760,353
- --------------------------------------------------------------------------------
2,672,180
- --------------------------------------------------------------------------------
Retail - Mail Order & Direct (0.12%)
21,893 J. Jill Group, Inc.* 381,376
- --------------------------------------------------------------------------------
Retail - Miscellaneous/Diversified (2.95%)
70,521 Hancock Fabrics, Inc. 1,138,914
134,669 Hollywood Entertainment Corp.* 1,955,394
111,810 Movie Gallery, Inc.* 1,678,268
101,990 Regis Corp. 2,885,297
69,130 Sharper Image Corp.* 1,321,766
36,305 Yankee Candle Co., Inc.* 623,357
- --------------------------------------------------------------------------------
9,602,996
- --------------------------------------------------------------------------------
Retail - Restaurants (2.61%)
86,850 California Pizza Kitchen, Inc.* 1,998,419
76,018 Jack in the Box, Inc.* 1,733,210
19,476 P.F. Chang's China Bistro, Inc.* 565,388
29,523 Panera Bread Co.* 797,121
188,220 Ryan's Family Steak Houses, Inc. 2,290,638
47,813 Sonic Corp.* 1,104,480
- --------------------------------------------------------------------------------
8,489,256
- --------------------------------------------------------------------------------
Retail/Wholesale - Building Products (0.40%)
40,897 Tractor Supply Co.* 1,299,707
- --------------------------------------------------------------------------------
Retail/Wholesale - Jewelry (0.35%)
107,510 Whitehall Jewellers, Inc.* 1,131,005
- --------------------------------------------------------------------------------
Retail/Wholesale Computers/Cellular (0.16%)
50,334 Insight Enterprises, Inc.* 510,890
- --------------------------------------------------------------------------------
Shoes & Related Apparel (0.55%)
89,623 Fossil, Inc.* 1,796,941
- --------------------------------------------------------------------------------
Telecommunications - Equipment (0.57%)
91,694 Inter-Tel, Inc. 1,865,973
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Shares/Par Valuec Value
- --------------------------------------------------------------------------------
COMMON STOCK (92.16%) - CONTINUED
Telecommunications - Services (0.06%)
20,511 Intrado, Inc.* $ 198,136
- --------------------------------------------------------------------------------
Textile - Apparel Manufacturing (0.48%)
69,943 Quicksilver, Inc.* 1,580,012
- --------------------------------------------------------------------------------
Transportation - Truck (1.31%)
112,308 Knight Transportation, Inc.* 1,740,774
51,650 Landstar System, Inc.* 2,541,180
- --------------------------------------------------------------------------------
4,281,954
- --------------------------------------------------------------------------------
Trucks & Parts - Heavy Duty (0.75%)
43,090 Oshkosh Truck Corp. 2,430,276
- --------------------------------------------------------------------------------
Total Common Stock
(Cost $294,033,812) 300,306,041
- --------------------------------------------------------------------------------
PREFERRED STOCK - CONVERTIBLE (0.00%)
Computer - peripheral equipment (0.00%)
665,000 Candescent Technologies Corp. -
Series E*@o 6,650
- --------------------------------------------------------------------------------
Telecommunications - Equipment (0.00%)
644,462 Cidera, Inc. - Series D*@o --
- --------------------------------------------------------------------------------
Total Preferred Stock - Convertible
(Cost $3,657,500) 6,650
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (6.59%)
$21,477,000 State Street Repurchase Agreement,
1.88%, dated 9/30/02, due 10/1/02,
to be repurchased at $21,478,121# 21,477,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $21,477,000) 21,477,000
- --------------------------------------------------------------------------------
Total Investments (Cost $319,168,312) (98.75%) 321,789,691
Total Other Assets, Less Liabilities (1.25%) 4,079,135
- --------------------------------------------------------------------------------
Net Assets (100.00%) $325,868,826
- --------------------------------------------------------------------------------
* Non-income producing security
@ - Security valued at fair value determined in good faith pursuant to
procedures established by and under the supervision of the Fund's trustees.
# - The repurchase agreement is fully collateralized by FHLB Agency Note with a
value of $21,907,202. FHLB - Federal Home Loan Bank.
REIT - Real Estate Investment Trust.
o SCHEDULE OF RESTRICTED SECURITIES AND/OR ILLIQUID SECURITIES
Fair Value
Date Fair as a %
Acquired Cost Value of Net Assets
- --------------------------------------------------------------------------------
Candescent
Technologies Corp. -
Series E -
Preferred Stock 5/1/1996 $ 3,657,500 $6,650 0.00%
Cidera, Inc. -
Series D -
Preferred Stock 9/1/2000 -- -- --
- --------------------------------------------------------------------------------
$6,650 0.00%
- --------------------------------------------------------------------------------
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
25
Ticker Symbol - Investor Shares BINVX
- Institutional Shares BINFX
Fund Number - Investor Shares 912
BERGER INFORMATION - Institutional Shares 913
TECHNOLOGY FUND PORTFOLIO MANAGER COMMENTARY WILLIAM F. K. SCHAFF, CFA
================================================================================
MARKET CONDITIONS
After reaching a peak in March of 2000, U.S. stocks have been locked in the
grips of one of the worst bear markets on record. The current bear market in the
United States has now exceeded in both time and severity the 1973/74 bear
market, and has become nearly as long -- and as ugly -- as 1929-32. It began in
2000 when an over-heated economy started to run out of gas. It continued as the
recession of 2001 unfolded and collapsed in the aftermath of the 9/11 terrorist
attacks. Investors saw some relief in December of 2001, when the market rallied
as the news of the economy improved. Despite this positive news, the bear market
resumed early in 2002 as the Enron debacle and many other corporate scandals and
bankruptcies brought about a new crisis of confidence. The market crisis
worsened through the third quarter of 2002 as tensions in the Middle East, the
prospect of war with Iraq, and concerns about a possible slump back into
recession further undermined what little investor confidence was left.
FUND PERFORMANCE
The Berger Information Technology Fund (the "Fund") declined in value by 34.67%
(Investor Shares); and 34.32% (Institutional Shares) this fiscal year, compared
with a 28.74% decline posted by its benchmark, the Nasdaq-100 Index.(1) Clearly,
these results have been very disappointing. The decline was primarily driven by
the significant decline in IT spending and its correlating negative impact on
those technology companies that derive most of their sales and profits from IT
budgets -- the heart and soul of the Fund's investments.
Many technology investors fully expected a technology recovery to start by
mid-year 2002 as long as the economy continued to recover. In anticipation of
that recovery, we remained fully committed to those companies that directly
benefit from the IT capital spending cycle. The economic recovery started to
materialize, but the recovery in IT-related technology companies did not.
Instead, despite the improvement in the economy, IT spending has actually
declined. This has had a dramatic negative impact on those technology companies
that are dependent on IT budgets to grow sales and profits. In addition, we are
seeing much of the allocated budget for the year being held back with the
possibility of further reduction before year-end.
The major misses this period included StorageNetworks and VeriSign. The
fast-growing need for storage but the limited availability and high cost of
talent to run in-house storage services seemed to make a compelling proposition
for StorageNetworks services. It also appealed to our sense of allowing
businesses to focus on their core competencies.
Unfortunately, no one could account for the collapse of so many smaller
enterprises. These were the businesses most likely to adopt these services. As
of September 30, 2002, the company still had significant cash on the balance
sheet, and they hope to reach cash flow break-even by year-end 2002.
Verisign, a leading security infrastructure company, is known widely for its
digital certificates for e-commerce applications and as the distributor of
domain names used on the Web. Unfortunately, with the significant downturn in
technology, the domain name business has come under heavy pressure as well as
other competitive threats. Meanwhile e-commerce has fallen off, along with
pricing. The company has been slow to respond to the declines in business but we
believe the worst may be over. The company hopes to shift its revenue model away
from certificate fees to a per-transaction fee. Registrar revenue for domain
names will likely decline but more slowly. In our opinion, most of the bad news
seems to be priced into the stock today as it currently trades at very low
multiples of earnings and cash flow.
On the other side of the coin, we were pleased with Symantec and Intuit.
Symantec is a leading anti-virus and firewall security software company. The
company is widely represented throughout the FORTUNE 1000. It has been one of
the few companies continuing to put up impressive sales and profits in a very
tough market. It doesn't hurt that anti-virus and firewall software has become
highly recommended as part of homeland security. Intuit, a leading consumer and
small-business financial applications company, has done well by focusing on the
more mundane businesses such as filing tax returns and bookkeeping. Its leading
products include Quicken and TurboTax. Revenue and operating profits continued
to grow in high double digits last year. Their balance sheets remain very solid
with high cash levels. And they remain market leaders in all their spaces. Not
bad in a weak economic climate.
OUTLOOK
It is difficult to imagine a period of greater uncertainty than we have
experienced in the past few months. However, despite the many challenges we
face, we believe our nation will ultimately prevail. We believe that the economy
is on the bumpy road to recovery, that corporate profits will respond positively
to that recovery, and that corporations are taking the necessary steps to
restore accountability and investor confidence. In the meantime, we will
continue to seek out and invest in those companies that are succeeding in this
tough environment, that we believe are now or will be leaders in the growth
markets of the future.
Berger Funds o September 30, 2002 Combined Annual Report
26
Berger Funds
PERFORMANCE OVERVIEW
================================================================================
BERGER INFORMATION TECHNOLOGY FUND -
INVESTOR SHARES - GROWTH OF $10,000
[GRAPH]
<Caption>
9/30/02
Berger Information Technology Fund -
Investor Shares $11,598
Nasdaq-100 Index $ 9,942
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2002
One Year (34.67)%
Five Year (3.10)%
Life of Fund (4/8/97) 2.74%
- --------------------------------------------------------------------------------
BERGER INFORMATION TECHNOLOGY FUND -
INSTITUTIONAL SHARES - GROWTH OF $250,000
[GRAPH]
<Caption>
9/30/02
Berger Information Technology Fund -
Institutional Shares $294,403
Nasdaq-100 Index $248,543
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30,2002
One Year (34.32)%
Five Year (2.80)%
Life of Fund (4/8/97) 3.03%
(1) The Nasdaq-100 Index includes 100 of the largest domestic and international
non-financial companies listed on The Nasdaq Stock Market based on market
capitalization. The Index reflects companies across major industry groups
including computer hardware and software, telecommunications, retail/wholesale
trade and biotechnology. It does not contain financial companies including
investment companies. The Nasdaq-100 Index is calculated under a modified
capitalization-weighted methodology. The Index is unmanaged and includes
reinvestment of dividends and capital gains, but does not reflect management
fees, trading costs and other expenses. Investors cannot actually make
investments in the Index.
Opinions and forecasts regarding sectors, industries, companies and/or themes
are subject to change at any time based on market conditions and should not be
construed as a recommendation of any specific security. Portfolio holdings and
composition are subject to change.
Past performance is no guarantee of future results. Investment returns and
principal value will fluctuate, and you may have a gain or loss when you sell
shares. Performance information provided in this report does not reflect the
deduction of taxes shareholders may pay on Fund distributions or the redemption
of Fund shares. Performance data for the Investor Shares include periods prior
to the adoption of class designations on July 2, 1999, and therefore does not
reflect the 0.25% per year 12b-1 fee applicable to the Investor Shares. This
would have reduced the Investor Shares' return for that prior period. The Fund's
performance has sustained significant gains and losses due to market volatility
in the technology sector, and current performance may be lower than the figures
shown. As a sector fund, Berger Information Technology Fund may be subject to
greater risk and market fluctuation than funds that have securities representing
a broader range of investment alternatives. Please visit our web site at
www.berger.com for more current performance information.
Berger Funds o September 30, 2002 Combined Annual Report
27
Berger Funds
BERGER INFORMATION
TECHNOLOGY FUND
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (100.04%)
Commercial Services - Miscellaneous (8.03%)
19,200 Accenture Ltd. - Class A* $ 274,176
35,980 Automatic Data Processing, Inc. 1,251,025
- --------------------------------------------------------------------------------
1,525,201
- --------------------------------------------------------------------------------
Commercial Services - Security/Safety (1.56%)
50,000 Identix, Inc.* 297,500
- --------------------------------------------------------------------------------
Computer - Integrated Systems (2.15%)
16,200 NCR Corp.* 320,760
27,130 Wind River Systems, Inc.* 87,359
- --------------------------------------------------------------------------------
408,119
- --------------------------------------------------------------------------------
Computer - Manufacturers (3.21%)
6,800 Dell Computer Corp.* 159,868
6,400 International Business Machines Corp. 373,696
29,720 Sun Microsystems, Inc.* 76,975
- --------------------------------------------------------------------------------
610,539
- --------------------------------------------------------------------------------
Computer - Memory Devices (1.16%)
30,000 Network Appliance, Inc.* 219,900
- --------------------------------------------------------------------------------
Computer - Networking (2.89%)
10,600 Brocade Communications Systems, Inc.* 79,818
31,200 Cisco Systems, Inc.* 326,976
5,500 QLogic Corp.* 143,220
- --------------------------------------------------------------------------------
550,014
- --------------------------------------------------------------------------------
Computer - Services (5.45%)
12,000 American Management Systems, Inc.* 152,760
7,800 Cognizant Technology Solutions Corp.* 448,266
9,455 Electronic Data Systems Corp. 132,181
22,000 Gartner, Inc. - Class A* 178,200
98,800 StorageNetworks, Inc.* 123,500
- --------------------------------------------------------------------------------
1,034,907
- --------------------------------------------------------------------------------
Computer Software - Desktop (4.85%)
15,000 Borland Software Corp.* 116,850
18,400 Microsoft Corp.* 803,896
- --------------------------------------------------------------------------------
920,746
- --------------------------------------------------------------------------------
Computer Software - Enterprise (14.67%)
41,600 Actuate Corp.* 40,352
74,700 Brio Technology, Inc.* 81,423
3,100 Business Objects SA* 32,922
8,800 Citrix Systems, Inc.* 53,064
8,000 Computer Associates International, Inc. 76,800
22,000 Documentum, Inc.* 254,100
13,593 Hyperion Solutions Corp.* 249,431
32,300 i2 Technologies, Inc.* 16,796
13,500 Informatica Corp.* 41,850
16,000 IONA Technologies PLC - ADR* 33,357
7,500 Manugistics Group, Inc.* 20,925
22,400 Mercury Interactive Corp.* 384,384
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (100.04%) CONTINUED
Computer Software - Enterprise (14.67%) (Continued)
20,000 Oracle Corp.* $ 157,200
15,100 Peoplesoft, Inc.* 186,787
92,400 Rational Software Corp.* 399,168
25,400 SAP AG - Spon. ADR 285,750
25,000 Serena Software, Inc.* 300,000
30,000 Siebel Systems, Inc.* 172,500
- --------------------------------------------------------------------------------
2,786,809
- --------------------------------------------------------------------------------
Computer Software - Finance (7.82%)
20,000 Intuit, Inc.* 910,600
29,600 Sungard Data Systems, Inc.* 575,720
- --------------------------------------------------------------------------------
1,486,320
- --------------------------------------------------------------------------------
Computer Software - Security (13.56%)
42,050 Check Point Software Techologies Ltd.* 577,767
25,600 Internet Security Systems, Inc.* 315,392
50,000 Symantec Corp.* 1,683,500
- --------------------------------------------------------------------------------
2,576,659
- --------------------------------------------------------------------------------
Diversified Operations (1.82%)
7,000 Hitachi Ltd. - Spon. ADR 346,920
- --------------------------------------------------------------------------------
Electronics - Miscellaneous Products (1.07%)
15,200 Plexus Corp.* 140,600
30,000 Solectron Corp.* 63,300
- --------------------------------------------------------------------------------
203,900
- --------------------------------------------------------------------------------
Electronics - Semiconductor Manufacturing (13.73%)
25,200 Analog Devices, Inc.* 496,440
15,000 Cree, Inc.* 187,500
18,500 Intel Corp. 256,965
27,000 Marvell Technology Group Ltd.* 427,950
26,000 RF Micro Devices, Inc.* 156,000
23,840 Texas Instruments, Inc. 352,117
16,800 TriQuint Semiconductor, Inc.* 59,304
40,000 Vitesse Semiconductor Corp.* 27,200
40,700 Xilinx, Inc.* 644,606
- --------------------------------------------------------------------------------
2,608,082
- --------------------------------------------------------------------------------
Financial Services - Miscellaneous (11.17%)
14,000 Concord EFS, Inc.* 222,320
52,300 First Data Corp. 1,461,785
15,600 Fiserv, Inc.* 438,048
- --------------------------------------------------------------------------------
2,122,153
- --------------------------------------------------------------------------------
Internet - Content (0.41%)
8,069 Yahoo!, Inc.* 77,220
- --------------------------------------------------------------------------------
Internet - Security/Solutions (3.49%)
48,000 Network Associates, Inc.* 510,240
30,300 VeriSign, Inc.* 153,015
- --------------------------------------------------------------------------------
663,255
- --------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
28
BERGER INFORMATION
TECHNOLOGY FUND
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares/Par Value Value
- --------------------------------------------------------------------------------
COMMON STOCK (100.04%) - CONTINUED
Internet - Software (1.62%)
80,200 Interwoven, Inc.* $161,042
30,270 Webmethods, Inc.* 146,204
- --------------------------------------------------------------------------------
307,246
- --------------------------------------------------------------------------------
Telecommunications - Equipment (1.38%)
9,500 QUALCOMM, Inc.* 262,390
- --------------------------------------------------------------------------------
Total Common Stock
(Cost $43,714,126) 19,007,880
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (0.62%)
$117,000 State Street Repurchase Agreement,
1.88%, dated 9/30/02, due 10/1/02,
to be repurchased at $117,006# 117,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $117,000) 117,000
- --------------------------------------------------------------------------------
Total Investments (Cost $43,831,126) (100.66%) 19,124,880
Total Other Assets, Less Liabilities (-0.66%) (124,575)
- --------------------------------------------------------------------------------
Net Assets (100.00%) $19,000,305
- --------------------------------------------------------------------------------
* Non-income producing security
# - The repurchase agreement is fully collateralized by FHLB Agency Note with a
value of $120,806.
ADR - American Depositary Receipt.
FHLB - Federal Home Loan Bank.
PLC - Public Limited Company.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
29
Berger Funds
Ticker Symbol BBINX
BERGER Fund Number 349
INTERNATIONAL FUND PORTFOLIO MANAGER COMMENTARY BANK OF IRELAND ASSET
MANAGEMENT (U.S.) LTD.
================================================================================
MARKET CONDITIONS
For the better part of the previous 12 months, global equity markets had been in
recovery mode fueled by optimism that the economy would recover quickly from the
shallow recession of 2001. However, the combination of corporate scandals,
weaker-than-expected economic and corporate data and fears about the prospect of
military conflict with Iraq caused markets to close the year under review at or
near five-year lows. The TMT (technology, media and telecommunications) sectors
led the Fund lower for most of the period; however, of late, traditional
defensive sectors such as financials and healthcare have added to the decline.
Energy and consumer stocks remain the best-performing sectors in the portfolio.
FUND PERFORMANCE
The Berger International Fund (the "Fund") declined in value by 19.17% during
the fiscal year, compared with a 15.26% decline posted by its benchmark, the
MSCI EAFE Index.(1)
The Fund's overweight position in financials and underexposure to the Japanese
market hurt performance this period. The Japanese market has been one of the
best-performing markets year-to-date as investors have anticipated a cyclical
recovery. However, we continue to feel that, absent meaningful reform,
investment opportunities in Japan will be limited. During the third quarter,
financial sectors led the downturn as falls in equity markets caused concerns as
to the solvency of many insurance companies. Banks were hurt as many reported a
rise in provisions for bad loans. We believe that banks and insurance companies
offer a high degree of earnings visibility and reliability in the current market
as well as opportunity for growth as the global economy recovers.
Within the financial sector, we were particularly disappointed with ING Groep
and Swiss Re. Netherlands-based ING, Europe's seventh-largest financial services
group, could not escape the fallout from the sentiment surrounding the insurance
sector as two-thirds of its profits are generated from its insurance activities.
ING still possesses a healthy balance sheet, and we have taken advantage of
price weakness to increase our position. Swiss Re was strongly impacted by the
negative sentiment surrounding the insurance sector. However, the world's
number-two reinsurer has strong reserves -- predominantly invested in
fixed-income securities -- and its recent operating results indicated that the
company is beginning to benefit from the rise in premiums post 9/11.
In technology, we were pleased with the performance of Canon. As one of the
world's largest makers of copy machines it is highly sensitive to the yen
exchange rate as 70% of its revenue is derived outside of Japan. The company
continues with its cost-reduction efforts, as it plans to move 80% of its laser
printer production to lower-cost areas such as China and continues to introduce
technologically improved products.
Results in the healthcare sector were disappointing. GlaxoSmithKline and Aventis
in particular hurt Fund performance this period. GlaxoSmithKline, the UK-based
pharmaceutical company fell as it lost a key court case clearing the way for
generic competition for its antibiotic Augmentin. Aventis also slumped as
worries grew about the strength of its new drugs pipeline.
The consumer sector posted mixed results. We were once again pleased with
Diageo, one of the world's top spirits makers. U.K.-quoted Diageo's recent
results revealed good growth despite disappointments related to a new
ready-to-drink product based upon its popular Captain Morgan brand rum. On the
flip side,Vivendi Universal and Koninklijke Ahold hurt relative performance. The
deterioration of the telecommunications sector along with adverse information
emerging in relation to short-term debt refinancing prompted us to sell Vivendi
in June, unfortunately not before it hurt short-term performance. Shares of
Koninklijke Ahold, a global supermarket chain store, fell as fears grew about
its performance in its key U.S. market.
The Fund's energy holdings performed well this period, particularly, ENI, an
Italian integrated energy company with activities in oil, natural gas, power
generation and petrochemicals as well as oilfield services and engineering.
While it remains a regional player, the company offers a rare combination of
cost cutting and growth as it increases its exposure to the higher-margin
upstream production.
OUTLOOK
The apparent inability of the world's major economies to move the pace of growth
up a notch has been an obstacle for equity markets as earnings have begun to
reflect the economic reality. Resulting downgrades and large-scale job cuts have
put pressure on consumers even as the threat of a war involving Iraq has risen.
Oil prices already include a "war premium" and are likely to spike higher in the
event of conflict, but we believe this should be temporary unless there is a
serious disruption to supply.
Despite the diffident economic data of recent months, the U.S. economy is, in
our opinion, in reasonable shape. Productivity is up, reducing unit labor costs,
and earnings are rising on a year-on-year basis. This should lead to increased
job opportunities as uncertainty diminishes and consumer confidence strengthens.
Interest rates remain very accommodating, and the consensus expectation is that
the Federal Reserve will lower rates before year-end. There is less consensus
about how the European Central Bank will react to sluggish growth, given its
focus on inflation.
While the global economic outlook is undoubtedly weaker than at the beginning of
the year, we are cautiously optimistic that conditions may exist to allow
markets to regain an upward trend.
Berger Funds o September 30, 2002 Combined Annual Report
30
PERFORMANCE OVERVIEW
================================================================================
BERGER INTERNATIONAL FUND - GROWTH OF $10,000
[GRAPH]
Berger International Fund $14,108
MSCI EAFE Index $13,770
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30,2002
One Year (19.17)%
Five Year (5.56)%
Ten Year 3.50%
(1)The Morgan Stanley Capital International (MSCI) EAFE Index represents major
overseas markets.The Index is unmanaged and includes reinvestment of gross
dividends and capital gains, but does not reflect management fees, trading costs
and other expenses. Investors cannot actually make investments in the Index.
OPINIONS AND FORECASTS REGARDING SECTORS, INDUSTRIES, COMPANIES AND/OR THEMES
ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET CONDITIONS AND SHOULD NOT BE
CONSTRUED AS A RECOMMENDATION OF ANY SPECIFIC SECURITY. PORTFOLIO HOLDINGS AND
COMPOSITION ARE SUBJECT TO CHANGE.
Foreign investing involves special risks, such as currency fluctuations and
political and economic uncertainty, which are discussed further in the
prospectus. Investments in the Fund are not insured by the Federal Deposit
Insurance Corporation, are not deposits and are not obligations of, or endorsed
or guaranteed in any way by, any bank.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment returns and
principal value will fluctuate,and you may have a gain or loss when you sell
shares. Performance information provided in this report does not reflect the
deduction of taxes shareholders may pay on Fund distributions or the redemption
of Fund shares.Performance figures are historical and, in part, reflect the
performance of a pool of assets advised by BIAM (Bank of Ireland Asset
Management) for periods before the Fund commenced operations on October 11,
1996, adjusted to reflect any increased expenses associated with operating the
Fund, net of fee waivers. The asset pool was not registered with the Securities
and Exchange Commission and therefore was not subject to the investment
restrictions imposed by law on registered mutual funds. If the pool had been
registered, its performance might have been adversely affected. Please visit our
web site at www.berger.com for more current performance information.
The financial statements of the Berger International Portfolio, including the
schedule of investments, are included elsewhere in this report and should be
read in conjunction with this Fund's financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
31
Berger Funds
BERGER SMALL CAP Ticker Symbol -- Investor Shares BSCVX
VALUE FUND -- Shares Institutional BSVIX
Fund Number -- Investor Shares 120
-- Shares Institutional 403
PORTFOLIO MANAGER COMMENTARY ROBERT H. PERKINS
THOMAS M. PERKINS
================================================================================
MARKET CONDITIONS
The market's performance in the most recent six months was the inverse image of
the previous six month's rally. Most of the major averages were down in the past
six months, with the decline accelerating and broadening as the period drew to a
close. The reasons continue to be a slow economic recovery, weak pricing power
leading to disappointing earnings, suspect business practices and geopolitical
turmoil. This has led to the highest level of redemption activity from equity
mutual funds in recent years, which contributed to the acceleration. In our
view, stock valuations have become more reasonable, setting the stage for
short-term rallies. However the intermediate term is still clouded by the
uncertainty created by the aforementioned factors and the fact that stock
valuations still are not unusually low.
FUND PERFORMANCE
The Berger Small Cap Value Fund (the "Fund") posted losses of 2.52% (Investor
Shares); and 2.13% (Institutional Shares) for the year ended September 30, 2002,
compared with a 1.46% decline in its benchmark, the Russell 2000 Value Index.1
No one sector represented in the Fund was immune to weakness. Once again, the
Fund's overweighted position in technology was the cause of most of the trouble.
We were, however, rewarded for the Fund's underweighting in consumer stocks late
in the year as that sector was particularly weak and also for maintaining a
larger-than-normal cash position reflecting our cautious view on the market
environment in general.
Performance for technology this fiscal year has been a tale of two halves. After
fueling the Fund's outperformance in the first half of the fiscal year, the
sector has given back all of those gains (and more) in the second half of the
period. With the exception of HNC Software, which was acquired in July, and
Asyst Technologies, which was sold for a modest gain, the unanticipated
broad-based sell-off in the sector has been very disappointing. We still believe
this sector offers the most potential reward and will work to maintain the
Fund's current weighting. Most importantly, we are confident that the companies
the Fund owns have the products and financial strength to survive. However, we
will continue to be extremely cautious in our additions.
The largest sector in the Fund continues to be financials. That weighting is
however, at historically low levels, primarily because, we believe, the
risk/reward ratio in smaller banks and thrifts remains unfavorable as a result
of what we believe are high price-to-earnings ratios. The Fund has been
underweighted compared with the benchmark all year and will continue that way
until we see what are, in our opinion, unjustifiably high price-to-earnings
ratios come down, resulting in more favorable risk/reward ratios. We sold into
the relative strength of companies such as Downey Financial early in the third
quarter in order to make small additions to the Fund's holdings in Greater Bay
Bancorp. and Horace Mann Educators Corp. as their prices dipped to attractive
levels.
We have maintained the Fund's energy holdings at relatively high levels. We have
been rewarded for this as the political uncertainties in the Middle East and the
threat of war in that region have resulted in the current premium price for oil.
While we recognize that these prices are vulnerable, we like the long-term
prospects for natural gas and feel that the shares of these types of safer
energy producers are still undervalued even if prices weaken somewhat. Profits
were taken in Pogo Producing Co. and put toward stocks trading nearer to their
lows such as Noble Energy and Key Energy Services.
As stated earlier, the Fund benefited from its relative underexposure to
consumer stocks in the second half of the fiscal year. Because we considered the
consumer's spending levels to be uncertain in early summer, that we began to
trim those positions that performed well and that we believed were vulnerable to
earnings disappointments. After selling out of AnnTaylor Stores and paring back
La-Z-Boy at higher prices, we initiated a position in Furniture Brands and
Casey's General Stores, a company that is, in our opinion, less prone to a
fall-off in discretionary spending.
Healthcare was, for the most part, a mixed bag. Shares in companies such as
rural hospital manager LifePoint Hospitals and long-term care provider Manor
Care held up nicely. However, we were reminded all too well of how large
potential legal risks can be when an acceleration of claims at Beverly
Enterprises resulted in the Fund's market value in Beverly stock to be cut more
than half before we sold out of the position. After a very thorough review of
the remainder of the Fund's holdings in this area, we are satisfied with the
risk/reward characteristics and continue to overweight the sector.
OUTLOOK
We reduced the Fund's cash level at the end of the third calendar quarter as
stocks appeared to be in a mini free fall. However, as has been the case for
more than a year, we remain somewhat cautious in terms of the Fund's
positioning. The economic recovery has been fueled by the consumer, and the
sustainability of that strength is questionable. Thus a strong rebound in
earnings is unlikely. The uncertainty regarding terrorism and geopolitics
remains high. Although we have probably passed the peak of corporate governance
and accounting surprises, more are likely to come. Furthermore, the trend in
equity mutual fund redemptions is worrisome as an indication that investors are
still overweighted in equities. In summary, this is the most difficult
environment for stocks that we have faced since the 1970s. However, even during
that period with much higher interest rates, there were money-making
opportunities for disciplined value investors.
Berger Funds o September 30, 2002 Combined Annual Report
32
PERFORMANCE OVERVIEW
================================================================================
BERGER SMALL CAP VALUE FUND -
INVESTOR SHARES - GROWTH OF $10,000
[GRAPH]
Berger Small Cap Value Fund -
Investor Shares $42,791
Russell 2000 Value Index $30,231
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30,2002
One Year (2.52)%
Five Year 6.87%
Ten Year 15.65%
BERGER SMALL CAP VALUE FUND -
INVESTOR SHARES - GROWTH OF $250,000
[GRAPH]
Berger Small Cap Value Fund -
Institutional Shares $1,089,977
Russell 2000 Value Index $ 755,781
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30,2002
One Year (2.13)%
Five Year 7.23%
Ten Year 15.86%
(1)Russell 2000(R) Value Index measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth values.
The Index is unmanaged and includes reinvestment of dividends and capital gains,
but does not reflect management fees, trading costs and other expenses.
Investors cannot actually make investments in the Index.
OPINIONS AND FORECASTS REGARDING SECTORS, INDUSTRIES, COMPANIES AND/OR THEMES
ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET CONDITIONS AND SHOULD NOT BE
CONSTRUED AS A RECOMMENDATION OF ANY SPECIFIC SECURITY. PORTFOLIO HOLDINGS AND
COMPOSITION ARE SUBJECT TO CHANGE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment returns and
principal value will fluctuate,and you may have a gain or loss when you sell
shares. Performance information provided in this report does not reflect the
deduction of taxes shareholders may pay on Fund distributions or the redemption
of Fund shares. Performance data for the Investor Shares include periods prior
to the adoption of class designations on February 14, 1997, and therefore does
not reflect the 0.25% per year 12b-1 fee applicable to the Investor Shares. This
would have reduced the Investor Shares' return. Due to recent market volatility,
the Fund may have an increased position in cash for temporary defensive
purposes. Investments in small-company stocks may involve greater risks,
including price volatility, and rewards than investments in larger
companies. Please visit our web site at www.berger.com for more current
performance information.
Berger Funds o September 30, 2002 Combined Annual Report
33
Berger Funds
BERGER SMALL CAP
VALUE FUND
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (88.24%)
Banks - Northeast (2.83%)
2,000,000 Seacoast Financial Services Corp.## $40,140,000
1,650,000 Susquehanna Bancshares, Inc. 35,722,500
- --------------------------------------------------------------------------------
75,862,500
- --------------------------------------------------------------------------------
Banks - Southeast (1.80%)
1,725,000 F.N.B. Corp.## 48,334,500
- --------------------------------------------------------------------------------
Banks - West/Southwest (1.69%)
2,500,000 Greater Bay Bancorp.## 45,475,000
- --------------------------------------------------------------------------------
Building - Air Conditioning & Heating Products (1.82%)
1,164,420 Tecumseh Products Co. - Class A## 48,859,063
- --------------------------------------------------------------------------------
Building - Cement/Concrete/AG (0.41%)
450,000 Texas Industries, Inc. 10,926,000
- --------------------------------------------------------------------------------
Building - Residential/Commercial (1.74%)
2,000,000 Standard Pacific Corp.## 46,760,000
- --------------------------------------------------------------------------------
Building Products - Wood (1.56%)
1,000,000 Rayonier, Inc.## 41,910,000
- --------------------------------------------------------------------------------
Chemicals - Plastics (0.96%)
3,000,000 PolyOne Corp. 25,770,000
- --------------------------------------------------------------------------------
Commercial Services - Staffing (0.92%)
3,500,000 Spherion Corp.*## 24,675,000
- --------------------------------------------------------------------------------
Computer - Memory Devices (0.98%)
5,500,000 Advanced Digital
Information Corp.*## 26,400,000
- --------------------------------------------------------------------------------
Computer - Networking (0.57%)
2,800,000 Foundry Networks, Inc.* 15,344,000
- --------------------------------------------------------------------------------
Computer - Services (0.14%)
2,140,630 Covansys Corp.*## 3,639,071
- --------------------------------------------------------------------------------
Computer Software - Enterprise (2.24%)
2,400,000 Captaris, Inc.*## 5,517,600
4,500,000 Informatica Corp.*## 13,950,000
5,800,000 Micromuse, Inc.*## 14,616,000
2,161,900 Progress Software Corp.*## 26,158,990
- --------------------------------------------------------------------------------
60,242,590
- --------------------------------------------------------------------------------
Computer Software - Finance (0.69%)
3,000,000 Transaction Systems
Architects, Inc. - Class A## 18,600,000
- --------------------------------------------------------------------------------
Diversified Operations (3.69%)
106,010 Carlisle Companies, Inc. 3,888,447
2,200,000 Federal Signal Corp.## 40,524,000
2,000,000 The Manitowoc Co., Inc.## 54,700,000
- --------------------------------------------------------------------------------
99,112,447
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (88.24%) - CONTINUED
Electrical - Equipment (2.30%)
2,175,000 A.O. Smith Corp.## $61,813,500
- --------------------------------------------------------------------------------
Electronics - Measuring Instruments (0.97%)
1,000,000 Mettler Toledo International, Inc.* 26,000,000
- --------------------------------------------------------------------------------
Electronics - Scientific Instruments (1.35%)
3,200,000 Newport Corp.*## 36,096,000
- --------------------------------------------------------------------------------
Electronics - Semiconductor Equipment (0.61%)
2,700,000 Asyst Technologies, Inc.*## 16,308,000
- --------------------------------------------------------------------------------
Electronics - Semiconductor Manufacturing (0.91%)
2,300,000 Integrated Silicon Solutions, Inc.*## 6,854,000
4,500,000 Silicon Storage Technology, Inc.* 17,595,000
- --------------------------------------------------------------------------------
24,449,000
- --------------------------------------------------------------------------------
Finance - REIT (8.08%)
1,800,000 Brandywine Reality Trust## 40,590,000
1,650,000 Gables Residential Trust## 44,071,500
1,800,000 Home Properties of New York, Inc.## 58,500,000
3,000,000 JDN Realty Corp.## 36,240,000
1,300,000 Prentiss Properties Trust 37,622,000
- --------------------------------------------------------------------------------
217,023,500
- --------------------------------------------------------------------------------
Finance - Savings & Loan (2.82%)
1,454,120 Downey Financial Corp.## 49,803,610
1,540,000 Waypoint Financial Corp. 25,964,400
- --------------------------------------------------------------------------------
75,768,010
- --------------------------------------------------------------------------------
Household/Office Furniture (3.25%)
700,000 Furniture Brands International, Inc.* 16,065,000
3,071,770 La-Z-Boy, Inc.## 71,265,064
- --------------------------------------------------------------------------------
87,330,064
- --------------------------------------------------------------------------------
Insurance - Property/Casualty/Title (3.44%)
971,680 Horace Mann Educators Corp. 14,283,696
1,500,000 IPC Holdings Ltd.*## 44,055,000
1,200,000 Old Republic International Corp. 34,056,000
- --------------------------------------------------------------------------------
92,394,696
- --------------------------------------------------------------------------------
Internet - Security/Solutions (0.52%)
5,100,000 SonicWall, Inc.*## 14,025,000
- --------------------------------------------------------------------------------
Internet - Software (2.16%)
3,200,000 Filenet Corp.*## 33,120,000
9,000,000 Openwave Systems, Inc.*## 5,580,000
4,000,000 Webmethods, Inc.*## 19,320,000
- --------------------------------------------------------------------------------
58,020,000
- --------------------------------------------------------------------------------
Machinery - Construction/Mining (1.18%)
3,800,000 Joy Global, Inc.*## 31,540,000
- --------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
4
BERGER SMALL CAP
VALUE FUND
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (88.24%) - CONTINUED
Machinery - General Industrial (2.94%)
2,100,000 Briggs & Stratton Corp.## $78,834,000
- --------------------------------------------------------------------------------
Medical - Hospitals (2.47%)
1,100,000 Lifepoint Hospitals, Inc.* 34,306,800
1,870,000 Province Healthcare Co.* 32,070,500
- --------------------------------------------------------------------------------
66,377,300
- --------------------------------------------------------------------------------
Medical - Nursing Homes (2.76%)
3,300,000 Manor Care, Inc.* 74,184,000
- --------------------------------------------------------------------------------
Medical/Dental - Supplies (2.04%)
1,600,000 Invacare Corp.## 54,800,000
- --------------------------------------------------------------------------------
Metal - Processing & Fabrication (2.63%)
2,200,000 Kaydon Corp.## 44,088,000
3,000,000 Maverick Tube Corp.*## 26,610,000
- --------------------------------------------------------------------------------
70,698,000
- --------------------------------------------------------------------------------
Office - Equipment & Automation (0.85%)
3,000,000 InFocus Corp.*## 22,860,000
- --------------------------------------------------------------------------------
Oil & Gas - Field Services (2.76%)
9,400,000 Key Energy Services, Inc.*## 74,072,000
- --------------------------------------------------------------------------------
Oil & Gas - U.S.Exploration & Production (8.19%)
1,750,000 Newfield Exploration Co.* 58,782,500
2,000,000 Noble Energy, Inc. 67,940,000
1,300,000 Pogo Producing Co. 44,278,000
1,500,000 Stone Energy Corp.*## 48,750,000
- --------------------------------------------------------------------------------
219,750,500
- --------------------------------------------------------------------------------
Paper & Paper Products (0.27%)
1,024,990 Longview Fibre Co.## 7,113,431
- --------------------------------------------------------------------------------
Retail - Apparel/Shoe (0.62%)
1,650,000 The Children's Place
Retail Stores, Inc.*## 16,665,000
- --------------------------------------------------------------------------------
Retail - Super/Mini Markets (0.58%)
1,350,000 Casey's General Stores, Inc. 15,592,500
- --------------------------------------------------------------------------------
Shoes & Related Apparel (2.21%)
3,948,890 Wolverine World Wide, Inc.## 59,233,350
- --------------------------------------------------------------------------------
Telecommunications - Equipment (2.72%)
3,300,000 C-COR.net Corp.*## 12,243,000
4,500,000 Dycom Industries, Inc.*## 41,220,000
4,000,000 Remec, Inc.*## 13,640,000
4,967,500 Stratex Networks, Inc.*## 5,811,975
- --------------------------------------------------------------------------------
72,914,975
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Shares/Par Value Value
- --------------------------------------------------------------------------------
COMMON STOCK (88.24%) - CONTINUED
Transportation - Air Freight (0.66%)
1,550,000 Airborne, Inc. $17,577,000
- --------------------------------------------------------------------------------
Transportation - Equipment Manufacturing (2.26%)
3,000,000 Trinity Industries, Inc. ## 49,380,000
2,100,000 Wabash National Corp.*## 11,361,000
- --------------------------------------------------------------------------------
60,741,000
- --------------------------------------------------------------------------------
Transportation - Rail (0.81%)
1,762,340 Kansas City Southern* 21,853,016
- --------------------------------------------------------------------------------
Transportation - Shipping (1.17%)
1,100,000 Teekay Shipping Corp. 31,350,000
- --------------------------------------------------------------------------------
Transportation - Truck (2.67%)
2,280,000 CNF Transportation, Inc.## 71,569,200
- --------------------------------------------------------------------------------
Total Common Stock
(Cost $2,824,213,614) 2,368,863,213
- --------------------------------------------------------------------------------
U.S. Government Agency Obligations (3.73%)
$100,000,000 FHLB Discount Note;
1.83%, 10/01/02 100,000,000
- --------------------------------------------------------------------------------
Total U.S. Government Agency Obligations
(Cost $100,000,000) 100,000,000
- --------------------------------------------------------------------------------
Repurchase Agreement (8.11%)
$217,823,000 State Street Repurchase Agreement,
1.88%, dated 9/30/02, due 10/1/02,
to be repurchased at $217,834,375# 217,823,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $217,823,000) 217,823,000
- --------------------------------------------------------------------------------
Total Investments (Cost $3,142,036,614)(100.08%) 2,686,686,213
Total Other Assets, Less Liabilities (-0.08%) (2,180,560)
- --------------------------------------------------------------------------------
Net Assets (100.00%) $2,684,505,653
- --------------------------------------------------------------------------------
*Non-income producing security
# - The repurchase agreement is fully collateralized by Sallie Mae and FHLB
Agency Notes with values totaling $222,187,590.
FHLB - Federal Home Loan Bank.
REIT - Real Estate Investment Trust.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
35
Berger Funds
================================================================================
SCHEDULE OF INVESTMENTS
## The Investment Company Act of 1940 defines affiliates as those companies in
which a fund holds 5% or more of the outstanding voting securities. Following
is a summary of the transactions with affiliates for the year ended September
30, 2002.
Change in
Market Value Purchases Sales Unrealized Market Value
9/30/2001 at Cost at Cost Appr./(Depr.) 9/30/2002
- ------------------------------------------------------------------------------------------------------------------------------------
A.O. Smith Corp. $ 27,400,286 $ 13,832,334 -- $ 20,580,880 $ 61,813,500
Advanced Digital Information Corp. 36,085,000 20,794,820 -- (30,479,820) 26,400,000
Alpharma, Inc. 48,960,000 8,105,500 (52,265,826) (4,799,674) --
Asyst Technologies, Inc. 25,340,000 4,684,225 (9,253,420) (4,462,805) 16,308,000
Beverly Enterprises, Inc. -- 65,327,850 (65,327,850) -- --
Brandywine Realty Trust 38,394,000 -- -- 2,196,000 40,590,000
Briggs & Stratton Corp. 65,541,000 -- -- 13,293,000 78,834,000
Captaris, Inc. 5,016,000 -- -- 501,600 5,517,600
C-COR.net Corp. 20,550,000 16,169,875 (12,833,054) (11,643,821) 12,243,000
CNF Transportation, Inc. 57,075,000 4,010,869 (10,886,773) 21,370,104 71,569,200
Computer Network Technology Corp. 29,456,000 -- (35,373,774) 5,917,774 --
Covansys Corp. 18,709,106 -- -- (15,070,035) 3,639,071
Dollar Thrifty Automotive Group, Inc. 18,000,246 -- (33,378,980) 15,378,734 --
Downey Financial Corp. -- 67,774,413 (13,612,758) (4,358,045) 49,803,610
Dycom Industries, Inc. 40,020,000 15,256,096 -- (14,056,096) 41,220,000
F.N.B. Corp. 27,457,500 17,422,149 -- 3,454,851 48,334,500
Federal Signal Corp. 26,460,000 26,768,685 (11,698,609) (1,006,076) 40,524,000
Filenet Corp. 27,189,000 15,160,692 (5,838,832) (3,390,860) 33,120,000
Fleetwood Enterprises, Inc. 34,186,204 -- (37,478,151) 3,291,947 --
Gables Residential Trust 30,660,000 18,920,050 -- (5,508,550) 44,071,500
Greater Bay Bancorp 51,194,000 13,689,665 (8,066,893) (11,341,772) 45,475,000
Home Properties of New York, Inc. 56,952,000 -- -- 1,548,000 58,500,000
Hyperion Solutions Corp. 30,060,000 -- (34,038,262) 3,978,262 --
InFocus Corp. 19,575,000 23,774,040 -- (20,489,040) 22,860,000
Informatica Corp. -- 34,477,811 -- (20,527,811) 13,950,000
Integrated Silicon Solutions, Inc. 19,757,000 -- -- (12,903,000) 6,854,000
Invacare Corp. -- 55,608,025 -- (808,025) 54,800,000
IPC Holdings Ltd. 42,180,000 -- (8,121,293) 9,996,293 44,055,000
JDA Software Group, Inc. 16,214,365 -- (13,100,118) (3,114,247) --
JDN Realty Corp. 31,800,000 -- -- 4,440,000 36,240,000
Joy Global, Inc. 29,700,000 29,067,684 -- (27,227,684) 31,540,000
Kaydon Corp. 40,997,893 4,756,453 -- (1,666,346) 44,088,000
Key Energy Services, Inc. 48,654,636 14,444,505 -- 10,972,859 74,072,000
La-Z-Boy, Inc. 59,686,200 4,623,744 (16,451,612) 23,406,732 71,265,064
Longview Fibre Co. 35,350,000 -- (32,336,423) 4,099,854 7,113,431
Maverick Tube Corp. -- 48,060,344 -- (21,450,344) 26,610,000
Micromuse, Inc. -- 45,070,985 -- (30,454,985) 14,616,000
Newpark Resources, Inc. 26,304,952 2,052,529 (33,261,979) 4,904,498 --
Newport Corp. 19,740,000 35,603,086 -- (19,247,086) 36,096,000
NMS Communications Corp. 5,096,005 -- (27,124,783) 22,028,778 --
Openwave Systems, Inc. -- 42,236,146 -- (36,656,146) 5,580,000
Pacific Sunwear of California, Inc. 31,422,050 6,256,386 (43,351,347) 5,672,911 --
Progress Software Corp. 29,970,077 7,367,769 (7,530,253) (3,648,603) 26,158,990
Rayonier, Inc. 60,705,000 -- (21,639,900) 2,844,900 41,910,000
Remec, Inc. 27,755,000 3,486,921 -- (17,601,921) 13,640,000
Schulman (A.), Inc. 22,550,000 -- (31,432,748) 8,882,748 --
Seacoast Financial Services Corp. 29,740,000 -- -- 10,400,000 40,140,000
SonicWall, Inc. -- 39,287,598 -- (25,262,598) 14,025,000
Spherion Corp. 25,200,000 -- -- (525,000) 24,675,000
Standard Pacific Corp. 33,167,000 9,463,289 (2,607,360) 6,737,071 46,760,000
Stone Energy Corp. 40,250,000 8,415,698 -- 84,302 48,750,000
Stratex Networks, Inc. 20,219,511 4,563,617 -- (18,971,153) 5,811,975
Tecumseh Products Co. 54,636,000 4,483,871 (7,124,197) (3,136,611) 48,859,063
The Children's Place Retail Stores, Inc. 17,930,000 19,793,108 2,518,003 (23,576,111) 16,665,000
The Manitowoc Co., Inc. 55,752,000 -- (8,479,331) 7,427,331 54,700,000
Transaction Systems Architects, Inc.-
Class A 16,328,000 4,002,887 -- (1,730,887) 18,600,000
Trinity Industries, Inc. 62,785,000 2,085,393 -- (15,490,393) 49,380,000
Wabash National Corp. 14,490,000 -- -- (3,129,000) 11,361,000
Watts Industries, Inc. - Class A 24,801,575 -- (21,652,257) (3,149,318) --
Webmethods, Inc. 15,893,000 28,943,182 (9,477,606) (16,038,576) 19,320,000
Wolverine World Wide, Inc. 43,680,000 10,603,788 -- 4,949,562 59,233,350
--------------- ---------------
$ 1,737,035,606 $ 1,707,691,854
=============== ===============
Dividend Realized
Income Gain/(Loss)
- --------------------------------------------------------------------------------
A.O. Smith Corp. $ 1,012,474 --
Advanced Digital Information Corp. -- --
Alpharma, Inc. 160,666 (19,075,939)
Asyst Technologies, Inc. -- (209,090)
Beverly Enterprises, Inc. -- (45,299,513)
Brandywine Realty Trust 3,012,468 --
Briggs & Stratton Corp. 2,667,000 --
Captaris, Inc. -- --
C-COR.net Corp. -- 7,657,539
CNF Transportation, Inc. 990,500 1,104,770
Computer Network Technology Corp. -- 13,057,627
Covansys Corp. -- --
Dollar Thrifty Automotive Group, Inc. -- 3,801,900
Downey Financial Corp. 468,122 (1,286,652)
Dycom Industries, Inc. -- --
F.N.B. Corp. 1,186,290 --
Federal Signal Corp. 1,552,500 (1,130,564)
Filenet Corp. -- 855,648
Fleetwood Enterprises, Inc. 122,312 (10,130,185)
Gables Residential Trust 2,772,211 --
Greater Bay Bancorp 815,500 1,771,807
Home Properties of New York, Inc. 3,423,600 --
Hyperion Solutions Corp. -- 9,202,024
InFocus Corp. -- --
Informatica Corp. -- --
Integrated Silicon Solutions, Inc. -- --
Invacare Corp. 61,922 --
IPC Holdings Ltd. -- 1,040,795
JDA Software Group, Inc. -- 8,088,838
JDN Realty Corp. 949,920 --
Joy Global, Inc. -- --
Kaydon Corp. 1,056,000 --
Key Energy Services, Inc. -- --
La-Z-Boy, Inc. 1,322,400 6,964,165
Longview Fibre Co. 105,000 (8,922,253)
Maverick Tube Corp. -- --
Micromuse, Inc. -- --
Newpark Resources, Inc. -- (15,183,944)
Newport Corp. -- --
NMS Communications Corp. -- (9,934,480)
Openwave Systems, Inc. -- --
Pacific Sunwear of California, Inc. -- 13,768,411
Progress Software Corp. -- (713,095)
Rayonier, Inc. 1,926,000 4,220,484
Remec, Inc. -- --
Schulman (A.), Inc. 1,041,912 12,213,637
Seacoast Financial Services Corp. 800,000 --
SonicWall, Inc. -- --
Spherion Corp. -- --
Standard Pacific Corp. 640,000 746,722
Stone Energy Corp. -- --
Stratex Networks, Inc. -- --
Tecumseh Products Co. 1,642,506 (776,530)
The Children's Place Retail Stores, Inc. -- 669,841
The Manitowoc Co., Inc. 517,500 2,513,682
Transaction Systems Architects, Inc.-
Class A -- --
Trinity Industries, Inc. 1,398,000 --
Wabash National Corp. 21,000 --
Watts Industries, Inc. - Class A 216,697 9,687,143
Webmethods, Inc. -- 9,964,823
Wolverine World Wide, Inc. 685,100 --
--------------- ---------------
$ 30,567,600 $ (5,332,389)
=============== ===============
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
36
Ticker Symbol - Investor Shares BVSCX
- Institutional Shares BVSIX
- Service Shares BVSSX
Fund Number - Investor Shares 918
- Institutional Shares 919
BERGER SMALL CAP - Institutional Shares 920
VALUE FUND II PORTFOLIO MANAGER COMMENTARY BAY ISLE FINANCIAL LLC
================================================================================
MARKET CONDITIONS
The Berger Small Cap Value Fund II's first six-months was truly dismal for
stocks of any ilk. After reaching a peak in March of 2000, U.S. stocks have been
locked in the grips of one of the worst bear markets on record. The current bear
market in the United States has now exceeded in both time and severity the
1973/74 bear market, and has become nearly as long--and as ugly--as 1929-32. The
economy does not appear to be rebounding as quickly as investors had originally
expected. This dire situation combined with lofty valuations of stocks has
driven down the equity markets. Investors have given up on a 2002 recovery and
now look with skepticism at prospects for a resurgence in 2003. Small-cap stocks
declined 28.0% during the second and third quarters of the year according to
Ibbotson Associates. Small-cap value stocks did not fare any better descending
23.0%, as measured by the Russell 2000 Value Index.(1) Since the beginning of
the year small-cap value stocks have declined 15.6%, a performance that would be
the second worst year for small-cap value stocks since Russell started tracking
this group back in 1979. Large-cap stocks, international stocks and real estate
investment trusts also declined, leaving investors no haven this year.
FUND PERFORMANCE
The Berger Small Cap Value Fund II (the "Fund") declined by 17.40% (Investor
Shares), 17.40% (Institutional Shares) and 17.60% (Service Shares) since its
inception on March 28, 2002, compared with a 22.96% decline posted by its
benchmark, the Russell 2000 Value Index during that same period. A number of
stocks in the information technology and industrial sectors disappointed us
during this past quarter, but the fundamentals for most continue to be as
expected.
The Fund continues to have a significant overweight in financials. The two
largest industry representations within financials are banks and real estate
investment trusts (REITs). The performance of these two segments of the
portfolio was largely responsible for the Fund's performance this period. Most
of the Fund's bank holdings, including WSFS Financial Corp., The First of Long
Island and BancFirst Corp., are relatively solid community-based banks with
sound balance sheets, which have not come under too much stress during the
recent economic downturn. Somewhat surprisingly, credit quality has held up
reasonably well. REITs also held up better than the benchmark, we believe in
part as a result of their stable earnings stream and high dividend yield.
However, the weighting in this sector exceeded our upper limit several times
during the quarter, forcing us to sell or reduce several positions.
The performance of our information technology stocks was very disappointing. A
number of companies announced that their businesses were not performing as well
as investors had hoped, including telecommunications companies Riverstone
Networks and Optical Communications Products. Riverstone, a networking equipment
manufacturer, has suffered from the spending decline in this arena. Despite an
abundance of cash on its balance sheet, Optical suffered alongside its
telecommunications competitors.We were also disappointed by middleware software
designer IONA Technologies.U.S.businesses appear to have postponed non-vital
spending on information technology until the economy recovers. Our patience is
wearing thin with this stock, however, and it may be replaced during the
calendar fourth quarter.
Our holdings in the consumer discretionary sector also turned in a lackluster
third quarter. Investors are increasingly skeptical that U.S. consumers can keep
spending at the high pace seen in recent quarters.This would likely hurt sales
of retail stores and of companies selling big-ticket items such as automobiles
and appliances.
Within the healthcare sector, we were disappointed by AMERIGROUP Corp., which
offers managed healthcare services to the Medicaid market. Medical services
price inflation is not just a problem for individuals and corporations, but also
for the states. The individual states are starting to outsource Medicaid
services, a trend clearly benefiting AMERIGROUP.
OUTLOOK
The economy is not growing as quickly as was expected just a few months ago.
Spending by consumers, which comprises two-thirds of the country's GDP, has been
responsible for keeping us out of a prolonged recession. However, consumers may
cut their spending as they are frightened by further declines in the stock
market and higher unemployment. Meanwhile corporations have continued to curtail
capital spending because of overcapacity and a desire to conserve their cash
flow. Economists now expect only flat to modest growth for corporate capital
spending in 2003. We expect the U.S. economy to grow modestly in 2003 after a
meager increase in 2001 and a lackluster increase forecasted for 2002. The stock
market is still trying to come to terms with the largest financial bubble in
U.S. history, and those excesses are not easily erased. We are finding what
appear to be good opportunities among small-cap stocks following the significant
market declines this year. Many opportunities arise because we don't believe the
market is perfectly efficient. We believe the economy will generate modest
growth in the coming years, but the valuations seen in the equity markets might
not yet reflect these moderate growth trends of the future.
Berger Funds o September 30, 2002 Combined Annual Report
37
Berger Funds
PERFORMANCE OVERVIEW
================================================================================
BERGER SMALL CAP VALUE FUND II -
INVESTOR SHARES - GROWTH OF $10,000
[GRAPH]
9/30/02
Berger Small Cap Value Fund II -
Investor Shares $ 8,260
Russell 2000 Value Index $ 7,704
TOTAL RETURN AS OF SEPTEMBER 30,2002
Life of Fund (3/28/02) (17.40)%
- --------------------------------------------------------------------------------
BERGER SMALL CAP VALUE FUND II -
INSTITUTIONAL SHARES - GROWTH OF $250,000
[GRAPH]
9/30/02
Berger Small Cap Value Fund II -
Institutional Shares $206,500
Russell 2000 Value Index $192,602
TOTAL RETURN AS OF SEPTEMBER 30, 2002
Life of Fund (3/28/02) (17.40)%
Berger Funds o September 30, 2002 Combined Annual Report
38
PERFORMANCE OVERVIEW
================================================================================
BERGER SMALL CAP VALUE FUND II -
SERVICE SHARES - GROWTH OF $10,000
[GRAPH]
9/30/02
Berger Small Cap Value Fund II -
Service Shares $ 8,240
Russell 2000 Value Index $ 7,704
TOTAL RETURN AS OF SEPTEMBER 30, 2002
Life of Fund (3/28/02) (17.60)%
(1) Russell 2000(R) Value Index measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth values.
The Index is unmanaged and includes reinvestment of dividends and capital gains,
but does not reflect management fees, trading costs and other expenses.
Investors cannot actually make investments in the Index.
Opinions and forecasts regarding sectors, industries, companies and/or themes
are subject to change at any time based on market conditions and should not be
construed as a recommendation of any specific security. Portfolio holdings and
composition are subject to change.
Past performance is no guarantee of future results. Investment returns and
principal value will fluctuate, and you may have a gain or loss when you sell
shares. Performance information provided in this report does not reflect the
deduction of taxes shareholders may pay on Fund distributions or the redemption
of Fund shares. Returns for periods less than one year are not annualized.
Investments in small-company stocks may involve greater risks, including price
volatility, and rewards than investments in larger companies. Please visit our
web site at www.berger.com for more current performance information.
Berger Funds o September 30, 2002 Combined Annual Report
39
Berger Funds
BERGER SMALL CAP
VALUE FUND II
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Common Stock (96.70%)
Agricultural Operations (1.92%)
7,346 Delta and Pine Land Co. $137,664
- --------------------------------------------------------------------------------
Banks - Midwest (4.59%)
3,663 1st Source Corp. 51,612
2,997 First Defiance Financial Corp. 51,458
1,963 First Financial Corp. 95,107
1,971 Peoples Bancorp., Inc. 50,655
2,050 UMB Financial Corp. 80,032
- --------------------------------------------------------------------------------
328,864
- --------------------------------------------------------------------------------
Banks - Northeast (9.69%)
3,733 Camden National Corp. 97,058
3,411 CCBT Financial Companies, Inc. 89,266
2,849 Community Bank System, Inc. 84,416
7,107 First Commonwealth Financial Corp. 88,056
2,866 Omega Financial Corp. 96,728
4,401 The First of Long Island Corp. 146,333
4,656 Washington Trust Bancorp., Inc. 91,909
- --------------------------------------------------------------------------------
693,766
- --------------------------------------------------------------------------------
Banks - Southeast (5.35%)
2,230 BancorpSouth, Inc. 43,931
4,783 Bank of Granite Corp. 86,094
887 First Citizens BancShares, Inc. -
Class A 93,135
4,302 Simmons First National Corp. -
Class A 159,948
- --------------------------------------------------------------------------------
383,108
- --------------------------------------------------------------------------------
Banks - West/Southwest (4.11%)
2,261 BancFirst Corp. 111,286
4,387 Nara Bancorp., Inc. 75,764
4,242 TriCo Bancshares 107,323
- --------------------------------------------------------------------------------
294,373
- --------------------------------------------------------------------------------
Building - Air Conditioning & Heating Products (1.04%)
1,776 Tecumseh Products Co. - Class A 74,521
- --------------------------------------------------------------------------------
Building - Construction Products/Miscellaneous (1.21%)
2,439 The Genlyte Group, Inc.* 86,633
- --------------------------------------------------------------------------------
Chemicals - Basic (1.01%)
6,832 Symyx Technologies, Inc.* 72,214
- --------------------------------------------------------------------------------
Chemicals - Specialty (1.47%)
5,021 Cabot Corp. 105,441
- --------------------------------------------------------------------------------
Commercial Services - Miscellaneous (1.75%)
10,295 Information Resources, Inc.* 38,195
22,390 Zomax, Inc.* 87,321
- --------------------------------------------------------------------------------
125,516
- --------------------------------------------------------------------------------
Commercial Services - Printing (1.23%)
8,816 Bowne & Co., Inc. 88,160
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
Common Stock (96.70%) - continued
Commercial Services - Staffing (1.16%)
11,802 Spherion Corp.* $ 83,204
- --------------------------------------------------------------------------------
Computer - Integrated Systems (1.33%)
2,817 Kronos, Inc.* 69,383
7,967 Wind River Systems, Inc.* 25,654
- --------------------------------------------------------------------------------
95,037
- --------------------------------------------------------------------------------
Computer - Networking (0.48%)
5,627 Extreme Networks, Inc.* 23,690
20,545 Riverstone Networks, Inc.* 10,478
- --------------------------------------------------------------------------------
34,168
- --------------------------------------------------------------------------------
Computer - Services (0.82%)
4,632 American Management Systems, Inc.* 58,965
- --------------------------------------------------------------------------------
Computer Software - Enterprise (2.95%)
10,921 IONA Technologies PLC - ADR* 22,768
11,844 Lightbridge, Inc.* 79,237
9,423 Sybase, Inc.* 109,495
- --------------------------------------------------------------------------------
211,500
- --------------------------------------------------------------------------------
Electrical - Control Instruments (0.82%)
4,372 CIRCOR International, Inc. 58,585
- --------------------------------------------------------------------------------
Electronics - Miscellaneous Components (0.61%)
5,073 KEMET Corp.* 43,374
- --------------------------------------------------------------------------------
Electronics - Miscellaneous Products (0.24%)
1,857 Plexus Corp.* 17,177
- --------------------------------------------------------------------------------
Electronics - Semiconductor Equipment (0.50%)
6,939 Semitool, Inc.* 35,736
- --------------------------------------------------------------------------------
Fiber Optic Components (0.58%)
54,167 Optical Communication Products, Inc.* 41,709
- --------------------------------------------------------------------------------
Finance - Index Tracking Fund (2.77%)
1,857 iShares Russell 2000 Value Index Fund 198,513
- --------------------------------------------------------------------------------
Finance - REIT (8.04%)
1,931 Alexandria Real Estate Equities, Inc. 82,029
1,343 CarrAmerica Realty Corp. 33,803
2,161 Chateau Communities, Inc. 57,072
3,120 Cousins Properties, Inc. 71,760
200 Health Care Property Investors, Inc. 8,520
931 Home Properties of New York, Inc. 30,258
3,580 IRT Property Co. 42,065
5,489 LTC Properties, Inc. 44,571
2,598 Manufactured Home Communities, Inc. 82,824
2,249 National Health Investors, Inc. 34,297
1,839 Shurgard Storage Centers, Inc. -
Class A 58,149
2,132 Taubman Centers, Inc. 30,338
- --------------------------------------------------------------------------------
575,686
- --------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
40
BERGER SMALL CAP VALUE FUND II
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (96.70%) - CONTINUED
Finance - Savings & Loan (6.99%)
3,378 FirstFed Financial Corp.* $ 86,984
3,569 Parkvale Financial Corp. 84,050
6,519 Provident Financial Holdings, Inc. 153,196
6,298 WSFS Financial Corp. 176,344
- --------------------------------------------------------------------------------
500,574
- --------------------------------------------------------------------------------
Insurance - Property/Casualty/Title (1.65%)
7,273 Ohio Casualty Corp.* 118,404
- --------------------------------------------------------------------------------
Leisure - Toys/Games/Hobby (1.58%)
6,936 Racing Champions Ertl Corp.* 113,334
- --------------------------------------------------------------------------------
Media - Cable/Satellite TV (1.71%)
7,215 Applied Industrial Technologies, Inc. 122,294
- --------------------------------------------------------------------------------
Medical - Health Maintenance Organizations (2.42%)
5,154 AMERIGROUP Corp.* 172,917
- --------------------------------------------------------------------------------
Medical - Systems/Equipment (1.07%)
2,817 Datascope Corp. 76,228
- --------------------------------------------------------------------------------
Medical/Dental - Supplies (1.31%)
1,779 The Cooper Companies, Inc. 93,398
- --------------------------------------------------------------------------------
Metal - Processing & Fabrication (0.69%)
5,600 Maverick Tube Corp.* 49,672
- --------------------------------------------------------------------------------
Office - Equipment & Automation (1.11%)
3,121 HON INDUSTRIES, Inc. 79,429
- --------------------------------------------------------------------------------
Oil & Gas - Drilling (0.84%)
2,045 Atwood Oceanics, Inc.* 59,816
- --------------------------------------------------------------------------------
Oil & Gas - Field Services (0.91%)
3,218 TETRA Technologies, Inc.* 64,843
- --------------------------------------------------------------------------------
Oil & Gas - Transport/Pipeline (1.76%)
1,379 El Paso Energy Partners, L.P. 40,791
1,430 TEPPCO Partners, L.P. 41,756
1,335 Williams Energy Partners, L.P. 43,387
- --------------------------------------------------------------------------------
125,934
- --------------------------------------------------------------------------------
Retail - Miscellaneous/Diversified (2.20%)
3,276 Group 1 Automotive, Inc.* 73,219
5,625 Movie Gallery, Inc.* 84,431
- --------------------------------------------------------------------------------
157,650
- --------------------------------------------------------------------------------
Retail - Super/Mini Markets (3.22%)
8,214 Ruddick Corp. 124,771
3,152 Weis Markets, Inc. 105,529
- --------------------------------------------------------------------------------
230,300
- --------------------------------------------------------------------------------
Retail/Wholesale - Jewelry (1.01%)
2,407 Zale Corp.* 72,595
- --------------------------------------------------------------------------------
</Table>
September 30, 2002
- --------------------------------------------------------------------------------
Shares/Par Value Value
- --------------------------------------------------------------------------------
COMMON STOCK (96.70%) - CONTINUED
Retail/Wholesale - Office Supplies (1.30%)
3,533 United Stationers, Inc.* $ 92,918
- --------------------------------------------------------------------------------
Shoes & Related Apparel (0.61%)
7,686 Vans, Inc.* 43,733
- --------------------------------------------------------------------------------
Steel - Specialty Alloys (1.61%)
10,970 RTI International Metals, Inc.* 115,185
- --------------------------------------------------------------------------------
Telecommunications - Equipment (1.40%)
2,961 Dycom Industries, Inc.* 27,123
5,829 Scientific-Atlanta, Inc. 72,921
- --------------------------------------------------------------------------------
100,044
- --------------------------------------------------------------------------------
Telecommunications - Wireless Services (2.09%)
14,497 Boston Communications Group, Inc.* 149,609
- --------------------------------------------------------------------------------
Textile - Apparel Manufacturing (2.54%)
9,559 Nautica Enterprises, Inc.* 99,413
8,805 Tommy Hilfiger Corp.* 82,327
- --------------------------------------------------------------------------------
181,740
- --------------------------------------------------------------------------------
Tobacco (1.09%)
2,218 Universal Corp. 77,785
- --------------------------------------------------------------------------------
Trucks & Parts - Heavy Duty (0.71%)
5,196 Stewart & Stevenson Services, Inc. 50,817
- --------------------------------------------------------------------------------
Utility - Gas Distribution (1.20%)
1,926 Atmos Energy Corp. 41,409
1,263 Piedmont Natural Gas Co., Inc. 44,799
- --------------------------------------------------------------------------------
86,208
- --------------------------------------------------------------------------------
Utility - Water Supply (2.01%)
5,482 American States Water Co. 143,738
- --------------------------------------------------------------------------------
Total Common Stock
(Cost $8,278,273) 6,923,079
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (5.13%)
$367,000 State Street Repurchase Agreement,
1.88%, dated 9/30/02, due 10/1/02,
to be repurchased at $367,019# 367,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement (Cost $367,000) 367,000
- --------------------------------------------------------------------------------
Total Investments (Cost $8,645,273) (101.83%) 7,290,079
Total Other Assets, Less Liabilities (-1.83%) (130,799)
- --------------------------------------------------------------------------------
Net Assets (100.00%) $ 7,159,280
- --------------------------------------------------------------------------------
* Non-income producing security
# - The repurchase agreement is fully collateralized by FHLB Agency Note with a
value of $378,308.
ADR - American Depositary Receipt.
FHLB - Federal Home Loan Bank.
PLC - Public Limited Company.
REIT - Real Estate Investment Trust.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
41
Berger Funds
Ticker Symbol - Investor Shares BEMVX
- Institutional Shares BEMIX
Fund Number - Investor Shares 216
- Institutional Shares 1963
PORTFOLIO MANAGER COMMENTARY THOMAS M. PERKINS
BERGER MID CAP ROBERT H. PERKINS
VALUE FUND JEFFREY KAUTZ,CFA
================================================================================
MARKET CONDITIONS
The market's performance in the most recent six months was the inverse image of
the previous six month's rally. Most of the major averages were down in each of
the past six months, with the decline accelerating and broadening as the period
drew to a close. The reasons continue to be a slow economic recovery, weak
pricing power leading to disappointing earnings, suspect business practices and
geopolitical turmoil. This has led to the highest level of redemption activity
from equity mutual funds in recent years. In our view, stock valuations have
become more reasonable, setting the stage for short-term rallies. However, the
intermediate term is still clouded by the uncertainty created by the
aforementioned factors and the fact that stock valuations still are not
unusually low.
FUND PERFORMANCE
The Berger Mid Cap Value Fund (the "Fund") was down 1.96% (Investor Shares); and
1.89% (Institutional Shares) for the year ended September 30, 2002, compared
with a 5.46% decline in its benchmark, the Russell Midcap Value Index.(1)
Reflective of the poor market environment, all sectors were down in the last six
months. The Fund's over-weighting in technology--which suffered more than any
other area--particularly hurt performance in calendar year 2002.
The Fund's largest sector weighting since its inception has been, and remains,
financials. This area generally outperformed over the past six months as real
estate investment trusts (REITs) and insurance stocks declined less than the
market. In the second calendar quarter, we used price strength to reduce the
Fund's insurance holdings and took gains in The St. Paul Companies, Mercury
General and Travelers. In the third calendar quarter, financials were hit hard,
and we reinitiated positions in Everest Reinsurance and Liberty Properties,
which we had sold in 2001 at higher prices, and bought Mercantile Bancshares.
The Fund's overweight in energy also contributed to its relative outperformance
as oil prices moved higher, we believe in response to the threat of war in the
Middle East. Although we recognize that oil prices are vulnerable, we continue
to like the long-term prospects for natural gas, safe energy assets and
beneficiaries of pent-up demand for new drilling prospects.
Technology stocks had been the Fund's best performers each year until 2002. We
increased the Fund's exposure in this area in late 2001 after the stocks had, in
general, declined more than 50 percent, despite having strong balance sheets and
what we consider good long-term prospects. Although we were expecting soft
technology spending this year, it has been much weaker than we (and many other
investors) had anticipated. Thus the performance of the Fund's holdings has been
very disappointing. Although we are overweighted relative to value indexes, the
Fund's technology weighting is at the low end of its historic range, primarily
because of the price depreciation of most of the holdings.
We have done some repositioning and taken short-term losses by eliminating eight
of the Fund's technology holdings. We have taken the opportunity to increase the
Fund's investments in what we believe are well-positioned technology stocks that
have been especially weak, including Fairchild, Vishay, Filenet and Micromuse.
Although the timing is uncertain, we believe that technology is a cyclical
growth business and that the current long-term risk/reward relationship of these
stocks is compelling. It is interesting to note that in recent index
rebalancing, technology weightings in the value component increased. Just as
irrational exuberance led to excessive valuations in the late 1990s, we believe
current market pessimism seems to have created some unusual bargains.
The consumer sector was also down sharply this period. Earnings shortfalls and
investor concerns about consumer spending weighed heavily on the group.
Particularly hard-hit were American Eagle Outfitters and Toys R US. The Fund
continues to be underweighted in this sector, but we did initiate new positions
in Furniture Brands International, SUPERVALU (after they had declined
significantly) and also Foot Locker. These are all strong franchises that, by
our estimates, are selling at less than 10 times 2003 earnings.
OUTLOOK
We reduced the Fund's cash level at the end of the quarter as stocks appeared to
be in a mini free fall. However, as has been the case for more than a year, we
are somewhat cautious in terms of the Fund's positioning. The economic recovery
has been fueled by the consumer, and the sustainability of that strength is
questionable. Thus a strong rebound in earnings is unlikely. The uncertainty
regarding terrorism and geopolitics remains high. Although we have probably
passed the peak of corporate governance and accounting surprises, more are
likely to come. Furthermore, the trend in equity mutual fund redemptions is
worrisome as an indication that investors are still overweighted in equities. In
summary, this is the most difficult environment for stocks that we have faced
since the 1970s. However, even during that period with much higher interest
rates, there were money-making opportunities for disciplined value investors.
Berger Funds o September 30, 2002 Combined Annual Report
42
PERFORMANCE OVERVIEW
================================================================================
BERGER MID CAP VALUE FUND - INVESTOR SHARES - GROWTH OF $10,000
[GRAPH]
9/30/02
Berger Mid Cap Value Fund - Investor Shares $17,251
Russell Midcap Value Index $10,886
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2002
One Year (1.96)%
Life of Fund (8/12/98) 14.08%
- --------------------------------------------------------------------------------
BERGER MID CAP VALUE FUND - INSTITUTIONAL SHARES - GROWTH OF $250,000
[GRAPH]
9/30/02
Berger Mid Cap Value Fund - Institutional Shares $431,598
Russell Midcap Value Index $272,139
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2002
One Year (1.89)%
Life of Fund (8/12/98) 14.10%
(1) Russell Midcap(R) Value Index measures the performance of those Russell
Midcap companies with lower price-to-book ratios and lower forecasted growth
values. The Index is unmanaged and includes reinvestment of dividends and
capital gains, but does not reflect management fees, trading costs and other
expenses. Investors cannot actually make investments in the Index.
OPINIONS AND FORECASTS REGARDING SECTORS, INDUSTRIES, COMPANIES AND/OR THEMES
ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET CONDITIONS AND SHOULD NOT BE
CONSTRUED AS A RECOMMENDATION OF ANY SPECIFIC SECURITY. PORTFOLIO HOLDINGS AND
COMPOSITION ARE SUBJECT TO CHANGE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment returns and
principal value will fluctuate,and you may have a gain or loss when you sell
shares. Performance information provided in this report does not reflect the
deduction of taxes shareholders may pay on Fund distributions or the redemption
of Fund shares. Due to market volatility, the Fund's current performance may be
lower than the figures shown. Performance data for Institutional Shares include
periods prior to the adoption of class designations on May 17, 2002. Please
visit our web site at www.berger.com for more current performance information.
Berger Funds o September 30, 2002 Combined Annual Report
43
Berger Funds
BERGER MID CAP
VALUE FUND
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (84.48%)
Auto/Truck - Original Equipment (2.15%)
470,000 Autoliv, Inc. $ 9,907,600
165,000 Magna International, Inc. - Class A 9,302,700
- --------------------------------------------------------------------------------
19,210,300
- --------------------------------------------------------------------------------
Banks - Northeast (2.25%)
330,000 Mercantile Bankshares Corp. 12,596,100
260,000 Wilmington Trust Corp. 7,519,200
- --------------------------------------------------------------------------------
20,115,300
- --------------------------------------------------------------------------------
Banks - Southeast (0.86%)
260,000 Compass Bancshares, Inc. 7,703,800
- --------------------------------------------------------------------------------
Banks - Super Regional (1.60%)
95,000 Northern Trust Corp. 3,581,500
440,000 SouthTrust Corp. 10,670,000
- --------------------------------------------------------------------------------
14,251,500
- --------------------------------------------------------------------------------
Banks - West/Southwest (0.69%)
340,000 Greater Bay Bancorp. 6,184,600
- --------------------------------------------------------------------------------
Building - Air Conditioning & Heating Products (0.96%)
204,720 Tecumseh Products Co. - Class A 8,590,051
- --------------------------------------------------------------------------------
Building - Hand Tools (0.62%)
240,000 Snap-On, Inc. 5,515,200
- --------------------------------------------------------------------------------
Building - Heavy Construction (1.23%)
450,000 Fluor Corp. 10,998,000
- --------------------------------------------------------------------------------
Building - Residential/Commercial (1.85%)
210,000 Pulte Homes, Inc. 8,952,300
325,000 Standard Pacific Corp. 7,598,500
- --------------------------------------------------------------------------------
16,550,800
- --------------------------------------------------------------------------------
Building Products - Wood (0.42%)
90,000 Rayonier, Inc. 3,771,900
- --------------------------------------------------------------------------------
Chemicals - Specialty (0.86%)
830,000 Hercules, Inc.* 7,644,300
- --------------------------------------------------------------------------------
Commercial Services - Staffing (0.28%)
358,000 Spherion Corp.* 2,523,900
- --------------------------------------------------------------------------------
Computer - Graphics (0.60%)
420,000 Autodesk, Inc. 5,321,400
- --------------------------------------------------------------------------------
Computer - Integrated Systems (0.81%)
220,000 Diebold, Inc. 7,242,400
- --------------------------------------------------------------------------------
Computer - Memory Devices (0.99%)
880,000 Adaptec, Inc.* 3,880,800
1,040,000 Advanced Digital Information Corp.* 4,992,000
- --------------------------------------------------------------------------------
8,872,800
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (84.48%) - CONTINUED
Computer Software - Enterprise (1.09%)
900,000 Informatica Corp.* $ 2,790,000
1,400,000 IONA Technologies PLC - ADR* 2,918,720
1,603,000 Micromuse, Inc.* 4,039,560
- --------------------------------------------------------------------------------
9,748,280
- --------------------------------------------------------------------------------
Diversified Operations (0.66%)
215,000 The Manitowoc Co., Inc. 5,880,250
- --------------------------------------------------------------------------------
Electronics - Measuring Instruments (0.95%)
325,000 Mettler Toledo International, Inc.* 8,450,000
- --------------------------------------------------------------------------------
Electronics - Miscellaneous Components (0.44%)
450,000 Vishay Intertechnology, Inc.* 3,960,000
- --------------------------------------------------------------------------------
Electronics - Scientific Instruments (0.91%)
395,000 Newport Corp.* 4,455,600
150,000 Waters Corp.* 3,637,500
- --------------------------------------------------------------------------------
8,093,100
- --------------------------------------------------------------------------------
Electronics - Semiconductor Equipment (0.47%)
700,000 Asyst Technologies, Inc.* 4,228,000
- --------------------------------------------------------------------------------
Electronics - Semiconductor Manufacturing (0.90%)
520,000 Fairchild Semiconductor Corp. - Class A* 4,924,400
785,000 Silicon Storage Technology, Inc.* 3,069,350
- --------------------------------------------------------------------------------
7,993,750
- --------------------------------------------------------------------------------
Finance - Investment Brokers (1.94%)
125,000 Edwards (A.G.), Inc. 3,997,500
250,000 Legg Mason, Inc. 10,640,000
100,000 Raymond James Financial, Inc. 2,707,000
- --------------------------------------------------------------------------------
17,344,500
- --------------------------------------------------------------------------------
Finance - Investment Management (2.13%)
285,000 Franklin Resources, Inc. 8,863,500
575,000 Waddell & Reed Financial, Inc. - Class A 10,154,500
- --------------------------------------------------------------------------------
19,018,000
- --------------------------------------------------------------------------------
Finance - Mortgage & Related Services (0.90%)
170,000 Countrywide Credit Industries, Inc. 8,015,500
- --------------------------------------------------------------------------------
Finance - REIT (7.56%)
510,000 Archstone-Smith Trust 12,178,800
175,000 Avalonbay Communities, Inc. 7,315,000
355,000 Equity Residential 8,498,700
265,000 Home Properties of New York, Inc. 8,612,500
420,000 Liberty Property Trust 13,020,000
220,000 Mack-Cali Realty Corp. 7,068,600
275,000 Vornado Realty Trust 10,848,750
- --------------------------------------------------------------------------------
67,542,350
- --------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
44
BERGER MID CAP
VALUE FUND
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (84.48%) - CONTINUED
Finance - Savings & Loan (1.77%)
170,000 Astoria Financial Corp. $ 4,148,000
145,200 Downey Financial Corp. 4,973,100
200,000 Webster Financial Corp. 6,716,000
- --------------------------------------------------------------------------------
15,837,100
- --------------------------------------------------------------------------------
Household/Office Furniture (1.96%)
450,000 Furniture Brands International, Inc.* 10,327,500
310,000 La-Z-Boy, Inc. 7,192,000
- --------------------------------------------------------------------------------
17,519,500
- --------------------------------------------------------------------------------
Insurance - Property/Casualty/Title (5.36%)
350,000 Cincinnati Financial Corp. 12,453,000
220,000 Everest Re Group Ltd. 12,069,200
360,000 IPC Holdings Ltd.* 10,573,200
450,000 Old Republic International Corp. 12,771,000
- --------------------------------------------------------------------------------
47,866,400
- --------------------------------------------------------------------------------
Internet - Security/Solutions (0.34%)
1,100,000 SonicWall, Inc.* 3,025,000
- --------------------------------------------------------------------------------
Internet - Software (1.43%)
790,000 Filenet Corp.* 8,176,500
810,000 Openwave Systems, Inc.* 502,200
850,000 Webmethods, Inc.* 4,105,500
- --------------------------------------------------------------------------------
12,784,200
- --------------------------------------------------------------------------------
Leisure - Hotels & Motels (1.15%)
430,000 Fairmont Hotels & Resorts, Inc. 10,234,000
- --------------------------------------------------------------------------------
Leisure - Products (0.78%)
330,000 Brunswick Corp. 6,943,200
- --------------------------------------------------------------------------------
Leisure Services (1.21%)
150,000 Carnival Corp. 3,765,000
650,000 Cendant Corp.* 6,994,000
- --------------------------------------------------------------------------------
10,759,000
- --------------------------------------------------------------------------------
Machinery - Construction/Mining (0.51%)
544,500 Joy Global, Inc.* 4,519,350
- --------------------------------------------------------------------------------
Machinery - General Industrial (0.65%)
155,000 Briggs & Stratton Corp. 5,818,700
- --------------------------------------------------------------------------------
Media - Periodicals (1.14%)
650,000 The Readers Digest Association, Inc. -
Class A 10,172,500
- --------------------------------------------------------------------------------
Medical - Health Maintenance Organizations (0.83%)
600,000 Humana, Inc.* 7,440,000
- --------------------------------------------------------------------------------
Medical - Hospitals (1.94%)
225,000 Lifepoint Hospitals, Inc.* 7,017,300
600,000 Province Healthcare Co.* 10,290,000
- --------------------------------------------------------------------------------
17,307,300
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (84.48%) - CONTINUED
Medical - Nursing Homes (1.18%)
470,000 Manor Care, Inc.* $ 10,565,600
- --------------------------------------------------------------------------------
Medical/Dental - Services (1.25%)
530,000 Omnicare, Inc. 11,193,600
- --------------------------------------------------------------------------------
Medical/Dental - Supplies (0.90%)
235,000 Invacare Corp. 8,048,750
- --------------------------------------------------------------------------------
Metal - Processing & Fabrication (0.62%)
620,000 Maverick Tube Corp.* 5,499,400
- --------------------------------------------------------------------------------
Office - Equipment & Automation (0.40%)
473,800 InFocus Corp.* 3,610,356
- --------------------------------------------------------------------------------
Oil & Gas - Drilling (2.18%)
300,000 Helmerich & Payne, Inc. 10,269,000
305,000 Precision Drilling Corp.* 9,180,500
- --------------------------------------------------------------------------------
19,449,500
- --------------------------------------------------------------------------------
Oil & Gas - Field Services (1.02%)
1,150,000 Key Energy Services, Inc.* 9,062,000
- --------------------------------------------------------------------------------
Oil & Gas - International Exploration & Production (1.56%)
320,000 Kerr-McGee Corp. 13,900,800
- --------------------------------------------------------------------------------
Oil & Gas - International Integrated (0.78%)
85,000 Murphy Oil Corp. 6,975,950
- --------------------------------------------------------------------------------
Oil & Gas - U.S. Exploration & Production (7.24%)
315,000 Burlington Resources, Inc. 12,083,400
90,000 Devon Energy Corp. 4,342,500
255,000 EOG Resources, Inc. 9,169,800
355,000 Newfield Exploration Co.* 11,924,450
360,000 Noble Energy, Inc. 12,229,200
450,000 Ocean Energy, Inc. 8,977,500
175,000 Pogo Producing Co. 5,960,500
- --------------------------------------------------------------------------------
64,687,350
- --------------------------------------------------------------------------------
Paper & Paper Products (0.80%)
315,000 Boise Cascade Corp. 7,182,000
- --------------------------------------------------------------------------------
Pollution Control - Services (1.20%)
570,000 Republic Services, Inc.* 10,716,000
- --------------------------------------------------------------------------------
Retail - Apparel/Shoe (2.57%)
330,000 American Eagle Outfitters, Inc.* 3,979,800
950,000 Foot Locker, Inc.* 9,490,500
340,000 Talbots, Inc. 9,520,000
- --------------------------------------------------------------------------------
22,990,300
- --------------------------------------------------------------------------------
Retail - Department Stores (0.63%)
190,000 Federated Department Stores, Inc.* 5,593,600
- --------------------------------------------------------------------------------
Retail - Miscellaneous/Diversified (0.72%)
630,000 Toys R US, Inc.* 6,413,400
- --------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
45
Berger Funds
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares/Par Value Value
- --------------------------------------------------------------------------------
COMMON STOCK (84.48%) - CONTINUED
Retail/Wholesale - Auto Parts (1.12%)
350,000 O'Reilly Automotive, Inc.* $ 10,017,000
- --------------------------------------------------------------------------------
Retail/Wholesale - Food (0.63%)
350,000 SUPERVALU, INC. 5,652,500
- --------------------------------------------------------------------------------
Shoes & Related Apparel (0.67%)
400,000 Wolverine World Wide, Inc. 6,000,000
- --------------------------------------------------------------------------------
Telecommunications - Equipment (1.89%)
570,000 C-COR.net Corp.* 2,114,700
635,000 Comverse Technology, Inc.* 4,438,650
650,000 Dycom Industries,Inc.* 5,954,000
665,000 Remec,Inc.* 2,267,650
1,800,000 Stratex Networks,Inc.* 2,106,000
- --------------------------------------------------------------------------------
16,881,000
- --------------------------------------------------------------------------------
Telecommunications - Wireless Services (0.42%)
75,000 Telephone & Data Systems, Inc. 3,783,750
- --------------------------------------------------------------------------------
Transportation - Air Freight (0.76%)
600,000 Airborne,Inc. 6,804,000
- --------------------------------------------------------------------------------
Transportation - Equipment Manufacturing (0.70%)
380,000 Trinity Industries, Inc. 6,254,800
- --------------------------------------------------------------------------------
Transportation - Shipping (1.12%)
350,000 Teekay Shipping Corp. 9,975,000
- --------------------------------------------------------------------------------
Transportation - Truck (0.93%)
265,000 CNF Transportation, Inc. 8,318,350
- --------------------------------------------------------------------------------
Total Common Stock
(Cost $912,206,288) 754,571,237
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (5.60%)
$50,000,000 FHLB Discount Note;
1.83%, 10/01/02 50,000,000
- --------------------------------------------------------------------------------
Total U.S. Government Agency Obligations
(Cost $50,000,000) 50,000,000
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (9.91%)
$88,526,000 State Street Repurchase Agreement,
1.88%, dated 9/30/02, due 10/1/02,
to be repurchased at $88,530,623# 88,526,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $88,526,000) 88,526,000
- --------------------------------------------------------------------------------
Total Investments (Cost $1,050,732,288) (99.99%) 893,097,237
Total Other Assets, Less Liabilities (0.01%) 104,104
- --------------------------------------------------------------------------------
Net Assets (100.00%) $893,201,341
- --------------------------------------------------------------------------------
* Non-income producing security
# - The repurchase agreement is fully collateralized by Freddie Mac and FHLB
Agency Notes with values totaling $90,298,050.
ADR - American Depositary Receipt.
FHLB - Federal Home Loan Bank.
PLC - Public Limited Company.
REIT - Real Estate Investment Trust.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
46
Ticker Symbol - Investor Shares BLCVX
- Institutional Shares BBLVX
Fund Number - Investor Shares 217
BERGER LARGE CAP - Institutional Shares 917
VALUE FUND PORTFOLIO MANAGER COMMENTARY BAY ISLE FINANCIAL LLC
================================================================================
MARKET CONDITIONS
The economy does not appear to be snapping back as quickly as investors had
originally expected. This malaise has driven down the equity markets. Investors
appear to have given up on a 2002 recovery and are now looking at prospects for
resurgence in 2003 with skepticism. However, we believe the slide in the market
has unveiled some interesting investment opportunities. Many companies that were
once untouchable because of lofty stock valuations have declined below what we
believe these companies are worth today. We also believe that many of these
securities are trading at levels that reflect their businesses' worst-case
scenarios. A number of stocks, especially in the consumer staples industry, have
lofty valuations because they are considered safe havens. We strive to choose
companies that generate good cash flow returns on investment and have less
sensitivity to volatile economic factors. However, we attempt to avoid exposure
to the downside price risk that many safe-haven stocks feature today. As the
economy improves, we expect many of these stocks to underperform while the
undervalued companies with good business prospects should rise to more
appropriate values.
FUND PERFORMANCE
The Berger Large Cap Value Fund (the "Fund") declined in value by 20.59%
(Investor Shares); and 20.17% (Institutional Shares) during the fiscal year,
compared with a 16.95% decline posted by its benchmark, the Russell 1000 Value
Index.(1) The Fund returned a disappointing performance this year primarily
because of its underweighting in the consumer staples and exposure to certain
financial companies.
In particular, we were disappointed with the performance of The St. Paul
Companies. St. Paul was hit hard this year with issues surrounding asbestos
liability, and we sold the position. Although we believe strongly in CEO Jay
Fishman and his ability to leverage St. Paul's strengths and drive profitability
higher, the unknown liabilities give us pause.
The consumer sector posted mixed results this period. We were disappointed with
the performance of AOL Time Warner. AOL experienced slower growth in new online
subscribers, and there are fears that the trend toward high-speed Internet
access will drive customers away from AOL's services. In addition, the weak
advertising market continued to put pressure on the stock, and we sold the
Fund's position. We were relatively pleased with Black & Decker. We believe
Black & Decker's hardware, tools, locks and plumbing will all be in strong
demand by both new homeowners and construction crews. In addition, Black &
Decker's continued focus on streamlining operations and lowering manufacturing
and distribution costs has driven its stock price higher.
Within the energy sector, we were disappointed with both ExxonMobile and
ChevronTexaco. As the economy shows sluggish growth, demand for energy remains
modest. We believe troubles in the Middle East could put further pressure on the
economy, reducing the demand for energy and thus lowering energy prices.
However, if current Iraq leadership is deposed, we believe there could be less
volatility in the region, which would help to stabilize the energy markets. We
continue to hold these major integrated energy companies in the belief that
their oil reserves offer significant value to investors.
The Fund's technology holdings also posted mixed results. The Fund's performance
was hurt by Convergys Corp., but was helped by ITT Corp. Convergys' growth
slowed dramatically as its telephone company customers ratcheted back spending
on billing systems and call center outsourcing. We believe that these lines of
business will return to health at some point, but the nearer-term outlook is not
good, and we sold the position. ITT continues to win new business in the defense
sector as the government scrambles to purchase the latest in electronic defense.
ITT's margins are improving thanks to management's actions in streamlining costs
and implementing better manufacturing, purchasing and distribution practices. As
the stock continued its rise, we became uncomfortable with the lofty valuation
and sold the stock.
The Fund's brightest sector was healthcare. We were pleased with the performance
of both Johnson & Johnson and Aetna. J&J was added to the portfolio after its
stock took a hard fall in July. We believe good growth in pharmaceuticals and
medical products is driving this company's cash flow higher. Although we believe
the rise in the stock this quarter makes the upside less compelling in the
future, we continue to hold it as its price remains under our target price.
Aetna experienced good performance this year, we believe, as a result of lower
costs, better pricing and more discipline in bidding for business.
OUTLOOK
The economy is not growing as quickly as was expected just a few months ago.
Spending by consumers, which comprises two-thirds of the country's GDP, has been
responsible for keeping us out of a prolonged recession. However, consumers may
cut their spending as they are frightened by further declines in the stock
market and higher unemployment. Meanwhile corporations have continued to curtail
capital spending because of overcapacity and a desire to conserve their cash
flow. Economists now expect only flat to modest growth for corporate capital
spending in 2003. We expect the U.S. economy to grow modestly in 2003 after a
meager increase in 2001 and a lackluster increase forecasted for 2002. The stock
market is still trying to come to terms with the largest financial bubble in
U.S. history, and those excesses are not easily erased. We are finding good
opportunities following the significant market declines this year. Many
opportunities arise because we don't believe the market is perfectly efficient.
The economy will likely generate modest growth in the coming years, but the
valuations seen in the equity markets might not yet reflect these moderate
growth trends of the future.
Berger Funds o September 30, 2002 Combined Annual Report
47
Berger Funds
PERFORMANCE OVERVIEW
================================================================================
BERGER LARGE CAP VALUE FUND -
INVESTOR SHARES - GROWTH OF $10,000
[GRAPH]
<Caption>
9/30/02
Berger Large Cap Value Fund -
Investor Shares $7,941
Russell 1000 Value Index $8,305
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2002
One Year/Life of Fund (9/28/01) (20.59)%
- --------------------------------------------------------------------------------
BERGER LARGE CAP VALUE FUND - INSTITUTIONAL SHARES - GROWTH OF $250,000
[GRAPH]
<Caption>
9/30/02
Berger Large Cap Value Fund -
Institutional Shares $199,567
Russell 1000 Value Index $207,628
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2002
One Year/Life of Fund (9/28/01) (20.17)%
(1) The Russell 1000(R) Value Index represents large capitalization U.S. stocks
with less-than-average growth orientation. The Index is unmanaged and includes
reinvestment of dividends and capital gains, but does not reflect management
fees, trading costs and other expenses. Investors cannot actually make
investments in the Index.
Opinions and forecasts regarding sectors, industries, companies and/or themes
are subject to change at any time based on market conditions and should not be
construed as a recommendation of any specific security. Portfolio holdings and
composition are subject to change.
Past performance is no guarantee of future results. Investment returns and
principal value will fluctuate,and you may have a gain or loss when you sell
shares. Performance information provided in this report does not reflect the
deduction of taxes shareholders may pay on Fund distributions or the redemption
of Fund shares. Please visit our web site at www.berger.com for more current
performance information.
Berger Funds o September 30, 2002 Combined Annual Report
48
BERGER LARGE CAP
VALUE FUND
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (94.32%)
Banks - Money Center (3.22%)
6,831 Bank of New York Co., Inc. $196,323
- --------------------------------------------------------------------------------
Banks - Super Regional (14.23%)
4,120 BB&T Corp. 144,365
9,324 Mellon Financial Corp. 241,771
3,794 PNC Financial Services Group 159,993
6,657 Wells Fargo & Co. 320,601
- --------------------------------------------------------------------------------
866,730
- --------------------------------------------------------------------------------
Commercial Services - Advertising (2.01%)
7,716 Interpublic Group Cos., Inc. 122,299
- --------------------------------------------------------------------------------
Commercial Services - Miscellaneous (2.05%)
3,595 Automatic Data Processing, Inc. 124,998
- --------------------------------------------------------------------------------
Computer Software - Security (2.24%)
4,054 Symantec Corp.* 136,498
- --------------------------------------------------------------------------------
Diversified Operations (9.47%)
5,272 Emerson Electric Co. 231,652
7,872 Tyco International Ltd. 110,995
4,149 United Technologies Corp. 234,377
- --------------------------------------------------------------------------------
577,024
- --------------------------------------------------------------------------------
Electronics - Semiconductor Manufacturing (1.74%)
7,627 Intel Corp. 105,939
- --------------------------------------------------------------------------------
Finance - Investment Management (2.90%)
4,574 State Street Corp. 176,739
- --------------------------------------------------------------------------------
Finance - Reit (6.96%)
5,376 Equity Office Properties Trust 138,808
11,443 Prologis 285,045
- --------------------------------------------------------------------------------
423,853
- --------------------------------------------------------------------------------
Financial Services - Miscellaneous (1.82%)
3,970 First Data Corp. 110,962
- --------------------------------------------------------------------------------
Household - Housewares (2.48%)
4,901 Newell Rubbermaid, Inc. 151,294
- --------------------------------------------------------------------------------
Insurance - Diversified (1.93%)
2,151 American International Group, Inc. 117,660
- --------------------------------------------------------------------------------
Media - Books (5.28%)
5,255 McGraw-Hill Companies, Inc. 321,711
- --------------------------------------------------------------------------------
Medical - Drug/Diversified (2.65%)
2,982 Johnson & Johnson 161,267
- --------------------------------------------------------------------------------
Medical - Ethical Drugs (2.30%)
3,062 Merck & Co., Inc. 139,964
- --------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (94.32%) -- CONTINUED
Medical - Health Maintenance Organizations (4.51%)
7,677 Aetna, Inc. $ 274,913
- --------------------------------------------------------------------------------
Medical - Products (5.26%)
6,360 Baxter International, Inc. 194,298
3,902 Guidant Corp.* 126,074
- --------------------------------------------------------------------------------
320,372
- --------------------------------------------------------------------------------
Medical/Dental - Supplies (2.81%)
6,026 Becton Dickinson & Co. 171,138
- --------------------------------------------------------------------------------
Oil & Gas - International Integrated (9.83%)
4,594 ChevronTexaco Corp. 318,134
8,794 Exxon Mobil Corp. 280,529
- --------------------------------------------------------------------------------
598,663
- --------------------------------------------------------------------------------
Oil & Gas - Refining/Marketing (1.66%)
5,165 Duke Energy Corp. 100,976
- --------------------------------------------------------------------------------
Retail - Department Stores (2.18%)
8,355 Penney (J.C.) Co. 133,012
- --------------------------------------------------------------------------------
Retail - Drug Stores (2.74%)
6,595 CVS Corp. 167,183
- --------------------------------------------------------------------------------
Retail - Restaurants (2.12%)
7,314 McDonald's Corp. 129,165
- --------------------------------------------------------------------------------
Retail - Super/Mini Markets (1.93%)
5,285 Safeway, Inc.* 117,855
- --------------------------------------------------------------------------------
Total Common Stock
(Cost $7,087,818) 5,746,538
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (5.98%)
$364,000 State Street Repurchase Agreement,
1.88%, dated 9/30/02, due 10/1/02,
to be repurchased at $364,019# 364,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $364,000) 364,000
- --------------------------------------------------------------------------------
Total Investments (Cost $7,451,818) (100.30%) 6,110,538
Total Other Assets, Less Liabilities (-0.30%) (18,056)
- --------------------------------------------------------------------------------
Net Assets (100.00%) $6,092,482
- --------------------------------------------------------------------------------
*Non-income producing security
# - The repurchase agreement is fully collateralized by Fannie Mae Agency Note
with a value of $374,031.
REIT - Real Estate Investment Trust.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
49
Berger Funds
Ticker Symbol BEBAX
Fund Number 213
BERGER PORTFOLIO MANAGER COMMENTARY WILLIAM F.K. SCHAFF, CFA
BALANCED FUND STEVE BLOCK, CFA
================================================================================
MARKET CONDITIONS
The economy does not appear to be snapping back as quickly as investors had
originally expected. This malaise has driven down the equity markets. Investors
appear to have given up on a 2002 recovery and are now looking at prospects for
resurgence in 2003 with skepticism. However, we believe the slide in the market
has unveiled some interesting investment opportunities. Many companies that were
once untouchable because of lofty stock valuations have declined below what we
believe these companies are worth today. We also believe that many of these
securities are trading at levels that reflect their businesses' worst-case
scenarios. A number of stocks, especially in the consumer staples industry, have
lofty valuations because they are considered safe havens. We strive to choose
companies that generate good cash flow returns on investment and have less
sensitivity to volatile economic factors. However, we attempt to avoid exposure
to the downside price risk that many safe-haven stocks feature today. As the
economy improves, we expect many of these stocks to underperform while the
undervalued companies with good business prospects should rise to more
appropriate values.
FUND PERFORMANCE
The Berger Balanced Fund (the "Fund") declined in value by 17.76% this fiscal
year, compared with declines of 20.49% in its benchmark, the S&P 500 Index,(1)
and 6.92% in the Blended Index.(2) The Fund's equity component returned
disappointing performance this year primarily because of its underweighting in
the consumer staples and exposure to certain financial companies.
In particular, we were disappointed with the performance of The St. Paul
Companies. St. Paul was hit hard this year with issues surrounding asbestos
liability and we sold the position. Although we believe strongly in CEO Jay
Fishman and his ability to leverage St. Paul's strengths and drive profitability
higher, the unknown liabilities give us pause.
The consumer sector posted mixed results this period. We were disappointed with
the performance of AOL Time Warner. AOL experienced slower growth in new online
subscribers, and there are fears that the trend toward high-speed Internet
access will drive customers away from AOL's services. In addition, the weak
advertising market continued to put pressure on the stock, and we sold the
Fund's position.
Within the energy sector, we were disappointed with both Exxon Mobil and
ChevronTexaco. As the economy shows sluggish growth, demand for energy remains
modest. We believe troubles in the Middle East could put further pressure on the
economy, reducing the demand for energy, thus lowering energy prices. However,
if current Iraq leadership is deposed, we believe there could be less volatility
in the region, which would help to stabilize the energy markets. We continue to
hold these major integrated energy companies in the belief that their oil
reserves offer significant value to investors.
The Fund's technology holdings also posted mixed results. The Fund's performance
was hurt by Convergys Corp. Convergys' growth slowed dramatically as its
telephone company customers ratcheted back spending on billing systems and call
center outsourcing. We believe that these lines of business will return to
health at some point, but the nearer-term outlook is not good, and we sold the
position.
The Fund's brightest sector was healthcare. We were pleased with the performance
of both Johnson & Johnson and Aetna. J&J was added to the portfolio after its
stock took a hard fall in July. We believe good growth in pharmaceuticals and
medical products is driving this company's cash flow higher. Although we believe
the rise in the stock this quarter makes the upside less compelling in the
future, we continue to hold it as its price remains under our target price.
Aetna experienced good performance this year, we believe, as a result of lower
costs, better pricing and more discipline in bidding for business.
The fixed-income portion of the portfolio remains invested in high-quality bonds
with shorter-term durations. This positioning has provided some income and
relative stability in a volatile market. This year, however, long-term interest
rates retreated to 40-year lows. Thus,the longer-term bonds in the benchmark
performed quite well, thus boosting its performance. In our anticipation of
rising long-term rates over the next year, we continue to believe that
shorter-term and intermediate-term bonds should generate solid performance.
OUTLOOK
The economy is not growing as quickly as was expected just a few months ago.
Spending by consumers, which comprises two-thirds of the country's GDP, has been
responsible for keeping us out of a prolonged recession. However, consumers may
cut their spending as they are frightened by further declines in the stock
market and higher unemployment. Meanwhile corporations have continued to curtail
capital spending because of overcapacity and a desire to conserve their cash
flow. Economists now expect only flat to modest growth for corporate capital
spending in 2003. We expect the U.S. economy to grow modestly in 2003 after a
meager increase in 2001 and a lackluster increase forecasted for 2002. The stock
market is still trying to come to terms with the largest financial bubble in
U.S. history, and those excesses are not easily erased. We are finding good
opportunities following the significant market declines this year. Many
opportunities arise because we don't believe the market is perfectly efficient.
The economy will likely generate modest growth in the coming years, but the
valuations seen in the equity markets might not yet reflect these moderate
growth trends of the future.
Berger Funds o September 30, 2002 Combined Annual Report
50
PERFORMANCE OVERVIEW
================================================================================
BERGER BALANCED FUND - GROWTH OF $10,000
[GRAPH]
<Caption>
9/30/02
Berger Balanced Fund $17,345
S&P 500 Index $ 9,214
Blended Index $11,959
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2002
One Year (17.76)%
Five Year/Life of Fund (9/30/97) 11.64%
(1) The Standard and Poor's 500 Index is a market capitalization weighted index
composed of 500 widely held common stocks listed on the New York Stock Exchange,
American Stock Exchange and Over-the-Counter market. The Index is unmanaged and
includes reinvestment of dividends and capital gains, but does not reflect
management fees, trading costs and other expenses. Investors cannot actually
make investments in the Index.
(2) The Blended Index consists of 60% Russell 1000(R) Value Index and 40% Lehman
Brothers Government/Credit Index. The Index is unmanaged and includes
reinvestment of dividends, income and capital gains, but does not reflect
management fees, trading costs and other expenses. Investors cannot actually
make investments in the Index.
Opinions and forecasts regarding sectors, industries, companies and/or themes
are subject to change at any time based on market conditions and should not be
construed as a recommendation of any specific security. Portfolio holdings and
composition are subject to change.
Past performance is no guarantee of future results. Investment returns and
principal value will fluctuate, and you may have a gain or loss when you sell
shares. Performance information provided in this report does not reflect the
deduction of taxes shareholders may pay on Fund distributions or the redemption
of Fund shares. Life of Fund performance includes returns for the last quarter
of 1997, which reflect a higher-than-normal level of trading activity undertaken
to pursue equity opportunities available as the Adviser was beginning to
implement the Fund's long-term approach to equity management. Please visit our
web site at www.berger.com for more current performance information.
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK (55.40%)
Banks - Money Center (1.83%)
33,900 Bank of New York Co., Inc. $ 974,286
- --------------------------------------------------------------------------------
Banks - Super Regional (8.08%)
19,100 BB&T Corp. 669,264
46,700 Mellon Financial Corp. 1,210,931
19,300 PNC Financial Services Group 813,881
33,600 Wells Fargo & Co. 1,618,176
- --------------------------------------------------------------------------------
4,312,252
- --------------------------------------------------------------------------------
Commercial Services - Advertising (1.23%)
41,300 Interpublic Group Cos., Inc. 654,605
- --------------------------------------------------------------------------------
Commercial Services - Miscellaneous (1.26%)
19,300 Automatic Data Processing, Inc. 671,061
- --------------------------------------------------------------------------------
Computer Software - Security (1.37%)
21,700 Symantec Corp.* 730,639
- --------------------------------------------------------------------------------
Diversified Operations (5.94%)
26,000 Emerson Electric Co. $1,142,440
62,300 Tyco International Ltd. 878,430
20,300 United Technologies Corp. 1,146,747
- --------------------------------------------------------------------------------
3,167,617
- --------------------------------------------------------------------------------
Electronics - Semiconductor Manufacturing (0.97%)
37,200 Intel Corp. 516,708
- --------------------------------------------------------------------------------
Finance - Investment Management (1.69%)
23,300 State Street Corp. 900,312
- --------------------------------------------------------------------------------
Finance - Reit (4.00%)
27,800 Equity Office Properties Trust 717,796
56,900 Prologis 1,417,379
- --------------------------------------------------------------------------------
2,135,175
- --------------------------------------------------------------------------------
Financial Services - Miscellaneous (1.09%)
20,800 First Data Corp. 581,360
- --------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
51
Berger Funds
BERGER
BALANCED FUND
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- --------------------------------------------------------------------------------
Shares/Par Value Value
- --------------------------------------------------------------------------------
COMMON STOCK (55.40%) - CONTINUED
Household - Housewares (1.39%)
24,000 Newell Rubbermaid, Inc. $ 740,880
- --------------------------------------------------------------------------------
Insurance - Diversified (1.23%)
12,000 American International Group, Inc. 656,400
- --------------------------------------------------------------------------------
Media - Books (2.91%)
25,400 McGraw-Hill Companies, Inc. 1,554,988
- --------------------------------------------------------------------------------
Medical - Drug/Diversified (1.56%)
15,400 Johnson & Johnson 832,832
- --------------------------------------------------------------------------------
Medical - Ethical Drugs (1.32%)
15,400 Merck & Co., Inc. 703,934
- --------------------------------------------------------------------------------
Medical - Health Maintenance Organizations (2.58%)
38,500 Aetna, Inc. 1,378,685
- --------------------------------------------------------------------------------
Medical - Products (3.12%)
32,700 Baxter International, Inc. 998,985
20,700 Guidant Corp.* 668,817
- --------------------------------------------------------------------------------
1,667,802
- --------------------------------------------------------------------------------
Medical/Dental - Supplies (1.49%)
28,000 Becton Dickinson & Co. 795,200
- --------------------------------------------------------------------------------
Oil & Gas - International Integrated (5.52%)
22,500 ChevronTexaco Corp. 1,558,125
43,500 Exxon Mobil Corp. 1,387,650
- --------------------------------------------------------------------------------
2,945,775
- --------------------------------------------------------------------------------
Oil & Gas - Refining/Marketing (1.67%)
45,700 Duke Energy Corp. 893,435
- --------------------------------------------------------------------------------
Retail - Department Stores (1.30%)
43,700 Penney (J.C.) Co. 695,704
- --------------------------------------------------------------------------------
Retail - Drug Stores (1.49%)
31,400 CVS Corp. 795,990
- --------------------------------------------------------------------------------
Retail - Restaurants (1.22%)
36,800 McDonald's Corp. 649,888
- --------------------------------------------------------------------------------
Retail - Super/Mini Markets (1.14%)
27,200 Safeway, Inc.* 606,560
- --------------------------------------------------------------------------------
Total Common Stock
(Cost $36,080,782) 29,562,088
- --------------------------------------------------------------------------------
CORPORATE DEBT - NON-CONVERTIBLE (16.35%)
Banks - Money Center (4.30%)
$2,000,000 Citigroup, Inc.;
7.25%, 10/01/10 2,295,680
- --------------------------------------------------------------------------------
Computer - Manufacturers (3.94%)
$2,000,000 International Business Machines Corp.;
5.63%, 04/12/04 $ 2,101,064
- --------------------------------------------------------------------------------
Finance - Consumer/Commercial Loans (4.00%)
2,000,000 General Electric Capital Corp.;
5.88%, 02/15/12 2,134,266
- --------------------------------------------------------------------------------
Retail - Major Discount Chains (4.11%)
2,000,000 Wal-Mart Stores, Inc.;
5.45%, 08/01/06 2,195,112
- --------------------------------------------------------------------------------
Total Corporate Debt - Non-Convertible
(Cost $8,066,873) 8,726,122
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (20.48%)
$2,000,000 Freddie Mac Agency Note;
6.25%, 07/15/04 2,148,746
3,000,000 Fannie Mae Agency Note;
7.13%, 02/15/05 3,338,706
2,000,000 Fannie Mae Agency Note;
4.75%, 01/02/07 2,105,818
3,000,000 Fannie Mae Agency Note;
6.25%, 02/01/11 3,337,167
- --------------------------------------------------------------------------------
Total U.S. Government Agency Obligations
(Cost $9,986,360) 10,930,437
- --------------------------------------------------------------------------------
U.S. TREASURY NOTES (4.61%)
$2,229,500 U. S.Treasury Inflation-Indexed Note;
3.625%, 1/15/08 2,460,115
- --------------------------------------------------------------------------------
Total U.S.Treasury Notes
(Cost $2,331,613) 2,460,115
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (2.80%)
$1,495,000 State Street Repurchase Agreement,
1.88%, dated 9/30/02, due 10/1/02,
to be repurchased at $1,495,078# 1,495,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $1,495,000) 1,495,000
- --------------------------------------------------------------------------------
Total Investments (Cost $57,960,628) (99.64%) 53,173,762
Total Other Assets, Less Liabilities (0.36%) 193,896
- --------------------------------------------------------------------------------
Net Assets (100.00%) $ 53,367,658
- --------------------------------------------------------------------------------
* Non-income producing security
# - The repurchase agreement is fully collateralized by Freddie Mac Agency Note
with a value of $1,524,900.
REIT - Real Estate Investment Trust.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
52
FINANCIAL
STATEMENTS
================================================================================
STATEMENTS OF ASSETS AND LIABILITIES
Berger Berger
Berger Large Cap Mid Cap
September 30, 2002 Growth Fund Growth Fund Growth Fund
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at cost $ 551,980,651 $ 217,282,088 $ 99,019,318
- ---------------------------------------------------------------------------------------------------------------------
Investments, at value
Unaffiliated issuers $ 506,268,452 $ 184,895,409 $ 90,848,495
Affiliates -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total Investments 506,268,452 184,895,409 90,848,495(1)
Cash 325 657 598
Receivables
Investment securities sold 61,813,999 1,122,700 520,976
Fund shares sold 138,444 18,141 41,741
Dividends 400,873 291,916 21,448
Interest 1,790 83 26,065
Due from Adviser 79,867 24,811 14,026
Other investments (Note 3) -- -- 6,420,257
- ---------------------------------------------------------------------------------------------------------------------
Total Assets 568,703,750 186,353,717 97,893,606
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payables
Investment securities purchased 114,120,234 -- --
Fund shares redeemed 400,130 227,096 95,140
Interest -- -- --
Securities loaned -- -- 6,420,257
Accrued investment advisory fees 299,455 124,057 58,442
Accrued custodian and accounting fees 9,420 4,172 2,430
Accrued transfer agent fees 584,621 174,759 205,113
Accrued 12b-1 fees 99,835 41,352 19,480
Accrued audit fees 25,700 23,690 18,220
Other accrued expenses -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total Liabilities 115,539,395 595,126 6,819,082
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $ 453,164,355 $ 185,758,591 $ 91,074,524
- ---------------------------------------------------------------------------------------------------------------------
COMPONENTS OF NET ASSETS
Capital (par value and paid in surplus) $1,126,490,008 $ 378,111,166 $ 294,001,253
Undistributed net investment income/
(Accumulated net investment loss) (407,231) (84,354) (4,776)
Undistributed net realized gain/(Accumulated net realized
loss) on securities and foreign currency transactions (627,206,223) (159,881,542) (194,751,130)
Net unrealized appreciation (depreciation) on
securities and foreign currency transactions (45,712,199) (32,386,679) (8,170,823)
- ---------------------------------------------------------------------------------------------------------------------
$ 453,164,355 $ 185,758,591 $ 91,074,524
- ---------------------------------------------------------------------------------------------------------------------
Shares Outstanding 91,030,115 26,801,682 11,864,727
- ---------------------------------------------------------------------------------------------------------------------
Shares Authorized (par value $0.01) 200,000,000 100,000,000 Unlimited
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 4.98 $ 6.93 $ 7.68
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Investor Shares N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Institutional Shares N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Service Shares N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING:
Investor Shares N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Institutional Shares N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Service Shares N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
Investor Shares N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Institutional Shares N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Service Shares N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
(1) See Note 3 for information regarding the value of securities on loan.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
53
Financial Statements
=============================================================================================================================
Berger Berger Berger Berger Berger Berger Berger
Small Company Information Small Cap Small Cap Mid Cap Large Cap Balanced
Growth Fund Technology Fund Value Fund Value Fund II Value Fund Value Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------
$ 319,168,312 $ 43,831,126 $3,142,036,614 $ 8,645,273 $1,050,732,288 $ 7,451,818 $ 57,960,628
- ------------------------------------------------------------------------------------------------------------------------------
$ 321,789,691 $ 19,124,880 $ 978,994,359 $ 7,290,079 $ 893,097,237 $ 6,110,538 $ 53,173,762
-- -- 1,707,691,854 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
321,789,691(1) 19,124,880(1) 2,686,686,213 7,290,079 893,097,237(1) 6,110,538 53,173,762
901,133 806 382 491 294 1,231 3,445
4,991,737 -- 11,515,837 391,601 7,641,213 -- --
401,121 23,970 6,663,626 45,838 13,970,349 776 64,541
154,983 6,645 1,997,700 12,294 1,051,688 5,132 26,982
1,121 6 11,375 19 4,623 19 284,122
45,635 21,525 39,047 -- -- 4,596 4,148
78,325,254 2,251,080 -- -- 74,611,087 -- --
- ------------------------------------------------------------------------------------------------------------------------------
406,610,675 21,428,912 2,706,914,180 7,740,322 990,376,491 6,122,292 53,557,000
- ------------------------------------------------------------------------------------------------------------------------------
74,911 -- 6,795,515 547,006 17,981,907 -- --
1,589,937 75,707 13,076,784 3,305 3,748,710 3,880 94,311
-- -- -- -- -- 204 --
78,325,254 2,251,080 -- -- 74,611,087 -- --
239,240 17,530 1,853,117 8,350 543,434 4,592 32,259
10,865 2,093 43,437 2,506 10,006 1,996 1,277
405,466 60,953 278,627 5,076 94,764 3,659 31,474
70,276 1,564 325,387 1,099 163,342 579 11,521
25,900 18,500 35,660 13,700 21,900 14,900 18,500
-- 1,180 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
80,741,849 2,428,607 22,408,527 581,042 97,175,150 29,810 189,342
- ------------------------------------------------------------------------------------------------------------------------------
$ 325,868,826 $ 19,000,305 $2,684,505,653 $ 7,159,280 $ 893,201,341 $ 6,092,482 $ 53,367,658
- ------------------------------------------------------------------------------------------------------------------------------
$ 988,986,901 $ 85,589,300 $3,021,829,566 $ 8,569,816 $1,070,090,849 $ 9,107,831 $ 87,951,839
(159,200) (3,978) 4,949,471 (83) 1,709,000 39,927 790,801
(665,580,254) (41,878,770) 113,077,017 (55,259) (20,963,457) (1,713,996) (30,588,116)
2,621,379 (24,706,247) (455,350,401) (1,355,194) (157,635,051) (1,341,280) (4,786,866)
- ------------------------------------------------------------------------------------------------------------------------------
$ 325,868,826 $ 19,000,305 $2,684,505,653 $ 7,159,280 $ 893,201,341 $ 6,092,482 $ 53,367,658
- ------------------------------------------------------------------------------------------------------------------------------
201,177,905 5,807,125 121,938,003 866,866 65,131,968 768,639 5,226,928
- ------------------------------------------------------------------------------------------------------------------------------
Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited
- ------------------------------------------------------------------------------------------------------------------------------
N/A N/A N/A N/A N/A N/A $ 10.21
- ------------------------------------------------------------------------------------------------------------------------------
$ 325,454,971 $ 14,657,106 $1,461,278,441 $ 4,921,242 $ 782,100,513 $ 2,624,215 N/A
- ------------------------------------------------------------------------------------------------------------------------------
$ 413,855 $ 4,343,199 $1,223,227,212 $ 1,879,144 $ 111,100,828 $ 3,468,267 N/A
- ------------------------------------------------------------------------------------------------------------------------------
N/A N/A N/A $ 358,894 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------
200,926,976 4,496,132 66,533,211 595,844 57,036,860 331,646 N/A
- ------------------------------------------------------------------------------------------------------------------------------
250,929 1,310,993 55,404,792 227,480 8,095,108 436,993 N/A
- ------------------------------------------------------------------------------------------------------------------------------
N/A N/A N/A 43,542 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------
$1.62 $3.26 $21.96 $8.26 $13.71 $7.91 N/A
- ------------------------------------------------------------------------------------------------------------------------------
$1.65 $3.31 $22.08 $8.26 $13.72 $7.94 N/A
- ------------------------------------------------------------------------------------------------------------------------------
N/A N/A N/A $8.24 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
54
FINANCIAL
STATEMENTS
================================================================================
STATEMENTS OF OPERATIONS
Berger Berger
Berger Large Cap Mid Cap
For the year or period ended September 30, 2002 Growth Fund Growth Fund Growth Fund
- -------------------------------------------------------------------------------------------------------------
Income
Dividends (net of foreign taxes withheld) $ 2,686,599 $ 1,973,108 $ 96,344
Dividends from affiliates -- -- --
Interest 702,682 217,606 151,894
Securities lending income -- -- 39,786
- -------------------------------------------------------------------------------------------------------------
Total Income 3,389,281 2,190,714 288,024
- -------------------------------------------------------------------------------------------------------------
EXPENSES
Investment advisory fees 5,072,427 2,183,936 476,199
Accounting fees 59,180 25,683 8,504
Custodian fees 62,296 25,849 13,395
Transfer agent fees
Investor Shares or single-class Funds 2,420,967 754,706 424,024
Institutional Shares -- -- --
Service Shares -- -- --
Registration fees 37,703 34,105 22,148
12b-1 fees
Investor Shares or single-class Funds 1,726,524 729,689 159,585
Service Shares -- -- --
Service fees (Service Shares only) -- -- --
Audit fees 13,775 26,552 11,342
Legal fees 20,076 8,836 1,658
Directors'/Trustees' fees and expenses 56,717 24,689 5,049
Shareholder reporting fees 887,912 200,772 132,363
Amortization of deferred organization costs -- -- --
Interest expense 14,563 5,961 760
Other expenses 24,424 9,837 3,072
- -------------------------------------------------------------------------------------------------------------
Gross Expenses 10,396,564 4,030,615 1,258,099
Less fees waived and/or reimbursed by Adviser (389,930) (124,144) (67,917)
Less brokerage credits (13,816) (12,100) (3,325)
Less earnings credits (1,627) (367) (659)
- -------------------------------------------------------------------------------------------------------------
Net Expenses 9,991,191 3,894,004 1,186,198
- -------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) (6,601,910) (1,703,290) (898,174)
- -------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on securities and
foreign currency transactions (263,805,674) (98,716,621) (46,991,570)
Net realized loss on futures contracts -- -- --
Net change in unrealized appreciation (depreciation)
on securities and foreign currency transactions 91,862,074 20,987,367 515,603
- -------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Loss on Securities
and Foreign Currency Transactions (171,943,600) (77,729,254) (46,475,967)
- -------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (178,545,510) $ (79,432,544) $ (47,374,141)
- -------------------------------------------------------------------------------------------------------------
FOREIGN TAXES WITHHELD $ 20,256 $ 11,318 --
=============================================================================================================
(1) For the period from March 28, 2002 (commencement of operations) to September
30, 2002.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
55
Financial Statements
==================================================================================================================================
Berger Berger Berger Berger Berger Berger Berger
Small Company Information Small Cap Small Cap Mid Cap Large Cap Balanced
Growth Fund Technology Fund Value Fund Value Fund II(1) Value Fund Value Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
$ 750,430 $ 57,136 $ 8,012,187 $ 54,061 $ 6,693,829 $ 149,314 $ 449,162
-- -- 30,567,600 -- -- -- --
361,033 39,493 6,440,016 3,751 1,705,912 6,739 1,715,617
810,487 23,070 -- -- 153,529 -- 14,285
- -----------------------------------------------------------------------------------------------------------------------------------
1,921,950 119,699 45,019,803 57,812 8,553,270 156,053 2,179,064
- -----------------------------------------------------------------------------------------------------------------------------------
4,829,140 374,075 25,688,139 26,495 4,360,105 59,683 547,379
68,055 19,127 293,646 9,154 54,263 15,526 7,817
78,350 2,000 262,157 24,898 65,662 7,189 9,365
1,799,732 177,217 1,524,385 9,516 576,686 10,698 159,334
1,422 31,882 105,483 428 11 1,771 --
-- -- -- 263 -- -- --
106,638 33,359 413,819 7,094 126,748 17,864 20,221
1,432,800 66,456 4,526,411 5,072 1,409,112 6,060 194,205
-- -- -- 325 -- -- --
-- -- -- 334 -- -- --
32,793 23,833 48,738 13,700 27,761 15,656 20,857
16,293 1,222 82,857 1,894 12,106 121 4,026
47,432 3,593 271,720 238 45,847 602 6,527
465,120 49,694 427,993 613 111,876 1,564 40,896
-- 1,910 -- -- -- -- --
12,452 1,077 52,135 -- 4,962 451 1,729
20,122 1,530 83,410 -- 14,716 184 2,592
- -----------------------------------------------------------------------------------------------------------------------------------
8,910,349 786,975 33,780,893 100,024 6,809,855 137,369 1,014,948
(246,154) (34,428) (374,258) (10,589) -- (25,488) (26,534)
(36,076) (1,505) (61,833) (308) (24,883) (874) (1,425)
(5,818) (11) (2,994) (13) (603) (249) (187)
- -----------------------------------------------------------------------------------------------------------------------------------
8,622,301 751,031 33,341,808 89,114 6,784,369 110,758 986,802
- -----------------------------------------------------------------------------------------------------------------------------------
(6,700,351) (631,332) 11,677,995 (31,302) 1,768,901 45,295 1,192,262
- -----------------------------------------------------------------------------------------------------------------------------------
(246,526,202) (13,986,976) 153,362,574 (55,259) (19,119,589) (1,703,012) (18,062,227)
-- -- -- -- (583,649) -- --
82,307,941 2,214,820 (315,557,924) (1,355,194) (142,238,809) (1,341,280) 4,674,806
- -----------------------------------------------------------------------------------------------------------------------------------
(164,218,261) (11,772,156) (162,195,350) (1,410,453) (161,942,047) (3,044,292) (13,387,421)
- -----------------------------------------------------------------------------------------------------------------------------------
$ (170,918,612) $ (12,403,488) $ (150,517,355) $ (1,441,755) $ (160,173,146) $ (2,998,997) $ (12,195,159)
- -----------------------------------------------------------------------------------------------------------------------------------
-- $ 1,249 -- -- $ 7,605 -- $ 2,131
===================================================================================================================================
Berger Funds o September 30, 2002 Combined Annual Report
56
FINANCIAL
STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
Berger
Growth Fund
- -------------------------------------------------------------------------------------------------------------------
Years Ended September 30,
2002 2001
- -------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment loss $ (6,601,910) $ (9,252,779)
Net realized loss on securities and foreign currency transactions (263,805,674) (351,493,347)
Net change in unrealized appreciation (depreciation) on securities and
foreign currency transactions 91,862,074 (769,010,982)
- -------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from Operations (178,545,510) (1,129,757,108)
- -------------------------------------------------------------------------------------------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Investor Shares or single-class Funds -- (251,329,238)
Institutional Shares -- --
- -------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets from Distributions to Shareholders -- (251,329,238)
- -------------------------------------------------------------------------------------------------------------------
FROM FUND SHARE TRANSACTIONS (NOTE 6)
Proceeds from shares sold 33,628,701 87,306,935
Shares issued in merger (Note 7) 17,248,651 --
Net asset value of shares issued in reinvestment of distributions -- 244,279,275
Payments for shares redeemed (142,144,115) (175,295,719)
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Derived from Fund Share Transactions (91,266,763) 156,290,491
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets (269,812,273) (1,224,795,855)
NET ASSETS
Beginning of period 722,976,628 1,947,772,483
- -------------------------------------------------------------------------------------------------------------------
End of period $ 453,164,355 $ 722,976,628
- -------------------------------------------------------------------------------------------------------------------
Accumulated net investment loss $ (407,231) $ (392,786)
- -------------------------------------------------------------------------------------------------------------------
TRANSACTIONS IN FUND SHARES(1) (NOTE 6)
Shares sold 4,455,634 7,416,148
Shares issued in merger (Note 7) 2,523,947 --
Shares issued to shareholders in reinvestment of distributions -- 19,907,779
Shares redeemed (20,033,693) (16,567,814)
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Shares (13,054,112) 10,756,113
Shares outstanding, beginning of period 104,084,227 93,328,114
- -------------------------------------------------------------------------------------------------------------------
Shares outstanding, end of period 91,030,115 104,084,227
- -------------------------------------------------------------------------------------------------------------------
(1) Share data for Berger Information Technology Fund for the year ended
September 30, 2001 have been adjusted to reflect a 7-for-1 share split,
effective October 17, 2000.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
57
Financial Statements
===================================================================================================================================
Berger Berger Berger Berger
Large Cap Mid Cap Small Company Information
Growth Fund Growth Fund Growth Fund Technology Fund
Years Ended September 30, Years Ended September 30, Years Ended September 30, Years Ended September 30,
2002 2001 2002 2001 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
$ (1,703,290) $ (11,823) $ (898,174) $ (724,126) $ (6,700,351) $ (8,783,958) $ (631,332) $ (819,838)
(98,716,621) (59,522,175) (46,991,570) (47,626,205) (246,526,202) (394,022,060) (13,986,976) (26,299,446)
20,987,367 (259,562,540) 515,603 (29,431,862) 82,307,941 (472,059,274) 2,214,820 (73,183,337)
- ------------------------------------------------------------------------------------------------------------------------------------
(79,432,544) (319,096,538) (47,374,141) (77,782,193) (170,918,612) (874,865,292) (12,403,488) (100,302,621)
- ------------------------------------------------------------------------------------------------------------------------------------
-- (69,979,109) -- (13,016,358) -- (204,748,863) -- --
-- -- -- -- -- (737,016) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
-- (69,979,109) -- (13,016,358) -- (205,485,879) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
42,336,173 120,535,392 39,425,721 56,207,595 220,819,242 680,871,860 10,982,522 30,101,600
-- -- 110,079,860 -- -- -- -- --
-- 66,706,853 -- 12,109,872 -- 198,098,099 -- --
(95,649,238) (204,934,895) (41,475,382) (69,664,746) (312,137,574) (684,939,842) (18,610,988) (24,505,589)
- ------------------------------------------------------------------------------------------------------------------------------------
(53,313,065) (17,692,650) 108,030,199 (1,347,279) (91,318,332) 194,030,117 (7,628,466) 5,596,011
- ------------------------------------------------------------------------------------------------------------------------------------
(132,745,609) (406,768,297) 60,656,058 (92,145,830) (262,236,944) (886,321,054) (20,031,954) (94,706,610)
318,504,200 725,272,497 30,418,466 122,564,296 588,105,770 1,474,426,824 39,032,259 133,738,869
- ------------------------------------------------------------------------------------------------------------------------------------
$ 185,758,591 $ 318,504,200 $ 91,074,524 $ 30,418,466 $ 325,868,826 $ 588,105,770 $ 19,000,305 $ 39,032,259
- ------------------------------------------------------------------------------------------------------------------------------------
$ (84,354) $ (75,805) $ (4,776) $ (3,023) $ (159,200) $ (142,596) $ (3,978) $ (2,718)
- ------------------------------------------------------------------------------------------------------------------------------------
4,211,872 8,282,604 2,561,413 2,962,788 81,676,301 149,737,471 1,840,839 2,813,600
-- -- 10,509,820 -- -- -- -- --
-- 4,537,881 -- 550,199 -- 43,252,860 -- --
(10,128,324) (13,984,088) (4,032,440) (3,657,195) (119,536,876) (152,346,276) (3,827,088) (2,606,385)
- ------------------------------------------------------------------------------------------------------------------------------------
(5,916,452) (1,163,603) 9,038,793 (144,208) (37,860,575) 40,644,055 (1,986,249) 207,215
32,718,134 33,881,737 2,825,934 2,970,142 239,038,480 198,394,425 7,793,374 7,586,159
- ------------------------------------------------------------------------------------------------------------------------------------
26,801,682 32,718,134 11,864,727 2,825,934 201,177,905 239,038,480 5,807,125 7,793,374
- ------------------------------------------------------------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
58
FINANCIAL
STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
Berger
Small Cap
Value Fund
- -----------------------------------------------------------------------------------------------------------------
Years Ended September 30,
2002 2001
- -----------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss) $ 11,677,995 $ 26,776,506
Net realized gain (loss) on securities and foreign currency transactions 153,362,574 268,383,035
Net realized loss on futures contracts -- --
Net realized gain on distributions from investment companies -- --
Net change in unrealized appreciation (depreciation) on securities and
foreign currency transactions (315,557,924) (254,822,740)
- ----------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations (150,517,355) 40,336,801
- ----------------------------------------------------------------------------------------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Investor Shares or single-class Funds (136,630,580) (69,874,850)
Institutional Shares (124,921,066) (72,984,688)
- ----------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets from Distributions to Shareholders (261,551,646) (142,859,538)
- ----------------------------------------------------------------------------------------------------------------
FROM FUND SHARE TRANSACTIONS (NOTE 6)
Proceeds from shares sold 1,610,461,167 1,517,783,967
Net asset value of shares issued in reinvestment of distributions 223,009,178 120,761,059
Payments for shares redeemed (1,300,793,358) (693,472,953)
- ----------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Derived from Fund Share Transactions 532,676,987 945,072,073
- ----------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets 120,607,986 842,549,336
NET ASSETS
Beginning of period 2,563,897,667 1,721,348,331
- ----------------------------------------------------------------------------------------------------------------
End of period $ 2,684,505,653 $2,563,897,667
- ----------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(Accumulated net investment loss) $ 4,949,471 $ 17,028,837
- ----------------------------------------------------------------------------------------------------------------
TRANSACTIONS IN FUND SHARES (NOTE 6)
Shares sold 57,431,617 56,298,486
Shares issued to shareholders in reinvestment of distributions 8,019,308 4,976,640
Shares redeemed (48,022,367) (26,112,148)
- ----------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Shares 17,428,558 35,162,978
Shares outstanding, beginning of period 104,509,445 69,346,467
- ----------------------------------------------------------------------------------------------------------------
Shares outstanding, end of period 121,938,003 104,509,445
- ----------------------------------------------------------------------------------------------------------------
(1) For the period from March 28, 2002 (commencement of operations) to September
30, 2002.
(2) Includes information for the one day of operations during the period ended
September 30, 2001.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
59
Financial Statements
================================================================================
Berger Berger Berger Berger
Small Cap Mid Cap Large Cap Balanced
Value Fund II Value Fund Value Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------------
Period Ended September 30, Years Ended September 30, Year Ended September 30, Years Ended September 30,
2002(1) 2002 2001 2002(2) 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------------
$ (31,302) $ 1,768,901 $ 783,338 $ 45,295 $ 1,192,262 $ 2,150,458
(55,259) (19,119,589) 7,381,296 (1,703,012) (18,062,227) (11,547,137)
-- (583,649) (254,555) -- -- --
-- -- 28,800 -- -- --
(1,355,194) (142,238,809) (18,984,240) (1,341,280) 4,674,806 (29,576,206)
- ------------------------------------------------------------------------------------------------------------------------------
(1,441,755) (160,173,146) (11,045,361) (2,998,997) (12,195,159) (38,972,885)
- ------------------------------------------------------------------------------------------------------------------------------
-- (5,474,036) (4,375,166) (6,705) (624,300) (17,821,966)
-- -- -- (9,647) -- --
- ------------------------------------------------------------------------------------------------------------------------------
-- (5,474,036) (4,375,166) (16,352) (624,300) (17,821,966)
- ------------------------------------------------------------------------------------------------------------------------------
9,547,167 1,232,922,509 228,010,909 14,152,834 12,015,503 41,811,377
-- 5,242,309 4,132,892 16,303 607,660 16,018,951
(946,132) (327,821,583) (101,230,761) (5,061,306) (36,449,145) (87,820,111)
- ------------------------------------------------------------------------------------------------------------------------------
8,601,035 910,343,235 130,913,040 9,107,831 (23,825,982) (29,989,783)
- ------------------------------------------------------------------------------------------------------------------------------
7,159,280 744,696,053 115,492,513 6,092,482 (36,645,441) (86,784,634)
-- 148,505,288 33,012,775 -- 90,013,099 176,797,733
- ------------------------------------------------------------------------------------------------------------------------------
$ 7,159,280 $ 893,201,341 $ 148,505,288 $ 6,092,482 $ 53,367,658 $ 90,013,099
- ------------------------------------------------------------------------------------------------------------------------------
$ (83) $ 1,709,000 $ 411,645 $ 39,927 $ 790,801 $ 181,054
- ------------------------------------------------------------------------------------------------------------------------------
970,662 75,103,808 14,414,041 1,295,475 951,650 2,662,043
-- 314,852 302,554 1,461 45,615 1,051,183
(103,796) (20,673,422) (6,617,457) (528,297) (2,968,906) (5,638,933)
- ------------------------------------------------------------------------------------------------------------------------------
866,866 54,745,238 8,099,138 768,639 (1,971,641) (1,925,707)
-- 10,386,730 2,287,592 -- 7,198,569 9,124,276
- ------------------------------------------------------------------------------------------------------------------------------
866,866 65,131,968 10,386,730 768,639 5,226,928 7,198,569
- ------------------------------------------------------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
60
BERGER
INTERNATIONAL FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investment in Berger International Portfolio ("Portfolio"), at value $12,591,799
Receivable from fund shares sold 6,278
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets 12,598,077
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for fund shares redeemed 46,768
Accrued administrative services fee 6,460
Accrued 12b-1 fees 3,015
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 56,243
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Shares Outstanding $12,541,834
- -----------------------------------------------------------------------------------------------------------------------------------
COMPONENTS OF NET ASSETS
Capital (par value and paid in surplus) $11,381,503
Accumulated net investment loss (11,580)
Undistributed net realized loss on securities
and foreign currency transactions (2,954,979)
Net unrealized appreciation on securities and foreign currency transactions 4,126,890
- -----------------------------------------------------------------------------------------------------------------------------------
$12,541,834
- ----------------------------------------------------------------------------------------------------------------------------------
Shares Outstanding (Unlimited Shares Authorized, Par Value $0.01) 1,796,397
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 6.98
- -----------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended
September 30, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Dividends (net of foreign tax withholding of $61,377) $ 336,463
Interest 6,574
Securities lending income 29,259
Portfolio expenses (net of earnings and brokerage credits totaling $2,055) (178,668)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income Allocated from Portfolio 193,628
- -----------------------------------------------------------------------------------------------------------------------------------
FUND EXPENSES
Administrative services fee 82,993
12b-1 fees 48,128
Registration fees 32,663
Legal fees 299
- -----------------------------------------------------------------------------------------------------------------------------------
Total Fund Expenses 164,083
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 29,545
- -----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES AND
FOREIGN CURRENCY TRANSACTIONS ALLOCATED FROM PORTFOLIO
Net realized loss on securities and foreign currency transactions (3,773,475)
Net change in unrealized appreciation on securities and foreign currency transactions 2,708,455
- -----------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Loss on Securities and Foreign Currency Transactions Allocated from Portfolio (1,065,020)
- -----------------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,035,475)
- -----------------------------------------------------------------------------------------------------------------------------------
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
61
Financial Statements
============================================================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended September 30, 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 29,545 $ 596,656
Net realized loss on securities and foreign currency transactions allocated from Portfolio (3,773,475) (1,947,673)
Net change in unrealized appreciation (depreciation) on securities and foreign currency
transactions allocated from Portfolio 2,708,455 (5,271,394)
- -----------------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from Operations (1,035,475) (6,622,411)
- -----------------------------------------------------------------------------------------------------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Distributions (1,121,115) (2,266,137)
Tax return of capital (18,790) --
- -----------------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets from Distributions to Shareholders (1,139,905) (2,266,137)
- -----------------------------------------------------------------------------------------------------------------------------
FROM FUND SHARE TRANSACTIONS
Proceeds from shares sold 153,606,863 463,495,791
Net asset value of shares issued in reinvestment of distributions 1,120,101 2,245,778
Payments for shares redeemed (166,783,014) (468,504,500)
- -----------------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets Derived from Fund Share Transactions (12,056,050) (2,762,931)
- -----------------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets (14,231,430) (11,651,479)
NET ASSETS
Beginning of period 26,773,264 38,424,743
- -----------------------------------------------------------------------------------------------------------------------------
End of period $ 12,541,834 $ 26,773,264
- -----------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income/(Accumulated net investment loss) $ (11,580) $ 1,046,040
- -----------------------------------------------------------------------------------------------------------------------------
TRANSACTIONS IN FUND SHARES
Shares sold 16,796,697 40,865,615
Shares issued to shareholders in reinvestment of distributions 134,303 183,779
Shares redeemed (18,064,025) (40,926,982)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Shares (1,133,025) 122,412
Shares outstanding, beginning of period 2,929,422 2,807,010
- -----------------------------------------------------------------------------------------------------------------------------
Shares outstanding, end of period 1,796,397 2,929,422
- -----------------------------------------------------------------------------------------------------------------------------
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
62
NOTES TO FINANCIAL
STATEMENTS
September 30, 2002
================================================================================
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Berger Growth Fund ("Growth"), Berger Large Cap Growth Fund ("BLCG"), Berger Mid
Cap Growth Fund ("BMCG"), Berger Small Company Growth Fund ("BSCG"), Berger
Information Technology Fund ("TECH"), Berger International Fund ("BIF"), Berger
Small Cap Value Fund ("BSCV"), Berger Small Cap Value Fund II ("BSCVII"), Berger
Mid Cap Value Fund ("BMCV"), Berger Large Cap Value Fund ("BLCV") and Berger
Balanced Fund ("BBAL") (individually the "Fund" and collectively, the "Funds")
are diversified, open-end management investment companies registered under the
Investment Company Act of 1940, as amended (the "1940 Act").
Growth and BLCG are corporations registered in the State of Maryland. BMCG,
BSCG,TECH, BSCVII, BMCV, BLCV and BBAL are separate series established under the
Berger Investment Portfolio Trust ("BIP Trust"), a Delaware business trust. BIF
is one of three series established under the Berger Worldwide Funds Trust ("BWF
Trust"), a Delaware business trust. BSCV is the only series established under
the Berger Omni Investment Trust ("OMNI Trust"), a Massachusetts business trust.
BSCG, TECH, BSCV, BMCV and BLCV each offer two separate classes of shares;
Investor Shares ("BSCG; Inv","TECH; Inv","BSCV; Inv", "BMCV;Inv" and "BLCV;Inv",
respectively) and Institutional Shares ("BSCG; Inst","TECH; Inst","BSCV; Inst"
"BMCV;Inst", and "BLCV;Inst", respectively). BSCVII offers three classes of
shares; Investor Shares ("BSCVII;Inv"), Institutional Shares ("BSCVII;Inst") and
Service Shares ("BSCVII;Scv"). All classes of each Fund have identical rights to
earnings, assets and voting privileges. Effective March 31, 2000, both classes
of BSCV were closed to new investors.
At September 30, 2002, Berger Financial Group LLC ("Berger") owned 12% of the
outstanding shares of SCVII.
BIF invests all of its investable assets in the Berger International Portfolio
(the "Portfolio"), the only series established under the Berger Worldwide
Portfolios Trust ("BWP Trust").The value of such investment reflects BIF's
proportionate interest in the net assets of the Portfolio (10% at September 30,
2002). The Portfolio is also an open-end management investment company and the
Fund has the same investment objective and policies as the Portfolio. Since all
of BIF's assets are invested in the Portfolio, the performance of BIF will be
primarily derived from the investment performance of the Portfolio.The financial
statements of the Portfolio, including the schedule of investments, are included
elsewhere in this report and should be read in conjunction with BIF's financial
statements.
Effective January 29, 2001, the directors of the BLCG approved a change in the
name and non-fundamental investment strategies of the Fund from a Growth and
Income Fund, and in doing so, eliminated the Fund's secondary investment
objective. As a result, BLCG will, under normal circumstances, invest at least
80% of its total assets in equity securities of companies whose market
capitalization, at the time of initial purchase, is $10 billion or more.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States of America.
INVESTMENT VALUATION
Securities are valued at the close of the regular trading session of the New
York Stock Exchange (the "Exchange") on each day that the Exchange is open.
Securities listed on national exchanges, the Nasdaq Stock Market and foreign
exchanges are valued at the last sale price on such markets, or, if no last sale
price is available, they are valued using the mean between their current bid and
ask prices. Prices of foreign securities are converted to U.S. dollars using
exchange rates determined prior to the close of the Exchange. Securities traded
in the over-the-counter market are valued at the mean between their current bid
and ask prices. Short-term obligations maturing within sixty days are valued at
amortized cost, which approximates market value. Securities for which quotations
are not readily available are valued at fair value as determined in good faith
pursuant to consistently applied procedures established by the directors/
trustees of the Funds.
Generally, trading in foreign securities markets is substantially completed each
day at various times prior to the close of the Exchange. The values of foreign
securities used in computing the Funds' net asset values are determined as of
the earlier of such market close or the closing time of the Exchange.
Occasionally, events affecting the value of such securities may occur after the
close of the foreign markets but before the close of the Exchange, or when the
foreign market on which such securities trade is closed but the Exchange is
open, which will not be reflected in the computation of net asset value. If
during such periods, events occur that materially affect the value of such
securities, the securities will be valued at their fair market value as
determined in good faith pursuant to consistently applied procedures established
by the directors/trustees of the Funds.
Since BIF invests all of its investable assets in the Portfolio, the value of
BIF's investable assets will be equal to the value of its beneficial interest in
the Portfolio.Valuation of securities by the Portfolio is discussed in Note 1 of
the Portfolio's Notes to Financial Statements,which are included elsewhere in
this report.
CALCULATION OF NET ASSET VALUE
Each Fund's per share calculation of net asset value for each share class is
determined by dividing the net assets applicable to each share class by the
total number of shares outstanding for that class.
Berger Funds o September 30, 2002 Combined Annual Report
63
Notes to Financial Statements
================================================================================
FEDERAL INCOME TAX STATUS
It is the Funds' intention to comply with the provisions of subchapter M of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of their taxable income, if any, to shareholders.Therefore, no
income tax provision is required. Certain Funds may utilize earnings and profits
on redemption of shares as part of the dividends paid deduction.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities initially expressed in terms of foreign currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the date of valuation.The cost of securities is
translated into U.S. dollars at the rates of exchange prevailing when such
securities were acquired. Income and expenses are translated into U.S. dollars
at rates of exchange prevailing when accrued.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on the date investments are purchased
or sold. Dividend income is recorded on the ex-dividend date except that certain
dividends from foreign securities are recorded as soon as a Fund is informed of
the ex-dividend date if such information is obtained subsequent to the
ex-dividend date. Dividend income is recorded net of foreign taxes withheld.
Interest income is recorded on the accrual basis and includes accretion of
discount and amortization of premium (see "Change in Accounting Principle"
note). Gains and losses are computed on the identified cost basis for both
financial statement and federal income tax purposes for all securities.
CHANGE IN ACCOUNTING PRINCIPLE
In November 2000, a revised AICPA Audit and Accounting Guide, Audits of
Investment Companies (the "Guide"), was issued, and is effective for fiscal
years beginning after December 15, 2000. Effective October 1, 2001, the Funds
adopted the provisions of the Guide and, as a result, amortize discount and
premium on debt securities. Prior to October 1, 2001, the Funds did not amortize
premium on debt securities. The cumulative effect of this accounting change had
no impact on the total net assets of the Funds; however the change resulted in a
$120,477 reduction in cost of securities and a corresponding $120,477 increase
in net unrealized appreciation, based on securities held on October 1, 2001 in
BBAL.The effect of this change had no material impact on any other Funds'
respective components of net assets or on their changes in net assets from
operations for the period ended September 30, 2002.
The effect to BBAL of this change for the year ended September 30, 2002 was to
decrease net investment income by $40,745; increase net unrealized depreciation
by $95,289; decrease net realized losses by $136,034. The statement of changes
in net assets and financial highlights for prior periods have not been restated
to reflect this change in presentation.
ALLOCATION OF INCOME, EXPENSES AND GAINS AND LOSSES
Income, expenses (other than those attributable to a specific share class),
including earnings and brokerage credits, and gains and losses of BSCG, TECH,
BSCV, BSCVII, BMCV and BLCV are allocated daily to each class of shares based
upon the ratio of net assets represented by each class as a percentage of total
net assets of each of the aforementioned Funds. Expenses directly attributable
to a specific class of shares are charged against the operations of such class.
As an investor in the Portfolio, BIF is allocated its pro rata share of the
aggregate investment income, realized and unrealized gains or losses and annual
operating expenses, including earnings and brokerage credits of the Portfolio.
Income, realized and unrealized gains or losses and expenses are allocated on
the day incurred in proportion to the prior day's net assets of BIF relative to
the other investors in the Portfolio. Expenses directly attributable to BIF are
charged against the operations of BIF.
COMMON EXPENSES
Certain expenses, which are not directly allocable to a specific Fund, are
allocated pro rata to each of the Funds.
ORGANIZATION COSTS
Expenses incurred in connection with the organization of TECH were amortized
over sixty months from April 8, 1997, the commencement of investment operations
of TECH.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results may differ from those estimates.
2. AGREEMENTS
Berger Financial Group LLC ("Berger", formerly Berger LLC) serves as investment
adviser to Growth, BLCG, BMCG,BSCG,TECH,BIF (indirectly through its investment
in the Portfolio), BSCV, BSCVII, BMCV, BLCV and BBAL pursuant to agreements that
provide for an investment advisory fee to be paid to Berger according to the
following schedule:
Average Daily
Fund Net Assets Annual Rate
- --------------------------------------------------------------------------------
Growth, BLCG, BMCG, First $500 million .75%
BMCV, BLCV Next $500 million .70%
Over $1 billion .65%
- --------------------------------------------------------------------------------
BSCG,TECH, First $500 million .85%
BIF(1), BSCV, Next $500 million .80%
BSCVII Over $1 billion .75%
- --------------------------------------------------------------------------------
BBAL First $1 billion .70%
Over $1 billion .65%
- --------------------------------------------------------------------------------
(1) Represents the investment advisory fee paid by the Portfolio based on the
average daily net assets of the Portfolio.
Berger Funds o September 30, 2002 Combined Annual Report
64
NOTES TO FINANCIAL
STATEMENTS
September 30, 2002
================================================================================
All investment advisory fees are accrued daily and paid monthly. Berger has
delegated the day-to-day investment management of BSCV and BMCV to Perkins,
Wolf, McDonnell & Company ("PWM"). Additionally, Berger has delegated the
day-to-day investment management of TECH, BSCVII and BLCV to Bay Isle Financial
LLC ("Bay Isle"), a wholly-owned subsidiary of Berger.
Berger has agreed to waive its advisory fee for TECH; Inv and TECH; Inst to the
extent that each class' normal operating expenses (including the advisory fee
and 12b-1 fee, but excluding brokerage commissions, interest, taxes and
extraordinary expenses) in any fiscal year exceed 2.00% and 1.50%, respectively,
for the fiscal year. Berger has agreed to reimburse BSCG; Inst and BMCV; Inst to
the extent that each class' transfer agency and registration fees, in aggregate,
exceed .20% and .25%, respectively, of the class' average daily net assets in
any fiscal year. Berger has agreed to reimburse BLCV; Inv and BLCV; Inst to the
extent that each class' transfer agency, shareholder reporting and registration
fees, in aggregate, exceed .15% and .05%, respectively,of the class' average net
assets in any fiscal year. Berger has also agreed to reimburse all classes of
BSCVII to the extent that each class' transfer agency, shareholder reporting and
registration fees exceed .25% of the class' average net assets.
The Funds have entered into administrative services agreements with Berger.
Berger currently provides administrative services to the Funds at no cost
(except BIF).
Pursuant to its administrative services agreement with Berger, BIF pays Berger a
fee at an annual rate equal to the lesser of 0.45% of its average daily net
assets or Berger's annual cost to provide or procure all of the services
necessary for the operation of BIF (including transfer agency, printing and
mailing, pricing services and audit fees) plus 0.02% of BIF's average daily net
assets. Under the agreement, Berger is responsible at its own expense for
providing or procuring such administrative services, excluding legal and
registration fees.
The Funds have adopted plans pursuant to Rule 12b-1 under the 1940 Act (the
"Plans"). The BSCG, TECH, BSCV, BMCV and BLCV Plans apply only to the Investor
Shares class of each Fund. The BSCVII Plan applies only to the Investor Shares
and Service Shares classes of the Fund. The Plans provide for the payment to
Berger of a 12b-1 fee of .25% per annum of each Fund's average daily net assets
(or the net assets of a particular class of shares, where applicable) to finance
activities primarily intended to result in the sale of Fund shares. The Plans
provide that such payments will be made to Berger as compensation rather than as
reimbursements for actual expenses incurred to promote the sale of shares of the
Funds. During the period in which BSCV; Inv is closed, Berger shall reduce the
12b-1 fee payable by BSCV; Inv by the amount of such fee that is not utilized by
Berger to provide, or to compensate third party administrators or other
companies for providing, shareholder services in connection with the
distribution of shares. In addition, beginning in June 2002, Berger has
voluntarily agreed to waive the 12b-1 fees payable by Growth, BLCG, BMCG,
BSCG,TECH and BBAL to the extent that such fees are not utilized by Berger to
compensate third-party administrators for distribution activities.
Pursuant to a shareholder services agreement with Berger, BSCVII;Svc pays to
Berger a fee at an annual rate equal to 0.25% of its average daily net assets
for providing, or for procuring through financial intermediaries, services to
shareholders. Berger has agreed to waive such fee to the extent that the fee is
not utilized by Berger to pay for costs associated with providing services to
shareholders of BSCVII;Scv. The Funds (except BIF) have also entered into
custody, recordkeeping and pricing agreements with State Street Bank and Trust
Company ("State Street"). The custody, recordkeeping and pricing agreements
provide for the monthly payment of a fee computed as a percentage of average
daily net assets on a total relationship basis with other Berger Funds. State
Street's fees for custody, recordkeeping and pricing are subject to reduction by
credits earned by each Fund, based on the cash balances of each Fund held by
State Street as custodian. The Funds could have employed these cash balances to
produce income if they had not entered into this expense reduction arrangement
with State Street. Such reductions are included in Earnings Credits in the
Statement of Operations.
DST Systems, Inc. ("DST"), an affiliate of Berger through a degree of common
ownership, provides shareholder accounting services to the Funds. DST
Securities, Inc., a wholly-owned subsidiary of DST, is designated as an
introductory broker on certain portfolio transactions. The Funds receive an
amount equal to the brokerage commissions paid to DST Securities, Inc. as
credits against transfer agent fees and expenses. Such credits, if any, are
included with credits received from other third-party directed brokerage credits
as Brokerage Credits on the Statement of Operations. Brokerage commissions paid,
credits received and fees paid to DST for shareholder accounting services for
the year ended September 30, 2002, were as follows:
Fund Commissions Credit Fees
- --------------------------------------------------------------------------------
Growth $18,421 $ 13,816 $1,988,379
BLCG 7,912 5,934 567,028
BMCG -- -- 352,239
BSCG 2,463 1,847 1,273,063
TECH -- -- 156,939
BIF N/A N/A N/A
BSCV -- -- 584,147
BSCVII -- -- 10,091
BMCV -- -- 259,911
BLCV 44 33 11,782
BBAL 1,200 900 102,970
- --------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
65
Notes to Financial Statements
================================================================================
The directors/trustees of the Funds have also authorized portfolio transactions
to also be placed through certain unaffiliated broker-dealers. When transactions
are effected through such broker-dealers, a portion of the commission is
credited against, and thereby reduces, operating expenses that the Funds would
otherwise be obligated to pay. Such credits are also included as Brokerage
Credits on the Statement of Operations.
Certain officers and/or directors of Berger are also officers and/or
directors/trustees of the Funds. Directors/Trustees who are not affiliated with
Berger are compensated for their services. Such fees are allocated among the
entire Berger Funds complex. For the year ended September 30, 2002, such
directors'/trustees' fees and expenses totaled $462,414 for the Funds.
Growth, BLCG, BIP Trust, OMNI Trust and BWP Trust have adopted a
director/trustee fee deferral plan (the "Plan") which allows the non-affiliated
directors/trustees to defer the receipt of all or a portion of the
directors'/trustees' fees payable. The deferred fees are invested in various
funds advised by Berger until distribution in accordance with the Plan.
A 1% redemption fee is retained by TECH;Inv and TECH;Inst to offset transaction
costs and other expenses associated with short-term redemptions and
exchanges. The fee is imposed on redemptions or exchanges of shares held less
than six months. The redemption fee, which had no impact to either class' total
return for the year ended September 30, 2002, is accounted for as an addition to
Paid-in Capital by each class of shares. Total redemption fees received by
TECH;Inv and TECH;Inst for the year ended September 30, 2002 were $8,637 and
$1,649, respectively.
3. INVESTMENT TRANSACTIONS
PURCHASES AND SALES
Purchases and sales proceeds of investment securities (excluding short-term
securities) during the year ended September 30, 2002, were as follows:
Fund Purchases Sales
- --------------------------------------------------------------------------------
Growth $1,131,974,077 $1,246,454,480
BLCG 295,662,530 343,350,114
BMCG 178,700,648 176,203,159
BSCG 1,205,391,328 1,310,182,628
TECH 17,078,292 20,446,966
BIF(1) N/A N/A
BSCV 1,328,627,072 1,133,306,079
BSCVII 9,167,310 746,852
BMCV 1,103,894,002 323,081,833
BLCV 17,645,992 8,855,163
BBAL 83,457,763 107,333,383
- --------------------------------------------------------------------------------
(1)See the Portfolio's Notes to Financial Statements for information regarding
purchases and sales proceeds of investment securities.
BBAL had purchases of $2,327,362 of long-term U.S. government securities and no
sales during the year ended September 30, 2002. No other Funds purchased or sold
long-term U.S. government securities.
FUTURES AND FORWARD CONTRACTS
Each Fund may hold certain types of forward foreign currency exchange contracts
and/or futures contracts for the purpose of hedging each portfolio against
exposure to market value fluctuations. The use of such instruments may involve
certain risks as a result of unanticipated movements in the market, a lack of
correlation between the value of such instruments and the assets being hedged,
or unexpected adverse price movements. In addition, there can be no assurance
that a liquid secondary market will exist for the instrument. Upon entering a
futures contract, a Fund deposits and maintains as collateral such initial
margin as may be required by the exchanges on which the transaction is effected.
Pursuant to the contracts, a Fund agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in the value of the futures
contract. During the period the futures contracts are open, changes in the value
of the contracts are recognized on a daily basis to reflect the market value of
the contracts at the end of each day's trading and are recorded as realized or
unrealized gain or loss, as appropriate. Realized gains or losses on these con-
tracts are presented as a separate component in the Statement of Operations.
Realized and unrealized gains or losses on forward foreign currency contracts
are included in Net Realized and Unrealized Gain (Loss) on Securities and
Foreign Currency Transactions in the Statement of Operations. At September 30,
2002, the Funds had no outstanding futures or forward currency contracts.
SECURITIES LENDING
Under an agreement with State Street, BMCG, BSCG, TECH, the Portfolio, BMCV and
BBAL have the ability to lend securities to brokers, dealers and other
authorized financial institutions. Loans of portfolio securities are
collateralized by cash remitted from the borrower of such securities in an
amount greater than the market value of the loaned securities at the time the
loan is made. The cash collateral received is invested in an unaffiliated money
market fund and is evaluated daily to ensure that its market value exceeds the
current market value of the loaned securities. Income generated by such
investment, net of any rebates paid to the borrower, is split among the Fund and
State Street, as lending agent.
At September 30, 2002, the Funds had securities on loan with the following
market values:
Fund Value
- --------------------------------------------------------------------------------
BMCG $ 6,231,487
BSCG 74,966,822
TECH 2,039,030
BIF(1) N/A
BMCV 70,648,499
- --------------------------------------------------------------------------------
(1) See the Portfolio's Financial Statements for market value of securities on
loan.
Berger Funds o September 30, 2002 Combined Annual Report
66
NOTES TO FINANCIAL
STATEMENTS
September 30, 2002
================================================================================
REPURCHASE AGREEMENTS
Repurchase agreements held by a Fund are fully collateralized by U.S. government
or government agency securities and such collateral is in the possession of the
Fund's custodian. The collateral is evaluated daily to ensure its market value
exceeds the current market value of the repurchase agreements including accrued
interest. In the event of default on the obligation to repurchase, the Fund has
the right to liquidate the collateral and apply the proceeds in satisfaction of
the obligation. In the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
CONCENTRATION OF RISK
The Funds may have elements of risk due to concentrated investments in specific
industries, foreign issuers located in a specific country or certain restricted
securities. Such concentrations may subject the Fund to additional risk
resulting from future political or economic conditions and/or possible
impositions of adverse foreign governmental laws or currency exchange
restrictions. Net Realized and Unrealized Gain (Loss) on Securities and Foreign
Currency Transactions in the Statement of Operations includes fluctuations from
currency exchange rates and fluctuations in market value of securities. Certain
Funds may have registration rights for specific restricted securities, which may
require that registration costs be borne by that Fund.
4. FEDERAL INCOME TAXES
Dividends paid by the Funds from net investment income and distributions of net
realized short-term capital gains are, for federal income tax purposes, taxable
as ordinary income to shareholders.The tax composition of dividends and
distributions to shareholders were as follows:
Ordinary Long-term Return of
Income Capital Gains Capital
- --------------------------------------------------------------------------------
BIF $ 1,121,115 -- $18,790
BSCV 171,000,477 $90,551,169 --
BMCV 3,553,594 1,920,442 --
BLCV 16,352 -- --
BBAL 624,300 -- --
- --------------------------------------------------------------------------------
Dividends received by shareholders of the Funds, which are derived from foreign
source income, and foreign taxes paid by the Funds are to be treated, to the
extent allowable under the Code, as if received and paid by the shareholders of
the Funds. During the year ended September 30, 2002, BIF paid $61,377 of foreign
taxes on $372,850 of foreign source income.
The Funds distribute net realized capital gains, if any, to their shareholders
at least annually, if not offset by capital loss carryovers. Income
distributions and capital gain distributions are determined in accordance with
federal income tax regulations, which may differ from generally accepted
accounting principles. These differences are primarily due to the differing
treatment of net operating losses and foreign currency transactions.
Accordingly, these permanent differences in the character of income and
distributions between financial statements and tax basis have been reclassified
to paid-in-capital.
The tax components of capital represent distribution requirements the Funds must
satisfy and losses or tax deductions the Funds may be able to offset against
income and capital gains realized in future years.
Federal Gross Tax Gross Tax Net Tax
Fund Tax Cost Appreciation Depreciation Depreciation
- --------------------------------------------------------------------------------
Growth $ 566,922,870 $ 8,779,300 $ (69,433,718) $ (60,654,418)
BLCG 219,522,575 4,597,668 (39,224,834) (34,627,166)
BMCG 99,960,640 2,112,082 (11,224,227) (9,112,145)
BSCG 324,432,300 18,735,225 (21,377,834) (2,642,609)
TECH 44,213,698 1,598,690 (26,687,508) (25,088,818)
BIF(1) N/A N/A N/A N/A
BSCV 3,142,122,878 220,458,983 (675,895,648) (455,436,665)
BSCVII 8,661,856 178,475 (1,550,252) (1,371,777)
BMCV 1,057,293,731 10,216,299 (174,872,513) (164,656,214)
BLCV 7,503,773 77,527 (1,470,762) (1,393,235)
BBAL 58,010,055 1,929,865 (6,766,158) (4,836,293)
- --------------------------------------------------------------------------------
(1) See the Portfolio's Notes to Financial Statements for information on federal
tax cost of securities.
Undistributed Accumulated Cum. Effect of
Ordinary Capital Gains/ Post-October Other Timing
Fund Income (Losses) Loss Deferral Differences
- --------------------------------------------------------------------------------
Growth $ -- $(381,041,258) $(231,222,910) $(407,067)
BLCG -- (66,647,380) (90,993,772) (84,257)
BMCG -- (147,780,918) (46,028,891) (4,775)
BSCG -- (428,500,788) (231,815,477) (159,201)
TECH -- (28,139,172) (13,357,029) (3,976)
BIF -- (599,748) (1,698,651) (5,678)
BSCV 5,183,749 113,163,281 -- (234,278)
BSCVII -- -- (38,676) (83)
BMCV 1,728,190 (1,257,557) (12,684,737) (19,190)
BLCV 40,138 -- (1,662,042) (210)
BBAL 811,314 (14,741,105) (15,797,584) (20,513)
- --------------------------------------------------------------------------------
The differences between book and tax appreciation/depreciation are primarily due
to wash sale loss deferrals and, in the case of BSCV, returns of capital on REIT
investments. Accumulated capital losses represent net capital loss carry-overs,
which may be used to offset future realized capital gains for federal income tax
purposes, and expire in 2009 and 2010. During the year ended September 30, 2002,
the Funds elected to defer post-October 31 net capital and/or currency losses,
above, to the year ended September 30, 2003. The cumulative effect of other
timing differences is primarily composed of deferred directors'/trustees' fees.
Berger Funds o September 30, 2002 Combined Annual Report
67
Notes to Financial Statements
================================================================================
5. LINE OF CREDIT
The Funds, excluding BIF, are party to an ongoing agreement with State Street
that allows the funds managed by Berger, collectively, to borrow up to $100
million, subject to certain conditions, for temporary or emergency purposes.
Interest, based on the Federal Funds Rate plus a spread, is charged to the Fund
that executes the borrowing. In addition, the unsecured line of credit requires
a quarterly payment of a commitment fee by the Funds based on the average daily
unused portion of the line of credit. No Funds had line of credit borrowings
outstanding at September 30, 2002.
6. CAPITAL SHARE TRANSACTIONS
The following Funds are authorized to issue an unlimited number of shares of
each share class with a par value of $0.01 per share. Transactions in capital
shares and dollars for the periods presented were as follows:
BERGER SMALL COMPANY GROWTH FUND
Year Ended Year Ended
September 30, 2002 September 30, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTOR SHARES
Shares sold 81,328,963 $ 219,742,903 149,475,833 $ 679,690,393
Shares issued to shareholders in reinvestment of distributions -- -- 43,098,552 197,391,370
Shares redeemed (118,618,960) (309,517,567) (151,960,144) (683,097,138)
- ------------------------------------------------------------------------------------------------------------------------------------
(37,289,997) (89,774,664) 40,614,241 193,984,625
- ------------------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 347,338 1,076,339 261,638 1,181,467
Shares issued to shareholders in reinvestment of distributions -- -- 154,308 706,729
Shares redeemed (917,916) (2,620,007) (386,132) (1,842,704)
- ------------------------------------------------------------------------------------------------------------------------------------
(570,578) (1,543,668) 29,814 45,492
- ------------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) from Capital Share Transactions (37,860,575) $ (91,318,332) 40,644,055 $ 194,030,117
- ------------------------------------------------------------------------------------------------------------------------------------
BERGER INFORMATION TECHNOLOGY FUND
Year Ended Year Ended
September 30, 2002 September 30, 2001(1)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTOR SHARES
Shares sold 1,280,679 $ 7,330,998 2,087,383 $ 22,204,749
Shares issued to shareholders in reinvestment of distributions -- -- -- --
Shares redeemed (1,549,833) (8,711,498) (1,424,139) (13,569,166)
- ------------------------------------------------------------------------------------------------------------------------------------
(269,154) (1,380,500) 663,244 8,635,583
- ------------------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 560,160 3,651,524 768,620 7,896,851
Shares issued to shareholders in reinvestment of distributions -- -- -- --
Shares redeemed (2,277,255) (9,899,490) (1,224,649) (10,936,423)
- ------------------------------------------------------------------------------------------------------------------------------------
(1,717,095) (6,247,966) (456,029) (3,039,572)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) from Capital Share Transactions (1,986,249) $ (7,628,466) 207,215 $ 5,596,011
- ------------------------------------------------------------------------------------------------------------------------------------
BERGER SMALL CAP VALUE FUND
Year Ended Year Ended
September 30, 2002 September 30, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTOR SHARES
Shares sold 37,495,014 $1,052,632,541 34,530,924 $ 931,233,180
Shares issued to shareholders in reinvestment of distributions 4,108,932 114,105,214 2,430,541 58,916,317
Shares redeemed (31,375,812) (849,533,643) (15,327,877) (407,415,589)
- ------------------------------------------------------------------------------------------------------------------------------------
10,228,134 317,204,112 21,633,588 582,733,908
- ------------------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 19,936,603 557,828,626 21,767,562 586,550,787
Shares issued to shareholders in reinvestment of distributions 3,910,376 108,903,964 2,546,099 61,844,742
Shares redeemed (16,646,555) (451,259,715) (10,784,271) (286,057,364)
- ------------------------------------------------------------------------------------------------------------------------------------
7,200,424 215,472,875 13,529,390 362,338,165
- ------------------------------------------------------------------------------------------------------------------------------------
Total Increase from Capital Share Transactions 17,428,558 $ 532,676,987 35,162,978 $ 945,072,073
- ------------------------------------------------------------------------------------------------------------------------------------
(1) All per share data for Berger Information Technology Fund for the year ended
September 30, 2001 has been adjusted to reflect a 7-for-1 share split, effective
October 17, 2000.
Berger Funds o September 30, 2002 Combined Annual Report
68
NOTES TO FINANCIAL
STATEMENTS
September 30, 2002
================================================================================
6. CAPITAL SHARE TRANSACTIONS (CONTINUED)
BERGER SMALL CAP VALUE FUND II
Period Ended
September 30, 2002(1)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTOR SHARES
Shares sold 698,547 $ 6,828,081
Shares issued to shareholders in reinvestment of distributions -- --
Shares redeemed (102,703) (936,301)
- ------------------------------------------------------------------------------------------------------------------------------------
595,844 5,891,780
- ------------------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 228,352 2,295,846
Shares issued to shareholders in reinvestment of distributions -- --
Shares redeemed (872) (7,911)
- ------------------------------------------------------------------------------------------------------------------------------------
227,480 2,287,935
- ------------------------------------------------------------------------------------------------------------------------------------
SERVICE SHARES
Shares sold 43,763 423,240
Shares issued to shareholders in reinvestment of distributions -- --
Shares redeemed (221) (1,920)
- ------------------------------------------------------------------------------------------------------------------------------------
43,542 421,320
- ------------------------------------------------------------------------------------------------------------------------------------
Total Increase from Capital Share Transactions 866,866 $ 8,601,035
- ------------------------------------------------------------------------------------------------------------------------------------
BERGER MID CAP VALUE FUND
Year Ended Year Ended
September 30, 2002(2) September 30, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTOR SHARES
Shares sold 66,533,111 $1,103,416,314 14,414,041 $ 228,010,909
Shares issued to shareholders in reinvestment of distributions 314,852 5,242,309 302,554 4,132,892
Shares redeemed (20,197,833) (321,001,723) (6,617,457) (101,230,761)
- ------------------------------------------------------------------------------------------------------------------------------------
46,650,130 787,656,900 8,099,138 130,913,040
- ------------------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 8,570,697 129,506,195
Shares issued to shareholders in reinvestment of distributions -- --
Shares redeemed (475,589) (6,819,860)
- ------------------------------------------------------------------------------------------------------------------------------------
8,095,108 122,686,335
- ------------------------------------------------------------------------------------------------------------------------------------
Total Increase from Capital Share Transactions 54,745,238 $ 910,343,235 8,099,138 $ 130,913,040
- ------------------------------------------------------------------------------------------------------------------------------------
BERGER LARGE CAP VALUE FUND
Year Ended
September 30, 2002(3)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTOR SHARES
Shares sold 414,887 $ 4,450,304
Shares issued to shareholders in reinvestment of distributions 597 6,656
Shares redeemed (83,838) (832,343)
- ------------------------------------------------------------------------------------------------------------------------------------
331,646 3,624,617
- ------------------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 880,588 9,702,530
Shares issued to shareholders in reinvestment of distributions 864 9,647
Shares redeemed (444,459) (4,228,963)
- ------------------------------------------------------------------------------------------------------------------------------------
436,993 5,483,214
- ------------------------------------------------------------------------------------------------------------------------------------
Total Increase from Capital Share Transactions 768,639 $ 9,107,831
- ------------------------------------------------------------------------------------------------------------------------------------
(1)For the period from March 28, 2002 (commencement of operations) to September
30, 2002.
(2)Share data for Institutional Shares is for the period from May 17, 2002
(commencement of operations for Institutional shares to September 30, 2002.
(3)Includes share data for the one day of operations during the period ended
September 30, 2001.
Berger Funds o September 30, 2002 Combined Annual Report
69
================================================================================
7. REORGANIZATIONS
On May 10, 2002, certain Funds, as listed below (each an "Acquiring Fund"),
acquired all of the assets and liabilities of other Funds, also listed below
(each an "Acquired Fund"), in a tax-free reorganization in exchange for shares
of the Acquiring Fund, pursuant to plan of reorganization approved by the
Acquired Funds' shareholders. The number and value of shares issued by the
Acquiring Funds are presented in the Statement of Changes. Berger incurred the
costs associated with the reorganizations. Net assets and unrealized
depreciation as of the reorganization date immediately prior to and after the
reorganization were as follows:
Acquired Fund Net
Acquiring Acquired Acquiring Fund Acquired Fund Unrealized Assets After
Fund Fund Net Assets Net Assets Depreciation Reorganization
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Berger Select Fund $645,614,489 $17,248,651 $(1,676,094) $662,863,140
BMCG Berger New Generation Fund 26,550,625 110,079,860 (11,811,529) 136,630,485
- ------------------------------------------------------------------------------------------------------------------------------------
Utilization of acquired capital loss carryovers for Growth and BMCG may be
limited in future years due to federal income tax rules.
8. OTHER MATTERS
On September 3, 2002, Stilwell Financial Inc. ("Stilwell"), the parent company
of Berger, announced its intention to consolidate all of its investment advisory
and Fund administrative operations under Janus Capital Management LLC ("Janus")
on or before December 31,2002. As the transaction is presently contemplated,
Berger, the investment adviser to the Berger Funds, will be consolidated into
Janus and Berger will cease to exist.
It is anticipated that portfolio management of BSCV, BSCVII, BMCV and BLCV,
which are advised by sub-advisers to Berger, will not be affected. It is
presently anticipated that a change in administration for all Funds and a change
in portfolio management of Growth, BLCG, BMCG, BSCG,TECH, BIF and BBAL will
occur.
The directors/trustees of the Berger Funds will be responsible for selecting a
new adviser and administrator for the Funds and have begun considering the
alternatives. Berger will continue to provide investment advisory and
administrative services to the Funds until the completion of the transaction. It
is anticipated that the consolidation of Stilwell and any changes in the
portfolio management of the Funds will be completed in the first quarter of
2003.
Berger Funds o September 30, 2002 Combined Annual Report
70
BERGER
INTERNATIONAL PORTFOLIO
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
Country/SharesCompany Industry Value
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK (100.03%)
Australia (3.80%)
183,114 Brambles Industries Ltd. Transport $ 641,388
315,558 Fosters Group Ltd. Restaurants/Pubs/Breweries 789,987
75,010 National Australia Bank Ltd. Banks 1,363,781
155,738 News Corp. Ltd. Media & Photography 743,401
167,720 Westpac Banking Corp. Ltd. Banks 1,261,463
- ------------------------------------------------------------------------------------------------------------------------------------
4,800,020
- ------------------------------------------------------------------------------------------------------------------------------------
Finland (0.98%)
92,767 Nokia Oyj Information Technology Hardware 1,232,681
- ------------------------------------------------------------------------------------------------------------------------------------
France (8.54%)
68,710 Aventis SA Pharmaceuticals 3,597,748
130,112 AXA Insurance 1,276,444
16,880 Lafarge SA Construction & Building Materials 1,347,469
34,683 TotalFinaElf SA - Class B Oil & Gas 4,564,107
- ------------------------------------------------------------------------------------------------------------------------------------
10,785,768
- ------------------------------------------------------------------------------------------------------------------------------------
Germany (6.50%)
8,032 Allianz AG - Reg. Insurance 687,586
71,415 Bayer AG Chemicals - Commodity 1,231,175
66,610 Bayerische Motoren Werke AG Automobiles 2,139,397
18,327 Deutsche Bank AG - Reg. Banks 833,789
70,254 E.On AG Diversified Industrials 3,317,675
- ------------------------------------------------------------------------------------------------------------------------------------
8,209,622
- ------------------------------------------------------------------------------------------------------------------------------------
Hong Kong (2.97%)
195,000 Cheung Kong (Holdings) PLC Real Estate 1,232,571
114,000 Hong Kong Electric Holdings Ltd. Electricity 485,259
5,740,000 Petrochina Co. Ltd. Oil & Gas 1,162,785
148,000 Sun Hung Kai Properties Ltd. Real Estate 869,076
- ------------------------------------------------------------------------------------------------------------------------------------
3,749,691
- ------------------------------------------------------------------------------------------------------------------------------------
Italy (4.00%)
221,832 ENI S.p.A. Oil & Gas 3,041,926
283,758 Telecom Italia S.p.A. Telecommunications Services 2,021,242
- ------------------------------------------------------------------------------------------------------------------------------------
5,063,168
- ------------------------------------------------------------------------------------------------------------------------------------
Japan (14.60%)
15,610 ACOM Co. Ltd. Specialty & Other Finance 659,099
124,000 Canon, Inc. Electronic & Electrical Equipment 4,054,052
57,000 Fuji Photo Film Co. Ltd. Media & Photography 1,699,675
241,000 Hitachi Ltd. Information Technology Hardware 1,207,623
54,200 Honda Motor Co. Ltd. Automobiles 2,194,981
23,200 Hoya Corp. + Electronic & Electrical Equipment 1,438,863
13,100 Nintendo Co. Ltd. Entertainment/Leisure/Toys 1,525,921
573 NTT DoCoMo, Inc. Telecommunications Services 979,045
6,700 Rohm Co. Ltd. Information Technology Hardware 786,487
7,800 SMC Corp. + Engineering & Machinery 702,247
20,300 Sony Corp. Household Goods & Textiles 852,121
58,300 Takeda Chemicals Industries Ltd. Pharmaceuticals 2,351,444
- ------------------------------------------------------------------------------------------------------------------------------------
18,451,558
- ------------------------------------------------------------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
71
International Portfolio
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
Country/SharesCompany Industry Value
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK (100.03%) - CONTINUED
Netherlands (9.58%)
167,572 ABN Amro Holdings NV Banks $ 1,834,325
27,392 Heineken NV Beverages 1,074,629
208,906 ING Groep NV Banks 2,891,505
131,330 Koninklijke Ahold NV Food & Drug Retailers 1,555,672
123,261 Koninklijke Phillips Electronics NV Household Goods & Textiles 1,790,103
124,527 Reed Elsevier NV Media & Photography 1,487,390
48,340 TPG NV Support Services 809,967
28,456 VNU NV Media & Photography 660,939
- ------------------------------------------------------------------------------------------------------------------------------------
12,104,530
- ------------------------------------------------------------------------------------------------------------------------------------
Portugal (0.21%)
178,052 Electricidade de Portugal SA Electricity 265,619
- ------------------------------------------------------------------------------------------------------------------------------------
South Korea (2.29%)
22,400 Kookmin Bank - Spon. ADR Banks 793,632
25,202 Pohang Iron & Steel Co. - Spon. ADR Steel & Other Materials 543,859
13,149 Samsung Electronics Co. Ltd. - GDR Reg. Electronic & Electrical Equipment 1,558,157
- ------------------------------------------------------------------------------------------------------------------------------------
2,895,648
- ------------------------------------------------------------------------------------------------------------------------------------
Spain (2.91%)
344,272 Banco Santander Central Hispano SA Banks 1,758,438
257,083 Telefonica SA* Telecommunications Services 1,915,048
- ------------------------------------------------------------------------------------------------------------------------------------
3,673,486
- ------------------------------------------------------------------------------------------------------------------------------------
Switzerland (13.04%)
24,150 Nestle SA Reg. Food Producers & Processors 5,268,496
75,874 Novartis AG Reg. Pharmaceuticals 2,994,350
34,352 Roche Holding AG Pharmaceuticals 2,319,225
47,845 Swiss Re Reg. Insurance 2,685,609
77,081 UBS AG Reg. Banks 3,201,264
- ------------------------------------------------------------------------------------------------------------------------------------
16,468,944
- ------------------------------------------------------------------------------------------------------------------------------------
United Kingdom (30.61%)
65,040 3i Group PLC Investment Co. 440,134
576,352 Barclays PLC Banks 3,361,816
70,377 Boots Co. PLC Retail Trade 583,987
333,227 BP PLC Oil & Gas 2,223,599
155,006 British American Tobacco PLC Tobacco 1,579,503
216,783 Cadbury Schweppes PLC Food Producers & Processors 1,446,577
265,398 Compass Group PLC Restaurants/Pubs/Breweries 1,104,259
320,246 Diageo PLC Beverages 3,967,237
221,707 GlaxoSmithKline PLC Pharmaceuticals 4,281,657
248,273 Hilton Group PLC Leisure, Entertainment, & Hotels 623,702
191,070 HSBC Holdings PLC Commercial Banks & Other Banks 1,931,994
168,253 Kingfisher PLC Retail Trade 544,199
431,947 Lloyds TSB Group PLC Banks 3,184,149
225,915 Prudential Corp. PLC Life Assurance 1,204,238
46,000 RMC Group PLC Construction & Building Materials 302,621
539,250 Shell Transport And Trading Co. PLC Oil & Gas 3,208,904
49,666 Smiths Group PLC Aerospace & Defense 499,856
430,435 Tesco PLC Food & Drug Retailers 1,390,512
144,600 TI Automotive Ltd. -
Ordinary A Shares*@ # Automobile Components --
Berger Funds o September 30, 2002 Combined Annual Report
72
BERGER
INTERNATIONAL PORTFOLIO
================================================================================
SCHEDULE OF INVESTMENTS
September 30, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
Country/SharesCompany Industry Value
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK (100.03%) - CONTINUED
United Kingdom (30.61%) - CONTINUED
350,919 Unilever PLC Food Producers & Processors $ 3,179,143
1,807,845 Vodafone Group PLC Telecommunications Services 2,313,376
68,054 Wolseley PLC Construction & Building Materials 540,135
114,400 WPP Group PLC Media & Photography 766,077
- ------------------------------------------------------------------------------------------------------------------------------------
38,677,675
- ------------------------------------------------------------------------------------------------------------------------------------
Total Common Stock (Cost $139,202,965) 126,378,410
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost $139,202,965) (100.03%) 126,378,410
Total Other Assets, Less Liabilities (-0.03%) (39,686)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets (100.00%) $ 126,338,724
- ------------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING FORWARD FOREIGN CURRENCY CONTRACTS
Contract Maturity Value on Unrealized
Currency Amount Date September 30, 2002 Appreciation
- --------------------------------------------------------------------------------
Sell Japanese Yen 137,736,000 10/15/02 $ 1,132,357 $ 12,038
Sell Japanese Yen 34,748,000 10/28/02 285,871 4,179
Sell Japanese Yen 73,707,000 10/28/02 606,387 7,409
- --------------------------------------------------------------------------------
$ 2,024,615 $ 23,626
- --------------------------------------------------------------------------------
*Non-income producing security.
@ - Security valued at fair value determined in good faith pursuant to
procedures established by and under the supervision of the Portfolio's trustees.
+ - Security is designated as collateral for forward foreign currency contracts.
ADR - American Depositary Receipt.
GDR - Global Depository Receipt.
PLC - Public Limited Company.
# Schedule of Restricted Securities and/or Illiquid Securities
FAIR VALUE
DATE FAIR AS A %
ACQUIRED COST VALUE OF NET ASSETS
- --------------------------------------------------------------------------------
TI Automotive Ltd. -
Ordinary A Shares
Common Stock 6/30/2001 $0 $0 0.00%
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
73
International Portfolio
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2002
- --------------------------------------------------------------------------------
ASSETS
Investments, at cost $139,202,965
- --------------------------------------------------------------------------------
Investments, at value $126,378,410(1)
Cash 6,985
Foreign cash (cost $11,468) 11,561
Receivables
Investment securities sold 1,599,732
Contributions 44,952
Dividends 867,787
Other investments (Note 3) 15,058,460
Net unrealized appreciation on forward currency contracts 23,626
- --------------------------------------------------------------------------------
Total Assets 143,991,513
- --------------------------------------------------------------------------------
LIABILITIES
Payables
Investment securities purchased 184,311
Withdrawals 382,528
Loan payable to bank 1,870,000
Interest 11,334
Securities loaned 15,058,460
Accrued investment advisory fees 100,186
Accrued custodian and accounting fees 8,210
Accrued audit fees 37,760
- --------------------------------------------------------------------------------
Total Liabilities 17,652,789
- --------------------------------------------------------------------------------
NET ASSETS $126,338,724
- --------------------------------------------------------------------------------
(1)Includes securities on loan with a value totaling $14,313,857.
STATEMENT OF OPERATIONS
Year Ended
September 30, 2002
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld) $ 3,874,508
Interest 65,771
Securities lending income 321,411
- --------------------------------------------------------------------------------
Total Income 4,261,690
- --------------------------------------------------------------------------------
EXPENSES
Investment advisory fees 1,778,311
Accounting fees 46,808
Custodian fees 64,854
Audit fees 38,388
Legal fees 3,258
Trustees' fees and expenses 17,446
Interest expense 30,243
Other expenses 1,360
- --------------------------------------------------------------------------------
Gross Expenses 1,980,668
Less brokerage credits (19,716)
Less earnings credits (968)
- --------------------------------------------------------------------------------
Net Expenses 1,959,984
- --------------------------------------------------------------------------------
Net Investment Income 2,301,706
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES AND
FOREIGN CURRENCY TRANSACTIONS
Net realized loss on securities and foreign
currency transactions (40,769,529)
Net change in unrealized appreciation on securities
and foreign currency transactions 11,520,817
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES AND
FOREIGN CURRENCY TRANSACTIONS (29,248,712)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (26,947,006)
- --------------------------------------------------------------------------------
Foreign taxes withheld $ 712,992
================================================================================
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
74
BERGER
INTERNATIONAL PORTFOLIO
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended September 30, 2002 2001
- --------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,301,706 $ 5,872,111
Net realized loss on securities and
foreign currency transactions (40,769,529) (17,430,588)
Net change in unrealized appreciation
(depreciation) on securities and foreign
currency transactions 11,520,817 (72,926,505)
- --------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Operations (26,947,006) (84,484,982)
- --------------------------------------------------------------------------------
FROM TRANSACTIONS IN INVESTORS'
BENEFICIAL INTEREST
Contributions 273,803,067 753,515,376
Withdrawals (356,669,512) (744,646,177)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Derived from Investors' Beneficial
Interest Transactions (82,866,445) 8,869,199
- --------------------------------------------------------------------------------
Net Decrease in Net Assets (109,813,451) (75,615,783)
NET ASSETS
Beginning of period 236,152,175 311,767,958
- --------------------------------------------------------------------------------
End of period $ 126,338,724 $ 236,152,175
- --------------------------------------------------------------------------------
Years Ended September 30,
2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA
Net assets, end of period (in thousands) $126,339 $236,152 $311,768 $265,211 $177,596
Net expense ratio to average net assets(1) 0.95% 0.95% 0.97% 1.00% 1.00%
Ratio of net investment income to average net assets 1.10% 2.04% 0.73% 0.75% 3.45%
Gross expense ratio to average net assets 0.95% 0.95% 0.97% 1.01% 1.04%
Portfolio turnover rate 39% 41% 31% 16% 17%
(1) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Adviser.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
75
NOTES TO FINANCIAL
STATEMENTS
September 30, 2002 International Portfolio
================================================================================
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Berger International Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end management
investment company. The Portfolio is the only series established under the
Berger Worldwide Portfolios Trust (the "Trust"), which was organized as a
Delaware business trust on May 31, 1996. Currently there are three investors in
the Portfolio: the Berger International Fund, the International Equity Fund and
the Berger International CORE Fund.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States of America.
INVESTMENT VALUATION
Securities are valued at the close of the regular trading session of the New
York Stock Exchange (the "Exchange") on each day that the Exchange is open.
Securities listed on national exchanges, the Nasdaq Stock Market and foreign
exchanges are valued at the last sale price on such markets, or, if no last sale
price is available, they are valued using the mean between their current bid and
ask prices. Prices of foreign securities are converted to U.S. dollars using
exchange rates determined prior to the close of the Exchange. Securities traded
in the over-the-counter market are valued at the mean between their current bid
and ask prices. Short-term obligations maturing within sixty days are valued at
amortized cost, which approximates market value. Securities for which quotations
are not readily available are valued at fair values as determined in good faith
pursuant to consistently applied procedures established by the trustees of the
Portfolio.
Generally, trading in foreign securities markets is substantially completed each
day at various times prior to the close of the Exchange. The values of foreign
securities are determined as of the earlier of such market close or the closing
time of the Exchange. Occasionally, events affecting the value of such
securities may occur between the times at which they are determined and the
close of the Exchange, or when the foreign market on which such securities trade
is closed but the Exchange is open. If during such periods, events occur that
materially affect the value of such securities, the securities will be valued at
their fair market value as determined in good faith pursuant to consistently
applied procedures established by the trustees of the Portfolio.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities initially expressed in terms of foreign currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the date of valuation. The cost of securities is
translated into U.S. dollars at the rates of exchange prevailing when such
securities were acquired. Income and expenses are translated into U.S. dollars
at rates of exchange prevailing when accrued.
FEDERAL INCOME TAX STATUS
The Portfolio is considered a partnership for federal income tax purposes. As
such, each investor in the Portfolio will be taxed on its share of the
Portfolio's ordinary income and capital gains. It is intended that the
Portfolio's assets will be managed in such a way that an investor in the
Portfolio will be able to satisfy the requirements of subchapter M of the
Internal Revenue Code.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on the date investments are purchased
or sold. Dividend income is recorded on the ex-dividend date except that certain
dividends from foreign securities are reported as soon as the Portfolio is
informed of the ex-dividend date if such information is obtained subsequent to
the ex-dividend date. Dividend income is recorded net of foreign taxes withheld.
Interest income is recorded on the accrual basis and includes accretion of
discount and amortization of premium (see "Change in Accounting Principle"
note). Gains and losses are computed on the identified cost basis for both
financial statement and federal income tax purposes for all securities.
CHANGE IN ACCOUNTING PRINCIPLE
In November 2000, a revised AICPA Audit and Accounting Guide, Audits of
Investment Companies (the "Guide"), was issued, and was effective for fiscal
years beginning after December 15,2000. Effective October 1, 2001, the Portfolio
adopted the provisions of the Guide and, as a result, amortizes discount and
premium on debt securities. Prior to October 1, 2001, the Portfolio did not
amortize premiums on debt securities. The cumulative effect of this accounting
change had no impact on the total net assets of the Portfolio. Additionally, the
effect of this change had no impact on the Portfolio's components of net assets
or on its changes in net assets from operations for the year ended September 30,
2002.
Berger Funds o September 30, 2002 Combined Annual Report
76
NOTES TO FINANCIAL
STATEMENTS
September 30, 2002
- --------------------------------------------------------------------------------
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results may differ from those estimates.
2. AGREEMENTS
Berger Financial Group LLC ("Berger", formerly Berger LLC) serves as investment
adviser to the Portfolio pursuant to an agreement that provides for an
investment advisory fee to be paid to Berger according to the following
schedule:
Average Daily Net Assets Annual Rate
- --------------------------------------------------------------------------------
First $500 million .85%
Next $500 million .80%
Over $1 billion .75%
The investment advisory fee is accrued daily and paid monthly. Berger has
delegated the day-to-day investment management of the Portfolio to Bank of
Ireland Asset Management (U.S.) Limited ("BIAM"). Berger pays BIAM a
sub-advisory fee from the investment advisory fee it receives from the
Portfolio. Berger is also responsible for providing for or arranging for all
managerial and administrative services necessary for the operations of the
Portfolio. The Portfolio has entered into custody, recordkeeping and pricing
agreements with State Street Bank and Trust Company ("State Street"). The
custody, recordkeeping and pricing agreements provide for the monthly payment of
a fee computed as a percentage of average daily net assets on a total
relationship basis with other funds in the Berger Funds complex. State Street's
fees for custody, recordkeeping and pricing are subject to reduction by credits
earned by the Portfolio, based on the cash balances of the Portfolio held by
State Street as custodian. The Portfolio could have employed these cash balances
to produce income if it had not entered into this expense reduction agreement
with State Street. Such reductions are included in Earnings Credits in the
Statement of Operations.
The trustees of the Portfolio have authorized portfolio transactions to be
placed through certain unaffiliated broker-dealers. When transactions are
effected through such broker-dealers, a portion of the commission is credited
against, and thereby reduces, operating expenses that the Portfolio would
otherwise be obligated to pay. Such credits are included as Brokerage Credits on
the Statement of Operations. No such credits were earned from affiliated
broker-dealers. Certain officers and trustees of the Trust are officers and
directors of Berger. Trustees who are not affiliated with Berger are compensated
for their services. Such fees are allocated among all of the funds in the Berger
Funds complex. The Portfolio's portion of the trustees' fees and expenses for
the year ended September 30, 2002, totaled $17,446. The Trust adopted a trustee
fee deferral plan (the "Plan") which allows the non-affiliated trustees to defer
the receipt of all or a portion of the trustee fees payable. The deferred fees
are invested in various funds managed by Berger until distribution in accordance
with the Plan.
3. INVESTMENT TRANSACTIONS
PURCHASES AND SALES
Purchases and sales proceeds of investment securities (excluding short-term
securities) during the year ended September 30, 2002 were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
$79,338,226 $147,618,814
- --------------------------------------------------------------------------------
There were no purchases or sales of long-term U.S. government securities during
the year ended September 30, 2002.
UNREALIZED APPRECIATION, UNREALIZED DEPRECIATION AND FEDERAL TAX COST OF
SECURITIES
At September 30, 2002, the federal tax cost of securities and the composition of
net unrealized appreciation (depreciation) of investment securities held were as
follows:
Gross Gross
Unrealized Unrealized Net
Federal Tax Cost Appreciation Depreciation Depreciation
- --------------------------------------------------------------------------------
$146,031,876 $13,331,321 $(32,984,787) $(19,653,466)
- --------------------------------------------------------------------------------
The difference between book and tax appreciation/depreciation is primarily due
to wash sale loss deferrals.
FORWARD CURRENCY CONTRACTS
The Portfolio may enter into forward foreign currency exchange contracts for the
purpose of hedging the Portfolio against exposure to market value fluctuations
in foreign currencies. The use of such instruments may involve risks such as the
possibility of illiquid markets or imperfect correlation between the value of
the contracts and the underlying securities, or that the counterparty will fail
to perform its obligations. Forward currency contracts and foreign denominated
assets may involve more risks than domestic transactions, including currency
risk, political and economic risk, regulatory risk and market risk. Risk may
arise from the potential inability of a counterparty to meet the terms of a
contract and from unanticipated movements in the value of foreign currencies
relative to the U.S. dollar. The forward
Berger Funds o September 30, 2002 Combined Annual Report
77
INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
foreign currency exchange contracts are adjusted to the daily exchange rate of
the underlying currency and any gains or losses are recorded for financial
statement purposes as unrealized gains or losses until the contract settlement
date. Realized and unrealized gains or losses on these securities are included
in Net Realized and Unrealized Gain (Loss) on Securities and Foreign Currency
Transactions in the Statement of Operations.
SECURITIES LENDING
Under an agreement with State Street, the Portfolio has the ability to lend
securities to brokers, dealers and other authorized financial institutions.
Loans of portfolio securities are collateralized by cash remitted from the
borrower of such securities in an amount greater than the market value of the
loaned securities at the time the loan is made. The cash collateral received is
invested in an unaffiliated money market fund and is evaluated daily to ensure
that its market value exceeds the current market value of the loaned
securities. Income generated by such investment, net of any rebates paid to the
borrower, is split among the Portfolio and State Street as lending agent.
REPURCHASE AGREEMENTS
Repurchase agreements held by the Portfolio are fully collateralized by U.S.
government and government agency securities and such collateral is in the
possession of the Portfolio's custodian. The collateral is evaluated daily to
ensure its market value exceeds the current market value of the repurchase
agreements including accrued interest. In the event of default on the obligation
to repurchase, the Portfolio has the right to liquidate the collateral and apply
the proceeds in satisfaction of the obligation. In the event of default or
bankruptcy by the other party to the agreement, realization and/or retention of
the collateral or proceeds may be subject to legal proceedings.
CONCENTRATION OF RISK
The Portfolio may have elements of risk due to concentrated investments in
specific industries, foreign issuers located in a specific country or certain
restricted securities. Such concentrations may subject the Portfolio to
additional risk resulting from future political or economic conditions and/or
possible impositions of adverse foreign governmental laws or currency exchange
restrictions. Net Realized and Unrealized Gain (Loss) on Securities and Foreign
Currency Transactions in the Statement of Operations includes fluctuations from
currency exchange rates and fluctuations in market value of securities. The
Portfolio may have registration rights for specific restricted securities, which
may require that registration costs be borne by the Portfolio.
4. LINE OF CREDIT
The Portfolio, along with certain other funds managed by Berger, is party to an
ongoing agreement with State Street that allows these funds and the Portfolio,
collectively, to borrow up to $100 million, subject to certain conditions, for
temporary or emergency purposes. Interest, based on the Federal Funds Rate plus
a spread, is charged to the specific party that executes the borrowing. In
addition, the unsecured line of credit requires a quarterly payment of a
commitment fee by the Funds based on the average daily unused portion of the
line of credit. At September 30, 2002, the Portfolio had line of credit
borrowings outstanding of $1,870,000. Such borrowings are considered short-term
and were repaid subsequent to September 30, 2002.
5. OTHER MATTERS
On September 3, 2002, Stilwell Financial Inc. ("Stilwell"), the parent company
of Berger, announced its intention to consolidate all of its investment advisory
operations under Janus Capital Management LLC ("Janus") on or before December
31, 2002. As the transaction is presently contemplated, Berger, the investment
adviser to the Berger Funds, will be consolidated into Janus and Berger will
cease to exist.
It is presently anticipated that a change in portfolio management of the
Portfolio will occur.
The directors/trustees of the Berger Funds will be responsible for selecting a
new adviser for the Portfolio and have begun considering the alternatives.
Berger will continue to provide investment advisory and administrative services
to the Berger Funds, including the Portfolio, until the completion of the
transaction. It is anticipated that the consolidation of Stilwell and any
changes in the portfolio management of the Portfolio will be completed in the
first quarter of 2003.
Berger Funds o September 30, 2002 Combined Annual Report
78
FINANCIAL
HIGHLIGHTS
- --------------------------------------------------------------------------------
BERGER GROWTH FUND
For a Share Outstanding Throughout the Period
Years Ended September 30,
2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.95 $ 20.87 $ 15.56 $ 11.99 $ 21.51
- ------------------------------------------------------------------------------------------------------------------------------------
From investment operations
Net investment loss (0.00)(1) (0.00)(1) -- (0.00)(1) --
Net realized and unrealized gains (losses) from
investments and foreign currency transactions (1.97) (11.22) 8.89 4.55 (2.57)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.97) (11.22) 8.89 4.55 (2.57)
- ------------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions
Distributions (from capital gains) -- (2.70) (3.58) (0.98) (6.95)
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions -- (2.70) (3.58) (0.98) (6.95)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.98 $ 6.95 $ 20.87 $ 15.56 $ 11.99
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (28.34)% (59.38)% 60.93% 38.96% (16.08)%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $453,164 $722,977 $1,947,772 $1,333,794 $1,286,828
Net expense ratio to average net assets(2) 1.45% 1.26% 1.13% 1.36% 1.38%
Ratio of net investment loss to average net assets (0.96)% (0.77)% (0.87)% (0.38)% (0.38)%
Gross expense ratio to average net assets 1.51% 1.26% 1.13% 1.36% 1.38%
Portfolio turnover rate 177% 131% 70% 274% 280%
(1) Amount represents less than $0.01 per share.
(2) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Adviser.
BERGER LARGE CAP GROWTH FUND
For a Share Outstanding Throughout the Period
Years Ended September 30,
2002 2001(4) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.73 $ 21.41 $ 15.32 $ 13.60 $ 16.72
- ------------------------------------------------------------------------------------------------------------------------------------
From investment operations
Net investment income (loss) (0.00)(1) (0.00)(1) -- (0.00)(1) 0.04
Net realized and unrealized gains (losses) from
investments and foreign currency transactions (2.80) (9.49) 8.27 4.53 (0.30)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (2.80) (9.49) 8.27 4.53 (0.26)
- ------------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions
Dividends (from net investment income) -- -- -- (0.01) (0.04)
Distributions (from capital gains) -- (2.19) (2.18) (2.80) (2.82)
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions -- (2.19) (2.18) (2.81) (2.86)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 6.93 $ 9.73 $ 21.41 $ 15.32 $ 13.60
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (28.78)% (47.79)% 56.09% 38.67% (1.60)%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $185,759 $318,504 $25,272 $379,356 $301,330
Net expense ratio to average net assets(2) 1.34% 1.25% 1.18% 1.35% 1.44%
Ratio of net investment income (loss) to average net assets (0.58)% (0.00)% (0.17)% (0.22)% 0.25%
Gross expense ratio to average net assets 1.38% 1.25% 1.18% 1.35% 1.44%
Portfolio turnover rate 106% 70% 74% 173% 417%(3)
(1) Amount represents less than $0.01 per share.
(2) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Adviser.
(3) Portfolio turnover was greater than expected during this period due to
active trading undertaken in response to market conditions that existed at
the time.
(4) Effective January 29, 2001, the directors approved a change in the name
and non-fundamental investment strategies of the Fund (see Note 1).
See notes to financial statements
Berger Funds o September 30, 2002 Combined Annual Report
79
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BERGER MID CAP GROWTH FUND
For a Share Outstanding Throughout the Period
Period from
Years Ended September 30, December 31, 1997(1)
to September 30,
2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.76 $ 41.27 $ 21.82 $ 10.93 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------------------
From investment operations
Net investment loss (0.00)(5) (0.00)(5) -- (0.00)(5) --
Net realized and unrealized gains (losses) from
investments and foreign currency transactions (3.08) (25.80) 20.75 11.10 0.93
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (3.08) (25.80) 20.75 11.10 0.93
- ------------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions
Distributions (from capital gains) -- (4.71) (1.30) (0.21) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions -- (4.71) (1.30) (0.21) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.68 $ 10.76 $ 41.27 $ 21.82 $ 10.93
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return(2) (28.62)% (68.35)% 95.98% 102.76% 9.30%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $91,075 $30,418 $122,564 $25,550 $ 4,283
Net expense ratio to average net assets(3) 1.87% 1.50% 1.28% 1.78% 2.00%(4)
Ratio of net investment loss to average net assets (1.41)% (1.15)% (0.84)% (1.03)% (0.82)%(4)
Gross expense ratio to average net assets 1.98% 1.50% 1.28% 1.78% 2.46%(4)
Portfolio turnover rate(2) 308% 216% 150% 178% 262%
(1) Commencement of investment operations.
(2) Not annualized.
(3) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Adviser.
(4) Annualized.
(5) Amount represents less than $0.01 per share.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
80
FINANCIAL
HIGHLIGHTS
- --------------------------------------------------------------------------------
BERGER SMALL COMPANY GROWTH FUND - INVESTOR SHARES
For a Share Outstanding Throughout the Period
Years Ended September 30,
2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 2.46 $ 7.43 $ 4.86 $ 3.61 $ 5.33
- ------------------------------------------------------------------------------------------------------------------------------------
From investment operations
Net investment loss (0.00)(1) (0.00)(1) (0.00)(1) (0.00)(1) --
Net realized and unrealized gains (losses) from
investments and foreign currency transactions (0.84) (3.93) 3.85 1.95 (1.24)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.84) (3.93) 3.85 1.95 (1.24)
- ------------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions
Distributions (from capital gains) -- (1.04) (1.28) (0.70) (0.48)
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions -- (1.04) (1.28) (0.70) (0.48)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.62 $ 2.46 $ 7.43 $ 4.86 $ 3.61
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (34.15)% (59.36)% 84.27% 62.78% (24.70)%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $325,455 $586,070 $1,468,541 $675,637 $561,741
Net expense ratio to average net assets(2) 1.51% 1.32% 1.27% 1.60% 1.48%
Ratio of net investment loss to average net assets (1.17)% (0.88)% (0.83)% (1.21)% (1.01)%
Gross expense ratio to average net assets 1.55% 1.32% 1.27% 1.60% 1.59%
Portfolio turnover rate 223% 147% 92% 128% 97%
(1) Amount represents less than $0.01 per share
(2) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Adviser.
BERGER SMALL COMPANY GROWTH FUND - INSTITUTIONAL SHARES
For a Share Outstanding Throughout the Period
Period from
Years Ended September 30, October 16, 1999(1)
2002 2001 to September 30, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 2.48 $ 7.43 $ 4.87
- ------------------------------------------------------------------------------------------------------------------------------------
From investment operations
Net investment income (loss) (0.02)(6) (0.00)(5) (0.00)(5)
Net realized and unrealized gains (losses) from
investments and foreign currency transactions (0.81)(6) (3.91) 3.86
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.83) (3.91) 3.86
- ------------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions
Distributions (from capital gains) -- (1.04) (1.30)
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions -- (1.04) (1.30)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.65 $ 2.48 $ 7.43
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return(3) (33.47)% (59.03)% 84.87%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 414 $ 2,036 $ 5,886
Net expense ratio to average net assets(4) 1.11% 1.02% 1.05%(2)
Ratio of net investment loss to average net assets (0.79)% (0.57)% (0.47)%(2)
Gross expense ratio to average net assets 1.87% 1.30% 1.59%(2)
Portfolio turnover rate(3) 223% 147% 92%
(1) Commencement of investment operations for Institutional Shares.
(2) Annualized.
(3) Not annualized.
(4) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Adviser.
(5) Amount represents less than $0.01 per share.
(6) Per share calculations for the period were based on average shares
outstanding.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
81
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BERGER INFORMATION TECHNOLOGY FUND - INVESTOR SHARES
For a Share Outstanding Throughout the Period
Period from
Years Ended September 30, July 2, 1999(1)
2002 2001(2) 2000(2) to September 30, 1999(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.99 $ 17.59 $ 8.21 $ 7.64
- ------------------------------------------------------------------------------------------------------------------------------------
From investment operations
Net investment loss (0.00)(5) (0.13)(7) (0.00)(5) (0.00)(5)
Net realized and unrealized gains (losses) from
investments and foreign currency transactions (1.73) (12.47)(7) 9.43 0.57
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.73) (12.60) 9.43 0.57
- ------------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions
Distributions (from capital gains) -- -- (0.05) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions -- -- (0.05) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 3.26 $ 4.99 $ 17.59 $ 8.21
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return(6) (34.67)% (71.64)% 114.97% 7.46%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 14,657 $ 23,764 $ 72,173 $ 4,811
Net expense ratio to average net assets(3) 2.00% 1.75% 1.63% 1.83%(4)
Ratio of net investment loss to average net assets (1.70)% (1.32)% (1.36)% (1.58)%(4)
Gross expense ratio to average net assets 2.10% 1.75% 1.63% 2.16%(4)
Portfolio turnover rate(6) 43% 80% 38% 31%
(1) Commencement of investment operations for Investor Shares.
(2) All per share data has been adjusted to reflect a 7-for-1 share split,
effective October 17, 2000.
(3) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Adviser.
(4) Annualized.
(5) Amount represents less than $0.01 per share.
(6) Not annualized.
(7) Per share calculations for the period were based on average shares
outstanding.
BERGER INFORMATION TECHNOLOGY FUND - INSTITUTIONAL SHARES
For a Share Outstanding Throughout the Period
Period from Period from
March 1, 1999 to Year Ended April 8, 1997(1)
Years Ended September 30, September 30, February 28, to February 28,
2002 2001(2) 2000(2) 1999(2) 1999(2) 1998(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period 5.04 $ 17.67 $ 8.21 $ 6.34 $ 4.31 $ 2.86
- ------------------------------------------------------------------------------------------------------------------------------------
From investment operations
Net investment loss (0.08)(7) (0.07)(7) (0.00)(5) (0.00)(5) (0.04) (0.01)
Net realized and unrealized gains
(losses) from investments
and foreign currency
transactions (1.65)(7) (12.56)(7) 9.51 1.97 2.07 1.46
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.73) (12.63) 9.51 1.97 2.03 1.45
- ------------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions
Distributions (from capital gains) -- -- (0.05) (0.10) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions -- -- (0.05) (0.10) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 3.31 $ 5.04 $ 17.67 $ 8.21 $ 6.34 $ 4.31
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return(6) (34.32)% (71.48)% 115.86% 31.30% 47.13% 50.75%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $4,343 $15,269 $61,566 $20,094 $12,446 $2,674
Net expense ratio to average
net assets(3) 1.27% 1.15% 1.03% 1.49%(4) 1.50% 1.50%(4)
Ratio of net investment loss to
average net assets (1.04)% (0.72)% (0.76)% (1.22)%(4) (1.19)% (1.01)%(4)
Gross expense ratio to average
net assets 1.31% 1.15% 1.03% 1.94%(4) 2.67% 12.17%(4)
Portfolio turnover rate(6) 43% 80% 38% 31% 35% 33%
(1) Commencement of investment operations for Institutional Shares.
(2) All per share data has been adjusted to reflect a 7-for-1 share split,
effective October 17, 2000.
(3) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Adviser.
(4) Annualized.
(5) Amount represents less than $0.01 per share.
(6) Not annualized.
(7) Per share calculations for the period were based on average shares
outstanding.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
82
FINANCIAL
HIGHLIGHTS
- --------------------------------------------------------------------------------
BERGER INTERNATIONAL FUND
For a Share Outstanding Throughout the Period
Years Ended September 30,
2002 2001 2000(4) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.14 $ 13.69 $ 12.51 $ 10.06 $ 11.46
- ------------------------------------------------------------------------------------------------------------------------------------
From investment operations
Net investment income (loss) 0.16 0.38 (0.00)(5) (0.07) 0.50
Net realized and unrealized gains (losses)
from investments and foreign currency
transactions allocated from Portfolio (1.79) (4.05) 1.18 3.01 (1.46)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.63) (3.67) 1.18 2.94 (0.96)
- ------------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions
Dividends (from net investment income) (0.52) -- -- (0.47) (0.06)
Distributions (from capital gains) -- (0.88) -- (0.02) (0.38)
Tax return of capital (0.01) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.53) (0.88) -- (0.49) (0.44)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 6.98 $ 9.14 $ 13.69 $ 12.51 $ 10.06
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (19.17)% (28.43)% 9.43% 29.64% (8.46)%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $12,542 $26,773 $38,425 $23,014 $16,515
Net expense ratio to average net assets(1),(2) 1.79% 1.45% 1.71% 1.76% 1.80%
Ratio of net income (loss) to average net assets 0.15% 1.67% (0.00)% (0.01)% 2.20%
Gross expense ratio to average net assets(2) 1.79% 1.45% 1.71% 1.77% 1.83%
Portfolio turnover rate(3) 39% 41% 31% 16% 17%
(1) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Portfolio's Adviser.
(2) Reflects the Fund's expenses plus the Fund's pro rata share of the
Portfolio's expenses.
(3) Represents the portfolio turnover rate of the Portfolio. All of the
investable assets of the Fund are invested in the Portfolio.
(4) Per share calculations for the period were based on average shares
outstanding.
(5) Amount represents less than $0.01 per share.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
83
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BERGER SMALL CAP VALUE FUND - INVESTOR SHARES
For a Share Outstanding Throughout the Period
Years Ended September 30,
2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 24.49 $ 24.78 $ 20.94 $ 17.58 $ 22.28
- ------------------------------------------------------------------------------------------------------------------------------------
From investment operations
Net investment income (loss) 0.06 0.22 0.30 (0.02) 0.42
Net realized and unrealized gains
(losses) from investments and
foreign currency transactions (0.16) 1.41 3.97 4.26 (2.58)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.10) 1.63 4.27 4.24 (2.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions
Dividends (from net investment income) (0.18) (0.32) (0.20) (0.07) (0.17)
Distributions (from capital gains) (2.25) (1.60) (0.23) (0.81) (2.37)
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (2.43) (1.92) (0.43) (0.88) (2.54)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 21.96 $ 24.49 $ 24.78 $ 20.94 $ 17.58
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (2.52)% 6.65% 20.77% 24.69% (10.98)%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $1,461,278 $1,378,894 $859,030 $374,063 $108,465
Net expense ratio to average net assets(1) 1.15% 1.08% 1.19% 1.37% 1.56%
Ratio of net investment income to average net assets 0.20% 0.99% 1.69% 1.36% 0.87%
Gross expense ratio to average net assets 1.17% 1.14% 1.23% 1.37% 1.56%
Portfolio turnover rate 39% 47% 72% 66% 69%
(1) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Adviser.
BERGER SMALL CAP VALUE FUND - INSTITUTIONAL SHARES
For a Share Outstanding Throughout the Period
Years Ended September 30,
2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 24.58 $ 24.87 $ 21.00 $ 17.63 $ 22.33
- ------------------------------------------------------------------------------------------------------------------------------------
From investment operations
Net investment income 0.12 0.28 0.33 0.04 0.45
Net realized and unrealized gains
(losses) from investments and
foreign currency transactions (0.13) 1.42 4.01 4.28 (2.55)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.01) 1.70 4.34 4.32 (2.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions
Dividends (from net investment income) (0.24) (0.39) (0.24) (0.14) (0.23)
Distributions (from capital gains) (2.25) (1.60) (0.23) (0.81) (2.37)
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (2.49) (1.99) (0.47) (0.95) (2.60)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 22.08 $ 24.58 $ 24.87 $ 21.00 $ 17.63
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (2.13)% 6.93% 21.09% 25.18% (10.65)%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $1,223,227 $1,185,004 $862,318 $414,347 $92,787
Expense ratio to average net assets 0.82% 0.84% 0.88% 1.01% 1.19%
Ratio of net investment income to average net assets 0.53% 1.26% 1.99% 1.69% 1.26%
Portfolio turnover rate 39% 47% 72% 66% 69%
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
84
FINANCIAL
HIGHLIGHTS
- --------------------------------------------------------------------------------
BERGER SMALL CAP VALUE FUND II - INVESTOR SHARES
For a Share Outstanding Throughout the Period
Period from
March 28, 2002(1)
to September 30, 2002
- --------------------------------------------------------------------------------
Net asset value, beginning of period $10.00
- --------------------------------------------------------------------------------
From investment operations
Net realized and unrealized losses
from investments and
foreign currency transactions (1.74)
- --------------------------------------------------------------------------------
Total from investment operations (1.74)
- --------------------------------------------------------------------------------
Net asset value, end of period $8.26
- --------------------------------------------------------------------------------
Total Return(2) (17.40)%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $4,921
Net expense ratio to average net assets(4) 2.96%(3)
Ratio of net investment loss to average
net assets (1.11)%(3)
Gross expense ratio to average net assets 3.37%(3)
Portfolio turnover rate(2) 11%
(1) Commencement of investment operations for Investor Shares.
(2) Not annualized.
(3) Annualized.
(4) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Adviser.
BERGER SMALL CAP VALUE FUND II - INSTITUTIONAL SHARES
For a Share Outstanding Throughout the Period
Period from
March 28, 2002(1)
to September 30, 2002
- --------------------------------------------------------------------------------
Net asset value, beginning of period $10.00
- --------------------------------------------------------------------------------
From investment operations
Net realized and unrealized losses
from investments and
foreign currency transactions (1.74)
- --------------------------------------------------------------------------------
Total from investment operations (1.74)
- --------------------------------------------------------------------------------
Net asset value, end of period $8.26
- --------------------------------------------------------------------------------
Total Return(2) (17.40)%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $1,879
Net expense ratio to average net assets(4) 2.49%(3)
Ratio of net investment loss to average
net assets (0.68)%(3)
Gross expense ratio to average net assets 2.49%(3)
Portfolio turnover rate(2) 11%
(1) Commencement of investment operations for Institutional Shares.
(2) Not annualized.
(3) Annualized.
(4) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Adviser.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
85
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BERGER SMALL CAP VALUE FUND II - SERVICE SHARES
For a Share Outstanding Throughout the Period
Period from
March 28, 2002(1)
to September 30, 2002
- --------------------------------------------------------------------------------
Net asset value, beginning of period $10.00
- --------------------------------------------------------------------------------
From investment operations
Net realized and unrealized losses
from investments and
foreign currency transactions (1.76)
- --------------------------------------------------------------------------------
Total from investment operations (1.76)
- --------------------------------------------------------------------------------
Net asset value, end of period $8.24
- --------------------------------------------------------------------------------
Total Return(2) (17.60)%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $359
Net expense ratio to average net assets(4) 3.18%(3)
Ratio of net investment loss to average
net assets (1.28)%(3)
Gross expense ratio to average net assets 4.66%(3)
Portfolio turnover rate(2) 11%
(1) Commencement of investment operations for Service Shares.
(2) Not annualized.
(3) Annualized.
(4) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Adviser.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
86
FINANCIAL
HIGHLIGHTS
- --------------------------------------------------------------------------------
BERGER MID CAP VALUE FUND - INVESTOR SHARES
For a Share Outstanding Throughout the Period
Period from
August 12, 1998(1)
Years Ended September 30, to September 30,
2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.30 $ 14.43 $ 12.17 $ 9.33 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------------------
From investment operations
Net investment income 0.02 0.06 0.08 0.07 0.03
Net realized and unrealized gains (losses)
from investments and foreign
currency transactions (0.23) 1.27 3.46 2.83 (0.70)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.21) 1.33 3.54 2.90 (0.67)
- ------------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions
Dividends (from net investment income) (0.03) (0.10) (0.04) (0.06) --
Distributions (from capital gains) (0.35) (1.36) (1.24) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.38) (1.46) (1.28) (0.06) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.71 $ 14.30 $ 14.43 $ 12.17 $ 9.33
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return(2) (1.96)% 9.70% 31.11% 31.12% (6.70)%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $782,101 $148,505 $33,013 $22,918 $19,710
Expense ratio to average net assets 1.17% 1.22% 1.59% 1.62% 1.68%(3)
Ratio of net investment income to average
net assets 0.28% 0.78% 0.72% 0.54% 2.30%(3)
Portfolio turnover rate(2) 65% 116% 129% 154% 25%
(1) Commencement of investment operations for Investor Shares.
(2) Not annualized.
(3) Annualized.
BERGER MID CAP VALUE FUND - INSTITUTIONAL SHARES
For a Share Outstanding Throughout the Period
Period from
May 17, 2002(1)
to September 30, 2002
- --------------------------------------------------------------------------------
Net asset value, beginning of period $17.88
- --------------------------------------------------------------------------------
From investment operations
Net investment income 0.02
Net realized and unrealized gains from
investments and foreign currency
transactions (4.18)
- --------------------------------------------------------------------------------
Total from investment operations (4.16)
- --------------------------------------------------------------------------------
Net asset value, end of period $13.72
- --------------------------------------------------------------------------------
Total Return(2) (23.27)%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $111,101
Expense ratio to average net assets 0.78%(3)
Ratio of net investment income to average
net assets 0.83%(3)
Portfolio turnover rate(2) 65%
(1) Commencement of investment operations for Institutional Shares.
(2) Not annualized.
(3) Annualized.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
87
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BERGER LARGE CAP VALUE FUND - INVESTOR SHARES
For a Share Outstanding Throughout the Period
Year ended
September 30,2002(1)
- --------------------------------------------------------------------------------
Net asset value, beginning of period $10.00
- --------------------------------------------------------------------------------
From investment operations
Net investment income 0.04
Net realized and unrealized losses from
investments and foreign currency
transactions (2.08)
- --------------------------------------------------------------------------------
Total from investment operations (2.04)
- --------------------------------------------------------------------------------
Less dividends and distributions
Dividends (from net investment income) (0.01)
Distributions (from capital gains) (0.04)
- --------------------------------------------------------------------------------
Total dividends and distributions (0.05)
- --------------------------------------------------------------------------------
Net asset value, end of period $7.91
- --------------------------------------------------------------------------------
Total Return (20.59)%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $2,624
Net expense ratio to average net assets(2) 1.60%
Ratio of net investment income to average
net assets 0.41%
Gross expense ratio to average net assets 2.34%
Portfolio turnover rate 115%
(1) The Fund had no financial highlights for the one day of operations during
the period ended September 30, 2001.
(2) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Adviser.
BERGER LARGE CAP VALUE FUND - INSTITUTIONAL SHARES
For a Share Outstanding Throughout the Period
Year ended
September 30, 2002(1)
- --------------------------------------------------------------------------------
Net asset value, beginning of period $10.00
- --------------------------------------------------------------------------------
From investment operations
Net investment income 0.09
Net realized and unrealized losses from
investments and foreign currency
transactions (2.09)
- --------------------------------------------------------------------------------
Total from investment operations (2.00)
- --------------------------------------------------------------------------------
Less dividends and distributions
Dividends (from net investment income) (0.02)
Distributions (from capital gains) (0.04)
- --------------------------------------------------------------------------------
Total dividends and distributions (0.06)
- --------------------------------------------------------------------------------
Net asset value, end of period $7.94
- --------------------------------------------------------------------------------
Total Return (20.17)%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $3,468
Net expense ratio to average net assets(2) 1.32%
Ratio of net investment income to average
net assets 0.64%
Gross expense ratio to average net assets 1.46%
Portfolio turnover rate 115%
(1) The Fund had no financial highlights for the one day of operations during
the period ended September 30, 2001.
(2) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Advisor. See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
88
FINANCIAL
HIGHLIGHTS
- --------------------------------------------------------------------------------
BERGER BALANCED FUND
For a Share Outstanding Throughout the Period
Years Ended September 30,
2002(4) 2001 2000 1999 1998(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.50 $ 19.38 $ 16.62 $ 13.28 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------------------
From investment operations
Net investment income 0.21 0.27 0.28 0.23 0.22
Net realized and unrealized gains (losses)
from investments and foreign currency
transactions (2.41) (4.89) 4.57 4.69 5.17
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (2.20) (4.62) 4.85 4.92 5.39
- ------------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions
Dividends (from net investment income) (0.09) (0.26) (0.27) (0.23) (0.21)
Distributions (from capital gains) -- (2.00) (1.82) (1.35) (1.90)
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.09) (2.26) (2.09) (1.58) (2.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.21 $ 12.50 $ 19.38 $ 16.62 $ 13.28
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (17.76)% (25.82)% 30.08% 39.41% 56.77%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $53,368 $90,013 $176,798 $122,766 $30,721
Net expense ratio to average net assets(2) 1.26% 1.19% 1.14% 1.23% 1.50%
Ratio of net investment income to average
net assets 1.52% 1.66% 1.48% 1.63% 1.81%
Gross expense ratio to average net assets 1.30% 1.19% 1.14% 1.23% 1.57%
Portfolio turnover rate 110% 65% 82% 227% 658%(3)
(1) The Fund had no financial highlights for the one day of operations during
the period ended September 30, 1997.
(2) Net expenses represent gross expenses reduced by fees waived and/or
reimbursed by the Adviser.
(3) Portfolio turnover was greater than expected during this period due to
higher than normal trading activity undertaken in response to market
conditions at a time when the Fund's assets were still relatively small
and before the Fund was fully invested.
(4) As required, effective October 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium on debt securities. The effect of this change for the
year ended September 30, 2002 was to decrease net investment income per
share by $0.01, increase net realized and unrealized gains and losses per
share by $0.01 and decrease the ratio of net investment income to average
net assets from 1.56% to 1.52%. Per share, ratios and supplemental data
for periods prior to October 1, 2001 have not been restated to reflect
this change in presentation.
See notes to financial statements.
Berger Funds o September 30, 2002 Combined Annual Report
89
REPORT OF INDEPENDENT
ACCOUNTANTS Berger Funds
- --------------------------------------------------------------------------------
TO THE BOARDS OF DIRECTORS/TRUSTEES AND SHAREHOLDERS OF BERGER GROWTH FUND,
INC., BERGER LARGE CAP GROWTH FUND, INC., BERGER OMNI INVESTMENT TRUST, BERGER
INVESTMENT PORTFOLIO TRUST AND BERGER WORLDWIDE FUNDS TRUST, AND TO THE BOARD OF
TRUSTEES AND INVESTORS OF BERGER WORLDWIDE PORTFOLIOS TRUST
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights or ratios/supplementary data,
as applicable, present fairly, in all material respects, the financial position
of Berger Growth Fund, Inc., Berger Large Cap Growth Fund, Inc., Berger Small
Cap Value Fund (the sole fund comprising Berger Omni Investment Trust), Berger
Mid Cap Growth Fund, Berger Small Company Growth Fund, Berger Information
Technology Fund, Berger Small Cap Value Fund II, Berger Mid Cap Value Fund,
Berger Large Cap Value Fund and Berger Balanced Fund (constituting Berger
Investment Portfolio Trust), Berger International Fund (one of the funds
constituting Berger Worldwide Funds Trust) and Berger International Portfolio
(the sole portfolio comprising Berger Worldwide Portfolios Trust) (collectively
the "Funds") at September 30, 2002, the results of each of their operations for
the year or period then ended, the changes in each of their net assets for each
of the periods indicated and the financial highlights or ratios/supplementary
data for each of the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights or ratios/supplementary data (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 2002 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above. The financial statements of InformationTech 100 Fund (now known as Berger
Information Technology Fund) for the periods ending prior to and including
February 28, 1999 were audited by other independent accountants whose report
dated March 26, 1999 expressed an unqualified opinion on those financial
statements.
As discussed in Note 8 to the financial statements, investment advisory and
administrative operations currently performed by Berger Financial Group LLC will
be consolidated under Janus Capital Management LLC during the first quarter of
2003. It is presently anticipated that Berger Financial Group LLC, the adviser
and administrator of the Funds, will cease to exist and a change in portfolio
management and administration will occur as directed by the Boards of
Directors/Trustees of the Funds.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Denver, Colorado
November 6, 2002
Berger Funds o September 30, 2002 Combined Annual Report
90
OTHER MATTERS
(UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended September 30, 2002, 25.71%, 26.53%, 100.00%, and
26.59% of the ordinary income distributions declared by BSCV, BMCV, BLCV and
BBAL, respectively, qualified for the dividends received deduction available to
corporate shareholders.
For the year ended September 30, 2002, the following amounts are hereby
designated as capital gain dividends for purposes of the 60-day capital gain
dividend designation requirement of the Internal Revenue Code:
Fund Amount
- --------------------------------------------------------------------------------
BSCV $117,741,342
BMCV 1,920,442
BBAL 895
- --------------------------------------------------------------------------------
Berger Funds o September 30, 2002 Combined Annual Report
91
FUND DIRECTORS/TRUSTEES
AND OFFICERS (UNAUDITED) Berger Funds
================================================================================
Each Fund is supervised by a board of director/trustees who are responsible for
major decisions about the Funds' policies and overall Fund oversight. Each
Fund's board hires the companies that run day-to-day Fund operations, such as
the investment adviser, administrator, transfer agent and custodian.
The directors/trustees do not serve for a specified term of office; however,
they have adopted a retirement age of 75 years. The following table provides
information about each of the trustees and officers of the Trusts or Fund.
NUMBER OF
POSITION(S) FUNDS IN
HELD WITH THE FUND
FUND/TRUST AND COMPLEX OTHER
NAME, ADDRESS LENGTH OF TIME OVERSEEN BY DIRECTORSHIPS
AND AGE SERVED PRINCIPAL OCCUPATIONS DURING THE PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT
DIRECTORS/TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------------
Michael Owen Chairman of Dean of Zayed University (since September 2000). 20 n/a
210 University Blvd. the Board Formerly self-employed as a financial and management
Suite 800 (34 years) consultant, and in real estate development (from June
Denver, CO 80206 1999 to September 2000). Dean (from 1993 to June
1999), and a member of the Finance faculty (from 1989
DOB: 1937 to 1993), of the College of Business, Montana State
University. Formerly, Chairman and Chief Executive
Officer of Royal Gold, Inc. (mining) (1976 to 1989).
- ------------------------------------------------------------------------------------------------------------------------------------
Dennis E. Baldwin Director/ President, Baldwin Financial Counseling (since July 20 n/a
210 University Blvd. Trustee 1991). Formerly, Vice President and Denver Office
Suite 800 (11 years) Manager of Merrill Lynch Capital Markets (1978 to
Denver, CO 80206 1990).
DOB: 1928
- ------------------------------------------------------------------------------------------------------------------------------------
Katherine A. Cattanach, Vice Chair of Managing Principal (since September 1987), Sovereign 20 n/a
CFA the Board Financial Services, Inc. (investment consulting firm).
210 University Blvd. (8 years) Executive Vice President (1981 to 1988), Captiva
Suite 800 Corporation, Denver, Colorado (private investment
Denver, CO 80206 management firm). Ph.D. in Finance (Arizona State
University).
DOB: 1945
- ------------------------------------------------------------------------------------------------------------------------------------
Paul R. Knapp Director/ Executive Officer of DST Systems, Inc. ("DST"), a 20 Director and Vice
210 University Blvd. Trustee publicly traded information and transaction President (February
Suite 800 (8 years) processing company, which acts as the Funds' 1998 to November
Denver, CO 80206 transfer agent (since October 2000). DST is 33% 2000) of West Side
owned by Stilwell Management, Inc., which owns Investments, Inc.
DOB: 1945 approximately 89.5% of Berger Financial Group LLC. (investments), a
Mr. Knapp owns common shares and options convertible wholly owned
into common shares of DST Systems which, in the subsidiary of DST
aggregate and assuming exercise of the options, Systems, Inc.
would result in his owning less than 1/2 of 1% of
DST System's common shares. Mr. Knapp is also
President of Vermont Western Assurance, Inc., a
wholly owned subsidiary of DST Systems (since
December 2000). President, Chief Executive Officer
and a director (September 1997 to October 2000) of
DST Catalyst, Inc., an international financial
markets consulting, software and computer services
company, (now DST International, a subsidiary of
DST). Previously (1991 to October 2000), Chairman,
President, Chief Executive Officer and a director of
Catalyst Institute (international public policy
research organization focused primarily on financial
markets and institutions); also (1991 to September
1997), Chairman, President, Chief Executive Officer
and a director of Catalyst Consulting (international
financial institutions business consulting firm).
Berger Funds o September 30, 2002 Combined Annual Report
92
FUND DIRECTORS/TRUSTEES
AND OFFICERS (UNAUDITED)
(CONTINUED)
================================================================================
NUMBER OF
POSITION(S) FUNDS IN
HELD WITH THE FUND
FUND/TRUST AND COMPLEX OTHER
NAME, ADDRESS LENGTH OF TIME OVERSEEN BY DIRECTORSHIPS
AND AGE SERVED PRINCIPAL OCCUPATIONS DURING THE PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT
DIRECTOR/TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------------
Harry T. Lewis, Jr. Director/ Lewis Investments (since June 1988) (self-employed 20 Director, J.D.
210 University Blvd. Trustee private investor). Formerly, Senior Vice President, Edwards & Co. (1995
Suite 800 (15 years) Rocky Mountain Region, of Dain Bosworth Incorporated to March 2002);
Denver, CO 80206 and member of that firm's Management Committee (1981 Director, National
to 1988). Fuel Corporation
DOB: 1933 (oil & gas
production);
Advisory Director,
Otologics, LLC,
(implantable hearing
aid) (since 1999);
Member of Community
Advisory Board,
Wells Fargo
Bank-Denver
- ------------------------------------------------------------------------------------------------------------------------------------
William Sinclaire Director/ President (since January 1998), Santa Clara LLC 20 n/a
210 University Blvd. Trustee (privately owned agricultural company). President
Suite 800 (31 years) (January 1963 to January 1998), Sinclaire Cattle Co.
Denver, CO 80206 (privately owned agricultural company).
DOB: 1928
- ------------------------------------------------------------------------------------------------------------------------------------
Albert C. Yates Director/ President (since 1990), Chancellor and Professor of 20 Member, Board of
210 University Blvd. Trustee Chemistry-Department of Chemistry, of Colorado State Directors, Adolph
Suite 800 (1 year) University. Formerly Executive Vice President and Coors Company
Denver, CO 80206 Provost (1983 to 1990), Academic Vice President and (brewing company)
Provost (1981 to 1983) and Professor of Chemistry (since 1998);
DOB: 1941 (1981 to 1990) of Washington State University. Vice Member, Board of
President and University Dean for Graduate Studies Directors, Dominion
and Research and Professor of Chemistry of the Industrial Capital
University of Cincinnati (1977 to 1981). Bank (1999 to 2000);
Member, Board of
Directors,
Centennial Bank of
the West (since
2001)
Berger Funds o September 30, 2002 Combined Annual Report
93
Berger Funds
================================================================================
NUMBER OF
POSITION(S) FUNDS IN
HELD WITH THE FUND
FUND/TRUST AND COMPLEX OTHER
NAME, ADDRESS LENGTH OF TIME OVERSEEN BY DIRECTORSHIPS
AND AGE SERVED PRINCIPAL OCCUPATIONS DURING THE PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT
DIRECTOR/TRUSTEES
AND OFFICERS OF
THE TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Jack R. Thompson* President and President and a director since May 1999 (Executive 20 Audit Committee
210 University Blvd. Director/ Vice President from February 1999 to May 1999) of Member of the Public
Suite 800 Trustee (since Berger Growth Fund and Berger Large Cap Growth Fund. Employees'
Denver, CO 80206 May 1999) President and a trustee since May 1999 (Executive Retirement
Vice President from February 1999 to May 1999) of Association of
DOB: 1949 Berger Investment Portfolio Trust, Berger Colorado (pension
Institutional Products Trust, Berger Worldwide Funds plan) (from November
Trust, Berger Worldwide Portfolios Trust and Berger 1997 to December
Omni Investment Trust. President and Chief Executive 2001).
Officer (since June 1999) (Executive Vice President
from February 1999 to June 1999) of Berger Financial
Group LLC (formerly Berger LLC). Director, President
and Chief Executive Officer of Stilwell Management,
Inc. (since September 1999). President and Chief
Executive Officer of Berger/Bay Isle LLC (since May
1999). Self-employed as a consultant from July 1995
through February 1999. Director of Wasatch Advisors
(investment management) from February 1997 to
February 1999.
*Mr. Thompson is considered an interested person of the Trusts or Funds due to
his positions held at Berger Financial Group LLC (or its affiliated companies).
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Jay W. Tracey, CFA* Executive Vice Executive Vice President of the Berger Funds (since n/a n/a
210 University Blvd. President of August 2000). Executive Vice President and Chief
Suite 800 the Funds/ Investment Officer of Berger Financial Group LLC
Denver, CO 80206 Trusts (since (since June 2000). Team portfolio manager (since
Aug. 2000) and July 2002) and portfolio manager (August 2000 to
DOB: 1954 Portfolio July 2002) of the Berger Growth Fund; portfolio
Manager (since manager of the Berger Small Company Growth Fund
Jun. 2000) (since July 2002) and the Berger Large Cap Growth
Fund (from January 2001 through December 2001). Team
portfolio manager (since December 2001) of the
Berger Mid Cap Growth Fund. Formerly, Vice President
and portfolio manager at OppenheimerFunds, Inc.
(September 1994 to May 2000).
Berger Funds o September 30, 2002 Combined Annual Report
94
FUND DIRECTORS/TRUSTEES
AND OFFICERS (UNAUDITED)
(CONTINUED)
================================================================================
POSITION(S) HELD
WITH THE
FUND/TRUST AND
NAME, ADDRESS LENGTH OF TIME
AND AGE SERVED PRINCIPAL OCCUPATIONS DURING THE PAST 5 YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE
TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Steven L. Fossel, Vice President of Vice President and team portfolio manager (since July 2002) of the Berger Growth
CFA* the Funds/ Trusts Fund and the Berger Mid Cap Growth Fund. Vice President (since February 2001)
210 University (since Aug. 2000) and portfolio manager (since December 2001) of the Berger Large Cap Growth Fund;
Blvd. and Portfolio and team portfolio manager (from January 2001 through December 2001) of the
Suite 800 Manager (since Jun. Berger Large Cap Growth Fund. Interim portfolio manager (from June 2000 to
Denver, CO 80206 2000) January 2001) of the Berger Large Cap Growth Fund. Vice President and portfolio
manager of Berger Financial Group LLC (since June 2000); senior equity analyst
DOB: 1968 with Berger Financial Group LLC (from March 1998 to June 2000). Vice President
(August 2000 to June 2002) and portfolio manager (June 2000 to June 2002) of the
Berger Balanced Fund. Formerly, analyst and assistant portfolio manager with
Salomon Brothers Asset Management (from August 1992 to February 1998).
- ------------------------------------------------------------------------------------------------------------------------------------
Janice M. Teague* Vice President of Vice President (since November 1998) and Assistant Secretary (since February
210 University the Funds/Trusts 2000 and previously from September 1996 to November 1998) and Secretary
Blvd. (since November (November 1998 to February 2000) of the Berger Funds. Vice President (since
Suite 800 1998) and Assistant October 1997), Secretary (since November 1998) and Assistant Secretary (October
Denver, CO 80206 Secretary (since 1996 through November 1998) with Berger Financial Group LLC. Vice President and
Feb. 2000) Secretary with Berger Distributors LLC (since August 1998). Vice President and
DOB: 1954 Secretary of Bay Isle Financial LLC (since January 2002). Formerly,
self-employed as a business consultant (from June 1995 through September 1996).
- ------------------------------------------------------------------------------------------------------------------------------------
Andrew J. Iseman* Vice President of Vice President of the Berger Funds (since March 2001). Vice President (since
210 University the Funds/Trusts September 1999) and Chief Operating Officer (since November 2000) of Berger
Blvd. (since Mar. 2001) Financial Group LLC. Manager (since September 1999) and Director (June 1999 to
Suite 800 September 1999) of Berger Distributors LLC. Vice President-Operations (February
Denver, CO 80206 1999 to November 2000) of Berger Financial Group LLC. Associate (November 1998
to February 1999) with DeRemer & Associates (a consulting firm). Vice
DOB: 1964 President-Operations (February 1997 to November 1998) and Director of Research
and Development (May 1996 to February 1997) of Berger Financial Group LLC.
- ------------------------------------------------------------------------------------------------------------------------------------
Anthony R. Bosch* Vice President of Vice President of the Berger Funds (since February 2000). Vice President (since
210 University the Funds/Trusts June 1999) and Chief Legal Officer (since August 2000) with Berger Financial
Blvd. (since Feb. 2000) Group LLC. Vice President and Chief Compliance Officer with Berger Distributors
Suite 800 LLC (since September 2001). Vice President of Bay Isle Financial LLC (since
Denver, CO 80206 January 2002). Formerly, Assistant Vice President of Federated Investors, Inc.
(December 1996 through May 1999), and Attorney with the U.S. Securities and
DOB: 1965 Exchange Commission (June 1990 through December 1996).
- ------------------------------------------------------------------------------------------------------------------------------------
Brian S. Ferrie* Vice President of Vice President of the Berger Funds (since November 1998). Vice President (since
210 University the Funds/Trusts February 1997),Treasurer and Chief Financial Officer (since March 2001) and
Blvd. (since Nov. 1998) Chief Compliance Officer (from August 1994 to March 2001) with Berger Financial
Suite 800 Group LLC. Vice President (since May 1996), Treasurer and Chief Financial Officer
Denver, CO 80206 (since March 2001) and Chief Compliance Officer (from May 1996 to September
2001) with Berger Distributors LLC.
DOB: 1958
- ------------------------------------------------------------------------------------------------------------------------------------
John A. Paganelli* Vice President Vice President (since November 1998), Treasurer (since March 2001) and Assistant
210 University (since Nov. 1998) Treasurer (November 1998 to March 2001) of the Berger Funds. Vice President
Blvd. and Treasurer (since (since November 1998) and Manager of Accounting (January 1997 through November
Suite 800 Mar. 2001) of the 1998) with Berger Financial Group LLC. Formerly, Manager of Accounting (December
Denver, CO 80206 Funds/Trusts 1994 through October 1996) and Senior Accountant (November 1991 through December
1994) with Palmeri Fund Administrators, Inc.
DOB: 1967
Berger Funds o September 30, 2002 Combined Annual Report
95
Berger Funds
================================================================================
POSITION(S) HELD
WITH THE
FUND/TRUST AND
NAME, ADDRESS LENGTH OF TIME
AND AGE SERVED PRINCIPAL OCCUPATIONS DURING THE PAST 5 YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE
TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Sue Vreeland* Secretary of the Secretary of the Berger Funds (since February 2000). Assistant Secretary of
210 University Blvd. Trust (since Feb. Berger Financial Group LLC and Berger Distributors LLC (since June 1999) and Bay
Suite 800 2000) Isle Financial LLC (since December 2001). Formerly, Assistant Secretary of the
Denver, CO 80206 Janus Funds (from March 1994 to May 1999), Assistant Secretary of Janus
Distributors, Inc. (from June 1995 to May 1997) and Manager of Fund
DOB: 1948 Administration for Janus Capital Corporation (from February 1992 to May 1999).
- ------------------------------------------------------------------------------------------------------------------------------------
David C. Price, CPA* Assistant Vice Assistant Vice President (since March 2001) of the Berger Funds. Assistant Vice
210 University Blvd. President of the President-Compliance (since March 2001) and Manager-Compliance (October 1998
Suite 800 Funds/Trusts (since through March 2001) with Berger Financial Group LLC. Formerly, Senior Auditor
Denver, CO 80206 Mar. 2001) (July 1996 through August 1998) and Auditor (August 1993 through June 1996) with
PricewaterhouseCoopers LLP, a public accounting firm.
DOB: 1969
- ------------------------------------------------------------------------------------------------------------------------------------
Lance V. Campbell, Assistant Treasurer Assistant Treasurer (since March 2001) of the Berger Funds. Assistant Vice
CFA, CPA* of the Funds/Trusts President (since January 2002) and Manager of Investment Accounting (August 1999
210 University Blvd. (since Mar. 2001) through January 2002) with Berger Financial Group LLC. Formerly, Senior Auditor
Suite 800 (December 1998 through August 1999) and Auditor (August 1997 through December
Denver, CO 80206 1998) with PricewaterhouseCoopers LLP, a public accounting firm, and Senior Fund
Accountant (January 1996 through July 1997) with INVESCO Funds Group.
DOB: 1972
- ------------------------------------------------------------------------------------------------------------------------------------
*Interested person (as defined in the Investment Company Act of 1940) of one or
more of the Funds/Trusts and/or of the Funds' adviser or sub-adviser.
Berger Funds o September 30, 2002 Combined Annual Report
[BERGER FUNDS LOGO] Shareholders with questions should write to: PRESORTED STANDARD
210 UNIVERSITY BLVD Berger Funds, c/o Berger LLC U.S. POSTAGE PAID
DENVER, CO 80206 P.O. Box 5005, Denver, CO 80217 Permit No. 1
or call 800.551.5849. Houston, Texas
Visit our Web site at bergerfunds.com.
COMAR
JANUS INVESTMENT FUND
PART C - OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Article VI of Janus Investment Fund's Amended and Restated Agreement
and Declaration of Trust provides for indemnification of certain persons acting
on behalf of the Funds. In general, Trustees and officers will be indemnified
against liability and against all expenses of litigation incurred by them in
connection with any claim, action, suit or proceeding (or settlement of the
same) in which they become involved by virtue of their Fund office, unless their
conduct is determined to constitute willful misfeasance, bad faith, gross
negligence or reckless disregard of their duties. A determination that a person
covered by the indemnification provisions is entitled to indemnification may be
made by the court or other body before which the proceeding is brought, or by
either a vote of a majority of a quorum of Trustees who are neither "interested
persons" of the Trust nor parties to the proceeding or by an independent legal
counsel in a written opinion. The Funds also may advance money for these
expenses, provided that the Trustee or officer undertakes to repay the Funds if
his conduct is later determined to preclude indemnification, and that either he
provide security for the undertaking, the Trust be insured against losses
resulting from lawful advances or a majority of a quorum of disinterested
Trustees, or independent counsel in a written opinion, determines that he
ultimately will be found to be entitled to indemnification. The Trust also
maintains a liability insurance policy covering its Trustees and officers.
ITEM 16. EXHIBITS
Exhibit 1 Amended and Restated Agreement and Declaration of Trust,
dated January 31, 2002, is incorporated herein by
reference to Exhibit 1(cc) to Post-Effective Amendment No.
103, filed on February 22, 2002 (File No. 2-34393).
Exhibit 2 (a) Restated Bylaws are incorporated herein by reference to
Exhibit 2(a) Post-Effective Amendment No. 71, filed on
December 20, 1995 (File No. 2-34393).
(b) First Amendment to the Bylaws is incorporated herein by
reference to Exhibit 2(b) to Post-Effective Amendment No.
71, filed on December 20, 1995 (File No. 2-34393).
(c) Second Amendment to the Bylaws is incorporated herein by
Reference to Exhibit 2(c) to Post-Effective Amendment No.
96, filed on December 18, 2000 (File No. 2-34393).
Exhibit 3 Not Applicable.
Exhibit 4 Form of Agreement and Plan of Reorganization is filed
herein as Exhibit A to Part A of this Registration
Statement.
C-1
Exhibit 5 (a) Specimen Stock Certificate for Janus Growth and Income
Fund is incorporated herein by reference to Exhibit 4(b)
to Post-Effective Amendment No. 79, filed on December 18,
1996 (File No. 2-34393).
(b) Specimen Stock Certificate for Janus Venture Fund(1) is
incorporated herein by reference to Exhibit 4(g) to
Post-Effective Amendment No. 80, filed on February 14,
1997 (File No. 2-34393).
(c) Specimen Stock Certificate for Janus Enterprise Fund is
incorporated herein by reference to Exhibit 4(h) to
Post-Effective Amendment No. 80, filed on February 14,
1997 (File No. 2-34393).
(d) Specimen Stock Certificate for Janus Balanced Fund is
incorporated herein by reference to Exhibit 4(i) to
Post-Effective Amendment No. 80, filed on February 14,
1997 (File No. 2-34393).
(e) Specimen Stock Certificate for Janus Overseas Fund is
incorporated herein by reference to Exhibit 4(m) to
Post-Effective Amendment No. 81, filed on June 26, 1997
(File No. 2-34393).
(f) Revised Specimen Stock Certificate for Janus Olympus Fund
is incorporated herein by reference to Exhibit 4(n) to
Post-Effective Amendment No. 79, filed on December 18,
1996 (File No. 2-34393).
(g) Form of Specimen Stock Certificate for Janus Global
Technology Fund is incorporated herein by reference to
Exhibit 3(s) to Post-Effective Amendment No. 85, filed on
September 10, 1998 (File No. 2-34393).
Exhibit 6 (a) Investment Advisory Agreement for Janus Growth and Income
Fund dated July 1, 1997, is incorporated herein by
reference to Exhibit 5(b) to Post-Effective Amendment No.
83, filed on December 15, 1997 (File No. 2-34393).
(b) Investment Advisory Agreement for Janus Venture Fund dated
July 1, 1997, is incorporated herein by reference to
Exhibit 5(c) to Post-Effective Amendment No. 83, filed on
December 15, 1997 (File No. 2-34393).
- --------
(1) Outstanding certificates representing shares of predecessor entity to this
series of the Trust are deemed to represent shares of this series.
C-2
(c) Investment Advisory Agreements for Janus Enterprise Fund
and Janus Balanced Fund dated July 1, 1997, are
incorporated herein by reference to Exhibit 5(e) to
Post-Effective Amendment No. 83, filed on December 15,
1997 (File No. 2-34393).
(d) Investment Advisory Agreement for Janus Overseas Fund
dated July 1, 1997, is incorporated herein by reference to
Exhibit 5(g) to Post-Effective Amendment No. 83, filed on
December 15, 1997 (File No. 2-34393).
(e) Investment Advisory Agreement for Janus Olympus Fund dated
July 1, 1997, is incorporated herein by reference to
Exhibit 5(j) to Post-Effective Amendment No. 83, filed on
December 15, 1997 (File No. 2-34393).
(f) Form of Investment Advisory Agreement for Janus Global
Technology Fund is incorporated herein by reference to
Exhibit 4(o) to Post-Effective Amendment No. 85, filed on
September 10, 1998 (File No. 2-34393).
(g) Amendment dated January 31, 2000 to the Investment
Advisory Agreement for Janus Growth and Income Fund
dated July 1, 1997, is incorporated herein by
reference to Exhibit 4(r) to Post-Effective
Amendment No. 90, filed on January 31, 2000 (File
No. 2-34393).
(h) Amendment dated January 31, 2000 to the Investment
Advisory Agreement for Janus Enterprise Fund dated
July 1, 1997, is incorporated herein by reference
to Exhibit 4(t) to Post-Effective Amendment No. 90,
filed on January 31, 2000 (File No. 2-34393).
(i) Amendment dated January 31, 2000 to the Investment
Advisory Agreement for Janus Balanced Fund dated
July 1, 1997, is incorporated herein by reference
to Exhibit 4(u) to Post-Effective Amendment No. 90,
filed on January 31, 2000 (File No. 2-34393).
(j) Amendment dated January 31, 2000 to the Investment
Advisory Agreement for Janus Overseas Fund dated
July 1, 1997, is incorporated herein by reference
to Exhibit 4(v) to Post-Effective Amendment No. 90,
filed on January 31, 2000 (File No. 2-34393).
(k) Amendment dated January 31, 2000 to the Investment
Advisory Agreement for Janus Global Technology Fund
dated September 14, 1998, is incorporated herein by
reference to Exhibit 4(y) to Post-Effective
Amendment No. 90, filed on January 31, 2000 (File
No. 2-34393).
C-3
(l) Amendment dated January 31, 2000 to the Investment
Advisory Agreement for Janus Olympus Fund dated
July 1, 1997, is incorporated herein by reference
to Exhibit 4(aa) to Post-Effective Amendment No.
90, filed on January 31, 2000 (File No. 2-34393).
(m) Amendment dated January 31, 2000 to the Investment
Advisory Agreement for Janus Venture Fund dated
July 1, 1997, is incorporated herein by reference
to Exhibit 4(dd) to Post-Effective Amendment No.
90, filed on January 31, 2000 (File No. 2-34393).
Exhibit 7 Distribution Agreement between Janus Investment Fund and
Janus Distributors, Inc., dated July 1, 1997, is
incorporated herein by reference to Exhibit 6 to
Post-Effective Amendment No. 83, filed on December 15,
1997 (File No. 2-34393).
Exhibit 8 Not Applicable.
Exhibit 9 (a) Custodian Contract between Janus Investment Fund and State
Street Bank and Trust Company is incorporated herein by
reference to Exhibit 8(a) to Post-Effective Amendment No.
79, filed on December 18, 1996 (File No. 2-34393).
(b) Amendment dated April 25, 1990, of State Street Custodian
Contract is incorporated herein by reference to Exhibit
8(b) to Post-Effective Amendment No. 79, filed on December
18, 1996 (File No. 2-34393).
(c) Letter Agreement dated February 1, 1991, regarding State
Street Custodian Contract is incorporated herein by
reference to Exhibit 8(c) to Post-Effective Amendment No.
79, filed on December 18, 1996 (File No. 2-34393).
(d) Letter Agreement dated October 9, 1992, regarding State
Street Custodian Agreement is incorporated herein by
reference to Exhibit 8(e) to Post-Effective Amendment No.
81, filed on June 26, 1997 (File No. 2-34393).
(e) Letter Agreement dated April 4, 1994, regarding State
Street Custodian Agreement is incorporated herein by
reference to Exhibit 8(g) to Post-Effective Amendment No.
81, filed on June 26, 1997 (File No. 2-34393).
(f) Letter Agreement dated December 12, 1995, regarding State
Street Custodian Contract is incorporated herein by
reference to Exhibit 8(i) to Post-Effective Amendment No.
72, filed on March 15, 1996 (File No. 2-34393).
C-4
(g) Amendment dated October 11, 1995, of State Street
Custodian Contract is incorporated herein by reference to
Exhibit 8(j) to Post-Effective Amendment No. 71, filed on
December 20, 1995 (File No. 2-34393).
(h) Form of Amendment dated September 10, 1996, of State
Street Custodian Contract is incorporated herein by
reference to Exhibit 8(k) to Post-Effective Amendment No.
75, filed on September 11, 1996 (File No. 2-34393).
(i) Letter Agreement dated September 10, 1996, regarding State
Street Custodian Contract is incorporated herein by
reference to Exhibit 8(l) to Post-Effective Amendment No.
75, filed on September 11, 1996 (File No. 2-34393).
(j) Form of Letter Agreement dated September 14, 1998,
regarding State Street Custodian Contract is incorporated
herein by reference to Exhibit 7(o) to Post-Effective
Amendment No. 85, filed on September 10, 1998 (File No.
2-34393).
(k) Amendment to State Street Bank and Trust Company Custodian
Contract dated April 10, 2000 is incorporated herein by
reference to Exhibit 7(t) to Post-Effective Amendment No.
96, filed on December 18, 2000 (File No. 2-34393).
(l) Foreign Custody Amendment to State Street Bank and
Trust Company Custodian Contract dated December 5,
2000 is incorporated herein by reference to Exhibit
7(u) to Post-Effective Amendment No. 96, filed on
December 18, 2000 (File No. 2-34393).
(m) Foreign Custody Manager Addendum to Global Custodial
Services Agreement dated December 5, 2000 is incorporated
herein by reference to Exhibit 7(v) to Post-Effective
Amendment No. 96, filed on December 18, 2000 (File No.
2-34393).
(n) Form of Amendment to State Street Bank and Trust Company
Custodian Contract dated December 5, 2000 is incorporated
herein by reference to Exhibit 7(w) to Post-Effective
Amendment No. 96, filed on December 18, 2000 (File No.
2-34393).
(o) Form of Amendment to State Street Bank and Trust Company
Custodian Contract dated December 5, 2000 is incorporated
herein by reference to Exhibit 7(x) to Post-Effective
Amendment No. 96, filed on December 18, 2000 (File No.
2-34393).
C-5
(p) Amendment to State Street Bank and Trust Company Custodian
Contract dated June 15, 2001 is incorporated herein by
reference to Exhibit 7(aa) to Post-Effective Amendment No.
100, filed on July 31, 2001 (File No. 2-34393).
(q) Amendment to State Street Bank and Trust Company Custodian
Contract dated June 21, 1988 is incorporated herein by
reference to Exhibit 7(bb) to Post-Effective Amendment No.
103 on February 22, 2002 (File No. 2-34393).
Exhibit 10 Not Applicable.
Exhibit 11 Opinion and Consent of Vedder, Price, Kaufman & Kammholz
will be filed by amendment.
Exhibit 12 Form of Tax Opinion of Vedder, Price, Kaufman & Kammholz
is filed herein.
Exhibit 13 (a) Transfer Agency Agreement dated September 27, 1995, with
Janus Service Corporation for Janus Olympus Fund is
incorporated herein by reference to Exhibit 9(e) to
Post-Effective Amendment No. 70, filed on November 28,
1995 (File No. 2-34393).
(b) Letter Agreement dated December 21, 1995, regarding Janus
Service Corporation Transfer Agency Agreement is
incorporated herein by reference to Exhibit 9(f) to
Post-Effective Amendment No. 72, filed on March 15, 1996
(File No. 2-34393).
(c) Letter Agreement dated May 21, 1996, regarding Janus
Service Corporation Transfer Agency Agreement is
incorporated by reference to Exhibit 9(g) to
Post-Effective Amendment No. 73, filed on May 28, 1996
(File No. 2-34393).
(d) Letter Agreement dated September 10, 1996, regarding Janus
Service Corporation Transfer Agency Agreement is
incorporated herein by reference to Exhibit 9(i) to
Post-Effective Amendment No. 76, filed on September 23,
1996 (File No. 2-34393).
(e) Form of Letter Agreement dated September 14, 1998,
regarding Janus Service Corporation Transfer Agency
Agreement is incorporated herein by reference to
Exhibit 8(k) to Post-Effective Amendment No. 85,
filed on September 10, 1998 (File No. 2-34393).
(f) Form of Letter Agreement dated July 1, 2001
regarding Janus Service Corporation Transfer Agency
Agreement is incorporated herein by reference to
Exhibit 8(q) to Post-Effective Amendment No. 99,
filed on June 1, 2001 (File No. 2-34393).
C-6
Exhibit 14 Consent of PricewaterhouseCoopers LLP is filed herein.
Exhibit 15 Not Applicable.
Exhibit 16 Powers of Attorney are filed herein.
Exhibit 17 Forms of Proxies are filed herein.
ITEM 17. UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which is
a part of this registration statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
C-7
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the registrant, in the City of Denver, and State of
Colorado, on the 12th day of December, 2002.
JANUS INVESTMENT FUND
By: /s/ Loren M. Starr
-------------------------------
Loren M. Starr, President and
Chief Executive Officer
As required by the Securities Act of 1933, this Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Loren M. Starr President and Chief Executive Officer December 12, 2002
- ------------------------------------ (Principal Executive Officer)
Loren M. Starr
/s/ Anita E. Falicia Vice President, Chief Financial December 12, 2002
- ------------------------------------ Officer and Treasurer (Principal
Anita E. Falicia Financial Officer and Principal
Accounting Officer)
Thomas H. Bailey* Trustee December 12, 2002
- ------------------------------------
Thomas H. Bailey
William F. McCalpin* Trustee December 12, 2002
- ------------------------------------
William F. McCalpin
John W. McCarter, Jr.* Trustee December 12, 2002
- ------------------------------------
John W. McCarter, Jr.
Dennis B. Mullen* Trustee December 12, 2002
- ------------------------------------
Dennis B. Mullen
James T. Rothe* Trustee December 12, 2002
- ------------------------------------
James T. Rothe
William D. Stewart* Trustee December 12, 2002
- ------------------------------------
William D. Stewart
Martin H. Waldinger* Trustee December 12, 2002
- ------------------------------------
Martin H. Waldinger
/s/ Thomas A. Early
- ------------------------------------
*By Thomas A. Early
Attorney-in-Fact
</Table>
C-8
INDEX OF EXHIBITS
<Table>
<Caption>
EXHIBIT NUMBER EXHIBIT TITLE
- -------------- -------------
12 Form of Tax Opinion of Vedder, Price, Kaufman & Kammholz
14 Consent of PricewaterhouseCoopers LLP
16 Powers of Attorney
17 Forms of Proxies
</Table>
C-9