PBHG ADVISOR FUNDS, INC.
PROSPECTUS DATED JULY 14, 1998
PBHG Advisor Funds, Inc. (the "Company") is a mutual fund that offers a
convenient and economical means of investing in professionally managed
portfolios of securities. This Prospectus offers Class A and Class B shares of
each of the following portfolios (each a "PBHG Advisor Fund" or "Fund," and
together, the "PBHG Advisor Funds" or "Funds"):
PBHG ADVISOR VALUE FUNDS
o PBHG Advisor Core Value Fund
o PBHG Advisor Defensive Equity Fund
o PBHG Advisor Enhanced Equity Fund
PBHG ADVISOR GROWTH FUNDS
o PBHG Advisor Blue Chip Growth Fund
o PBHG Advisor Large Cap Concentrated Fund
o PBHG Advisor New Opportunities Fund
PBHG ADVISOR FIXED INCOME FUNDS
o PBHG Advisor Master Fixed Income Fund
o PBHG Advisor Short-Term Government Fund
PBHG ADVISOR MONEY MARKET FUNDS
o PBHG Advisor Cash Reserves Fund
This Prospectus sets forth the information about the Company, the PBHG
Advisor Funds and the Class A and Class B shares that a prospective investor
should know before investing. Investors are advised to read this Prospectus and
retain it for future reference. A Statement of Additional Information dated July
14, 1998, which contains important information has been filed with the
Securities and Exchange Commission and is available upon request and without
charge by calling 1-888-800-2685. The Securities and Exchange Commission
maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference and other information
regarding the Company and other registrants that file electronically with the
Securities and Exchange Commission. The Statement of Additional Information is
incorporated by reference into this Prospectus.
AN INVESTMENT IN THE PBHG ADVISOR CASH RESERVES FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT ANY MONEY
MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Mutual fund shares are not deposits or obligations of, nor guaranteed by,
any depository institution. Mutual fund shares also are not insured by the FDIC,
the Federal Reserve Board, or any other agency and are subject to investment
risk, including the possible loss of principal.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY..................................................... 1
THE COMPANY AND THE FUNDS................................... 7
INVESTMENT OBJECTIVE AND POLICIES........................... 7
GENERAL INVESTMENT POLICIES AND STRATEGIES.................. 14
RISK FACTORS................................................ 17
INVESTMENT LIMITATIONS...................................... 22
HOW TO PURCHASE FUND SHARES................................. 22
SHAREHOLDER SERVICES........................................ 29
HOW TO REDEEM FUND SHARES................................... 32
DETERMINATION OF NET ASSET VALUE............................ 37
PERFORMANCE ADVERTISING..................................... 37
RELATED PERFORMANCE......................................... 38
TAXES....................................................... 40
GENERAL INFORMATION......................................... 41
</TABLE>
<PAGE>
SUMMARY
The Company is an open-end management investment company which provides a
convenient way to invest in professionally managed portfolios of securities.
This Prospectus provides basic information about the 9 separate series currently
offered by the Company: the PBHG Advisor Core Value Fund, the PBHG Advisor
Defensive Equity Fund, the PBHG Advisor Enhanced Equity Fund, the PBHG Advisor
Blue Chip Growth Fund, the PBHG Advisor Large Cap Concentrated Fund, the PBHG
Advisor New Opportunities Fund, the PBHG Advisor Master Fixed Income Fund, the
PBHG Advisor Short-Term Government Fund, and the PBHG Advisor Cash Reserves
Fund. Each Fund has three classes of shares (Class A, Class B and Class I).
Class A and Class B shares of each Fund, which are described below, are offered
by this Prospectus. Except for the PBHG Advisor Large Cap Concentrated Fund,
which is classified as a non-diversified investment company, each PBHG Advisor
Fund is classified as a diversified investment company.
Who are the Adviser and the sub-advisers? Pilgrim Baxter & Associates,
Ltd. (the "Adviser") serves as the investment adviser to each PBHG Advisor Fund.
Pilgrim Baxter Value Investors, Inc. ("Value Investors"), a wholly-owned
subsidiary of the Adviser, serves as the sub-adviser to the PBHG Advisor Core
Value Fund. Wellington Management Company, LLP ("Wellington Management") serves
as the sub-adviser to the PBHG Advisor Cash Reserves Fund. Pilgrim Baxter
Analytic Investors, Inc. ("Analytic Investors"), a wholly-owned subsidiary of
the Adviser, will serve as sub-adviser to the PBHG Advisor Enhanced Equity Fund,
the PBHG Advisor Defensive Equity Fund, the PBHG Advisor Master Fixed Income
Fund, and the PBHG Advisor Short-Term Government Fund. See "The Adviser," "Value
Investors," "Analytic Investors," and "Wellington Management" under the caption
"General Information."
Who are the Administrator and Sub-Administrator? PBHG Fund Services (the
"Administrator"), a wholly owned subsidiary of the Adviser, serves as the
administrator for the Company, and SEI Fund Resources (the "Sub-Administrator")
serves as sub-administrator for the Company. See "General Information -- The
Administrator and Sub-Administrator."
Who are the Transfer Agent and shareholder servicing agents? DST Systems,
Inc. serves as the transfer agent and dividend disbursing agent (the "Transfer
Agent") of the Company. The Administrator serves as shareholder servicing agent
of the Company. UAM Shareholder Service Center, Inc. ("UAM SSC"), an affiliate
of the Adviser, provides services to the Company pursuant to a sub-shareholder
servicing agreement between the Administrator and UAM SSC. The Company may also
pay amounts to certain third parties that provide sub-transfer agency and other
administrative services relating to the Company to persons who beneficially own
interests in the Company. See "General Information -- The Transfer Agent" and
"General Information -- Shareholder Servicing Agents."
Who is the Distributor? PBHG Fund Distributors (the "Distributor"), a
wholly owned subsidiary of the Adviser, provides the Company with distribution
services. See "General Information -- The Distributor."
How Can I Purchase Shares? Purchases are made through your investment
dealer or selected financial institutions. Purchases may be made on any day on
which the New York Stock Exchange ("NYSE") is open for business ("Business
Day"). Shares of the PBHG Advisor Cash Reserves Fund cannot be purchased by
Federal Reserve wire on federal holidays restricting wire transfers. A purchase
order will be effective as of the Business Day received by the Company if the
Company receives sufficient information to execute the order and receive payment
by check or readily available funds prior to 2:00 p.m. Eastern time for the PBHG
Advisor Cash Reserves Fund and 4:00 p.m. Eastern time for each of the other PBHG
Advisor Funds. This Prospectus offers Class A and Class B shares of each PBHG
Advisor Fund. Class A and Class B shares bear sales charges in different forms
and amounts and each class has different levels of expenses.
1
<PAGE>
Class A Shares. Class A shares of the PBHG Advisor Cash Reserves Fund are
sold without an initial sales charge and are not subject to a contingent
deferred sales charge. Class A shares of all other PBHG Advisor Funds are
typically sold with an initial sales charge but are not subject to a contingent
deferred sales charge. However, certain Class A share purchases are not subject
to an initial sales charge. For example, Class A share purchases greater than $1
million are not subject to an initial sales charge, but would be subject to a
contingent deferred sales charge if these Class A shares were redeemed within 12
months of purchase. Class A shares of every PBHG Advisor Fund pay a 12b-1
distribution fee at the annual rate of 0.25% of the average daily net assets of
the Fund's Class A shares. See "How to Purchase Fund Shares -- Class A Shares"
and "How to Redeem Fund Shares -- Contingent Deferred Sales Charge Program for
Large Purchases."
Class B Shares. Class B shares of the PBHG Advisor Cash Reserves Fund can
be purchased only in an exchange and are not available for direct purchase.
Class B shares of all other PBHG Advisor Funds are sold without an initial sales
charge, but are subject to a contingent deferred sales charge of up to 5% if
redeemed within six years. Class B shares of every PBHG Advisor Fund pay a 12b-1
distribution plan fee at the annual rate of 1.00% of the average daily net
assets of the Fund's Class B shares. Class B shares of every PBHG Advisor Fund
will automatically convert into Class A shares, based on relative net asset
value, eight years after the end of the calendar month in which the order to
purchase the Class B shares was accepted. When compared to Class A shares, Class
B shares provide the benefit of putting all invested funds to work from the time
the investment is made. However, the Class B shares pay a higher 12b-1
distribution plan fee than Class A shares. As a result, until converted into
Class A shares, Class B shares will have a higher expense ratio and pay lower
dividends than Class A shares. See "Class B Shares" under the caption "How to
Purchase Fund Shares."
Which Arrangement is Best for You? Deciding which class of shares provides
a more suitable investment for you depends on a number of factors, including the
amount and intended length of your investment. If your investment qualifies for
a reduced sales charge, you might consider Class A shares. If you would prefer
not to pay an initial sales charge, you might consider Class B shares. Orders
for Class B shares for $250,000 or more will be treated as orders for Class A
shares or will be declined. For more information about these sales arrangements,
consult your investment professional. Investment professionals may receive
different compensation depending on which class of shares they sell. Shares may
only be exchanged for shares of the same class of another PBHG Advisor Fund
offered for sale by this Prospectus. See "Shareholder Services -- Exchange
Privileges."
Is There a Minimum Investment? Class A and Class B shares of each PBHG
Advisor Fund require a minimum initial investment of $2,500 for regular
accounts, $2,000 for traditional and Roth IRAs and $500 for Education IRAs.
However, a minimum initial investment of only $500 would be required for both
regular accounts and IRAs if an investor establishes a Systematic Investment
Plan with a minimum investment of $25 per month at the same time that the
initial investment is made. See "Shareholder Services -- Systematic Investment
Plan."
How Do I Redeem Shares? Redemptions may be made on any Business Day.
Redemption orders placed prior to 2:00 p.m. Eastern time for the PBHG Advisor
Cash Reserves Fund and 4:00 p.m. Eastern time for each of the other PBHG Advisor
Funds on any Business Day will be effective that day. The redemption price for
shares is the net asset value per share determined as of the end of the day the
order is effective less any applicable contingent deferred sales charge. See
"How to Redeem Fund Shares -- Class B Shares" and "How to Redeem Fund Shares --
Contingent Deferred Sales Charge Program for Large Purchases."
2
<PAGE>
EXPENSE SUMMARY
Shareholder Transaction Expenses (Class A Shares)
<TABLE>
<CAPTION>
Maximum
Maximum Sales Load Maximum Redemption
Sales Load Imposed on Deferred Sales Fees (as a
Imposed on Reinvested Loads (as a percentage of
Purchases (as Dividends (as percentage of amount
a percentage a percentage original redeemed, if
of offering of offering purchase applicable) Exchange
price) price) price)(1) (2) Fees
------------- ------------- -------------- ------------- --------
<S> <C> <C> <C> <C> <C>
PBHG Advisor Core Value Fund.............. 5.75% None None None None
PBHG Advisor Defensive Equity Fund........ 5.75% None None None None
PBHG Advisor Enhanced Equity Fund......... 5.75% None None None None
PBHG Advisor Blue Chip Growth Fund........ 5.75% None None None None
PBHG Advisor Large Cap Concentrated
Fund.................................... 5.75% None None None None
PBHG Advisor New Opportunities Fund....... 5.75% None None None None
PBHG Advisor Master Fixed Income Fund..... 4.75% None None None None
PBHG Advisor Short-Term Government Fund... 1.50% None None None None
PBHG Advisor Cash Reserves Fund........... None None None None None
</TABLE>
- ------------------
(1) A contingent deferred sales charge of up to 1% applies to purchases of $1
million or more of Class A shares that are redeemed within 12 months of the
date of purchase. See "How to Redeem Fund Shares -- Contingent Deferred
Sales Charge Program for Large Purchases."
(2) A wire redemption charge, currently $10.00, is deducted from the amount of a
Federal Reserve wire redemption payment made at the request of a
shareholder. A charge of $12.00 may be imposed annually on accounts that
fall below the minimum account size as a result of shareholder redemptions.
See "How to Redeem Fund Shares -- Minimum Account Size" for the minimum
account size of each PBHG Advisor Fund.
Annual Operating Expenses (Class A Shares)
(As a Percentage of Average Net Assets After Applicable Fee Waivers and Expense
Reimbursements)
<TABLE>
<CAPTION>
Other Total Operating
Advisory Expenses (net of Expenses (net of fee
Fees (net of expense waivers and expense
fee waivers, 12b-1 reimbursements, reimbursements, if
if any)(1) Fees(2) if any)(1)(3) any)(1)(3)
------------- ------- ---------------- --------------------
<S> <C> <C> <C> <C>
PBHG Advisor Core Value Fund................... 0.00% 0.25% 1.16% 1.41%
PBHG Advisor Defensive Equity Fund............. 0.22% 0.25% 0.94% 1.41%
PBHG Advisor Enhanced Equity Fund.............. 0.00% 0.25% 1.16% 1.41%
PBHG Advisor Blue Chip Growth Fund............. 0.00% 0.25% 1.16% 1.41%
PBHG Advisor Large Cap Concentrated Fund....... 0.40% 0.25% 1.01% 1.66%
PBHG Advisor New Opportunities Fund............ 0.10% 0.25% 1.21% 1.56%
PBHG Advisor Master Fixed Income Fund.......... 0.00% 0.25% 1.01% 1.26%
PBHG Advisor Short-Term Government Fund........ 0.00% 0.25% 0.86% 1.11%
PBHG Advisor Cash Reserves Fund................ 0.00% 0.25% 0.86% 1.11%
</TABLE>
- ------------------
(1) Because the PBHG Advisor Funds had not yet commenced operations prior to the
date of this Prospectus, "Other Expenses" are based on estimated amounts,
net of any expense reimbursement. Absent any fee waiver or expense
reimbursement arrangement, "Advisory Fees," "12b-1 Fees," "Other Expenses"
and "Total Operating Expenses," respectively, as a percentage of average net
assets of each Fund are as follows:
<TABLE>
<CAPTION>
Total
Advisory 12b-1 Other Operating
Fees Fees Expenses Expenses
-------- ----- -------- ---------
<S> <C> <C> <C> <C>
PBHG Advisor Core Value Fund................................ 0.60% 0.25% 1.21% 2.06%
PBHG Advisor Defensive Equity Fund.......................... 0.60% 0.25% 0.94% 1.79%
PBHG Advisor Enhanced Equity Fund........................... 0.60% 0.25% 1.27% 2.12%
PBHG Advisor Blue Chip Growth Fund.......................... 0.60% 0.25% 1.27% 2.12%
PBHG Advisor Large Cap Concentrated Fund.................... 0.85% 0.25% 1.02% 2.12%
PBHG Advisor New Opportunities Fund......................... 0.75% 0.25% 1.21% 2.21%
PBHG Advisor Master Fixed Income Fund....................... 0.45% 0.25% 1.82% 2.52%
PBHG Advisor Short-Term Government Fund..................... 0.30% 0.25% 1.82% 2.37%
PBHG Advisor Cash Reserves Fund............................. 0.30% 0.25% 1.52% 2.07%
</TABLE>
3
<PAGE>
(2) As a result of the 12b-1 fees, long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc.
(3) The Adviser has agreed to waive or limit its Advisory Fees or assume Other
Expenses in an amount that operates to limit the aggregate annual total of
certain operating expenses of each Fund as follows: 0.82% of the PBHG
Advisor Core Value Fund, the PBHG Advisor Defensive Equity Fund, the PBHG
Advisor Enhanced Equity Fund and the PBHG Advisor Blue Chip Growth Fund;
1.07% of the PBHG Advisor Large Cap Concentrated Fund; 0.97% of the PBHG
Advisor New Opportunities Fund; 0.67% of the PBHG Advisor Master Fixed
Income Fund; and 0.52% of the PBHG Advisor Short-Term Government Fund and
the PBHG Advisor Cash Reserves Fund. The expenses subject to such limitation
are those which are not specifically allocated to a class of shares of a
Fund under the Company's multiple class plan (the "Rule 18f-3 Plan")
including, but not limited to, investment advisory fees of the Adviser, but
excluding: (i) interest, taxes, brokerage commissions, and other
expenditures which are capitalized in accordance with generally accepted
accounting principles; (ii) expenses specifically allocated to a class of
shares of a Fund under the Rule 18f-3 Plan, such as Rule 12b-1 expenses and
transfer agency fees; and (iii) other extraordinary expenses not incurred in
the ordinary course of a Fund's business. The fee waiver/expense
reimbursement arrangement for each Fund is expected to remain in effect for
the current fiscal year. Each waiver of Advisory Fees or assumption of Other
Expenses by the Adviser is subject to a possible reimbursement by each Fund
in future years if such reimbursement can be made within the foregoing
annual expense limits.
Example
An investor in Class A shares of a PBHG Advisor Fund would pay the
following expenses on a $1,000 investment assuming (1) 5% annual return, and (2)
redemption at the end of each period.
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C> <C>
PBHG Advisor Core Value Fund................................ $71 $100
PBHG Advisor Defensive Equity Fund.......................... $71 $100
PBHG Advisor Enhanced Equity Fund........................... $71 $100
PBHG Advisor Blue Chip Growth Fund.......................... $71 $100
PBHG Advisor Large Cap Concentrated Fund.................... $73 $107
PBHG Advisor New Opportunities Fund......................... $72 $104
PBHG Advisor Master Fixed Income Fund....................... $60 $ 86
PBHG Advisor Short-Term Government Fund..................... $26 $ 50
PBHG Advisor Cash Reserves Fund............................. $11 $ 35
</TABLE>
The example is based upon Total Operating Expenses for the PBHG Advisor
Funds as set forth in the tables above. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. The purpose of this table is to assist the investor in
understanding the various costs and expenses that may be directly or indirectly
borne by investors in Class A shares of each PBHG Advisor Fund. See "General
Information -- The Adviser" and "General Information -- The Administrator and
Sub-Administrator."
4
<PAGE>
Shareholder Transaction Expenses (Class B Shares)
<TABLE>
<CAPTION>
Maximum
Maximum Sales Load Redemption
Sales Load Imposed On Maximum Fees (As A
Imposed On Reinvested Deferred Sales Percentage Of
Purchases (As Dividends (As Loads (As A Amount
A Percentage A Percentage Percentage Of Redeemed, If
Of Offering Of Offering Original Applicable) Exchange
Price) Price) Purchase Price) (1) Fees
------------- ------------- ---------------- ------------- --------
<S> <C> <C> <C> <C> <C>
PBHG Advisor Core Value Fund........... None None 5.00% None None
PBHG Advisor Defensive Equity Fund..... None None 5.00% None None
PBHG Advisor Enhanced Equity Fund...... None None 5.00% None None
PBHG Advisor Blue Chip Growth Fund..... None None 5.00% None None
PBHG Advisor Large Cap Concentrated
Fund................................. None None 5.00% None None
PBHG Advisor New Opportunities Fund.... None None 5.00% None None
PBHG Advisor Master Fixed Income Fund.. None None 5.00% None None
PBHG Advisor Short-Term Government
Fund................................. None None 5.00% None None
PBHG Advisor Cash Reserves Fund........ None None 5.00% None None
</TABLE>
- ------------------
(1) A wire redemption charge, currently $10.00, is deducted from the amount of a
Federal Reserve wire redemption payment made at the request of a
shareholder. A charge of $12.00 may be imposed annually on accounts that
fall below the minimum account size as a result of shareholder redemptions.
See "How to Redeem Fund Shares -- Minimum Account Size" for the minimum
account size of each PBHG Advisor Fund.
Annual Operating Expenses (Class B Shares)
(As A Percentage Of Average Net Assets After Applicable Fee Waivers And Expense
Reimbursements)
<TABLE>
<CAPTION>
Advisory Other Total Operating
Fees (Net Expenses (Net Of Expenses (Net Of Fee
Of Fee Expense Waivers And Expense
Waivers, If 12B-1 Reimbursements, Reimbursements, If
Any)(1) Fees(2) If Any)(1)(3) Any)(1)(3)
----------- -------- ---------------- --------------------
<S> <C> <C> <C> <C>
PBHG Advisor Core Value Fund.................... 0.00% 1.00% 1.16% 2.16%
PBHG Advisor Defense Equity Fund................ 0.22% 1.00% 0.94% 2.16%
PBHG Advisor Enhanced Equity Fund............... 0.00% 1.00% 1.16% 2.16%
PBHG Advisor Blue Chip Growth Fund.............. 0.00% 1.00% 1.16% 2.16%
PBHG Advisor Large Cap Concentrated Fund........ 0.40% 1.00% 1.01% 2.41%
PBHG Advisor New Opportunities Fund............. 0.10% 1.00% 1.21% 2.31%
PBHG Advisor Master Fixed Income Fund........... 0.00% 1.00% 1.01% 2.01%
PBHG Advisor Short-Term Government Fund......... 0.00% 1.00% 0.86% 1.86%
PBHG Advisor Cash Reserves Fund................. 0.00% 1.00% 0.86% 1.86%
</TABLE>
- ------------------
(1) Because the PBHG Advisor Funds had not yet commenced operations prior to the
date of this Prospectus, "Other Expenses" are based on estimated amounts,
net of any expense reimbursement. Absent any fee waiver or expense
reimbursement arrangement, "Advisory Fees," "Other Expenses" and "Total
Operating Expenses," respectively, as a percentage of average net assets of
each Fund are as follows:
<TABLE>
<CAPTION>
Total
Advisory 12B-1 Other Operating
Fees Fees Expenses Expenses
-------- ----- -------- ---------
<S> <C> <C> <C> <C>
PBHG Advisor Core Value Fund................................ 0.60% 1.00% 1.21% 2.81%
PBHG Advisor Defensive Equity Fund.......................... 0.60% 1.00% 0.94% 2.54%
PBHG Advisor Enhanced Equity Fund........................... 0.60% 1.00% 1.27% 2.87%
PBHG Advisor Blue Chip Growth Fund.......................... 0.60% 1.00% 1.27% 2.87%
PBHG Advisor Large Cap Concentrated Fund.................... 0.85% 1.00% 1.02% 2.87%
PBHG Advisor New Opportunities Fund......................... 0.75% 1.00% 1.21% 2.96%
PBHG Advisor Master Fixed Income Fund....................... 0.45% 1.00% 1.82% 3.27%
PBHG Advisor Short-Term Government Fund..................... 0.30% 1.00% 1.82% 3.12%
PBHG Advisor Cash Reserves Fund............................. 0.30% 1.00% 1.52% 2.82%
</TABLE>
5
<PAGE>
(2) As a result of the 12b-1 fees, long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc.
(3) The Adviser has agreed to waive or limit its Advisory Fees or assume Other
Expenses in an amount that operates to limit the aggregate annual total of
certain operating expenses of each Fund as follows: 0.82% of the PBHG
Advisor Core Value Fund, the PBHG Advisor Defensive Equity Fund, the PBHG
Advisor Enhanced Equity Fund and the PBHG Advisor Blue Chip Growth Fund;
1.07% of the PBHG Advisor Large Cap Concentrated Fund; 0.97% of the PBHG
Advisor New Opportunities Fund; 0.67% of the PBHG Advisor Master Fixed
Income Fund; and 0.52% of the PBHG Advisor Short-Term Government Fund and
the PBHG Advisor Cash Reserves Fund. The expenses subject to such limitation
are those which are not specifically allocated to a class of shares of a
Fund under the Company's multiple class plan (the "Rule 18f-3 Plan")
including, but not limited to, investment advisory fees of the Adviser, but
excluding: (i) interest, taxes, brokerage commissions, and other
expenditures which are capitalized in accordance with generally accepted
accounting principles; (ii) expenses specifically allocated to a class of
shares of a Fund under the Rule 18f-3 Plan, such as Rule 12b-1 expenses and
transfer agency fees; and (iii) other extraordinary expenses not incurred in
the ordinary course of a Fund's business. The fee waiver/expense
reimbursement arrangement for each Fund is expected to remain in effect for
the current fiscal year. Each waiver of Advisory Fees or assumption of Other
Expenses by the Adviser is subject to a possible reimbursement by each Fund
in future years if such reimbursement can be made within the foregoing
annual expense limits.
EXAMPLE
An investor in Class B shares of a PBHG Advisor Fund would pay the
following expenses on a $1,000 investment assuming (1) 5% annual return, and (2)
redemption at the end of each period.
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C> <C>
PBHG Advisor Core Value Fund................................ $73 $100
PBHG Advisor Defensive Equity Fund.......................... $73 $100
PBHG Advisor Enhanced Equity Fund........................... $73 $100
PBHG Advisor Blue Chip Growth Fund.......................... $73 $100
PBHG Advisor Large Cap Concentrated Fund.................... $76 $108
PBHG Advisor New Opportunities Fund......................... $75 $105
PBHG Advisor Master Fixed Income Fund....................... $72 $ 96
PBHG Advisor Short-Term Government Fund..................... $70 $ 91
PBHG Advisor Cash Reserves Fund............................. $70 $ 91
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemption:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C> <C>
PBHG Advisor Core Value Fund................................ $22 $ 68
PBHG Advisor Defensive Equity Fund.......................... $22 $ 68
PBHG Advisor Enhanced Equity Fund........................... $22 $ 68
PBHG Advisor Blue Chip Growth Fund.......................... $22 $ 68
PBHG Advisor Large Cap Concentrated Fund.................... $24 $ 75
PBHG Advisor New Opportunities Fund......................... $23 $ 72
PBHG Advisor Master Fixed Income Fund....................... $20 $ 63
PBHG Advisor Short-Term Government Fund..................... $19 $ 58
PBHG Advisor Cash Reserves Fund............................. $19 $ 58
</TABLE>
The example is based upon Total Operating Expenses for the PBHG Advisor
Funds as set forth in the tables above. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. The purpose of this table is to assist the investor in
understanding the various costs and expenses that may be directly or indirectly
borne by investors in Class B shares of each PBHG Advisor Fund. The amount shown
in the table as "Other Expenses" is based on estimated amounts for the current
fiscal year. See "General Information -- The Adviser" and "General Information
- -- The Administrator and Sub-Administrator."
6
<PAGE>
THE COMPANY AND THE FUNDS
The Company is an open-end management investment company that offers by
means of this Prospectus Class A and Class B shares in 9 separate series:
<TABLE>
<S> <C>
PBHG ADVISOR VALUE FUNDS
o PBHG Advisor Core Value Fund
o PBHG Advisor Defensive Equity Fund
o PBHG Advisor Enhanced Equity Fund
PBHG ADVISOR GROWTH FUNDS
o PBHG Advisor Blue Chip Growth Fund
o PBHG Advisor Large Cap Concentrated Fund
o PBHG Advisor New Opportunities Fund
PBHG ADVISOR FIXED INCOME FUNDS
o PBHG Advisor Master Fixed Income Fund
o PBHG Advisor Short-Term Government Fund
PBHG ADVISOR MONEY MARKET FUNDS
o PBHG Advisor Cash Reserves Fund
</TABLE>
Each share of each PBHG Advisor Fund represents an undivided interest in
that Fund. Each Fund's shares are currently divided into three classes of shares
(Class A, Class B and Class I) having different sales related and shareholder
servicing expenses and such other preferences and special or relative rights and
privileges as the Board of Directors determines. This Prospectus offers Class A
and Class B shares of each Fund. Additional information pertaining to the
Company may be obtained in writing from the PBHG Advisor Funds, P.O. Box 419229,
Kansas City, Missouri 64141-6229, or by calling 1-888-800-2685.
INVESTMENT OBJECTIVE AND POLICIES
The following sections describe the investment objective and primary
investment policies of each of the nine series of PBHG Advisor Funds offered by
this Prospectus. For additional information see "Portfolio Turnover," "Temporary
Defensive Positions," and "Common Investment Policies" under the caption
"General Investment Policies and Strategies," "Risk Factors," and "Glossary of
Permitted Investments."
PBHG ADVISOR VALUE FUNDS
PBHG Advisor Core Value Fund
The PBHG Advisor Core Value Fund, a diversified portfolio, seeks to achieve
above-average total return over a market cycle of three to five years,
consistent with reasonable risk, by investing in common stocks and other Equity
Securities of large, medium, and small companies which are considered to be
relatively undervalued based on certain proprietary measures of value. "Equity
Securities" as used in this Prospectus include common stocks, preferred stocks,
warrants and securities convertible into or exchangeable for common or preferred
stocks.
In selecting investments for the PBHG Advisor Core Value Fund, the Adviser
and Value Investors emphasize fundamental investment value and consider the
following factors, among others, in identifying and analyzing a security's
fundamental value and capital appreciation potential: the relationship of a
company's potential earnings power to its current stock price; current dividend
income and the potential for dividend growth; low price/earnings ratio relative
to other similar companies; strong competitive advantages, including a
recognized brand or trade name or niche market position; sufficient resources
for expansion; capability of management; and favorable overall business
prospects. The Fund may invest in securities of companies that are considered to
be financially sound and attractive investments based on their operating
history, but which may be experiencing temporary
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earnings declines due to adverse economic conditions that may be company or
industry specific or due to unfavorable publicity. The Fund may invest in such
companies when the Adviser and Value Investors believe that those companies will
react positively to changing economic conditions or that such companies have
taken or are expected to take actions designed to improve their financial
fundamentals or to otherwise increase the market price of their securities. The
use of a valuation approach may result in investment selections that may be
out-of-favor or counter to those of other investors. However, such an approach
may also produce significant capital appreciation.
Under normal market conditions, the PBHG Advisor Core Value Fund will
invest at least 65% of its total assets in Equity Securities of undervalued
issuers, which are traded in the United States or Canada on a registered
securities exchange or established over-the-counter market.
PBHG Advisor Defensive Equity Fund
The PBHG Advisor Defensive Equity Fund, a diversified portfolio, seeks to
obtain a greater long-term total return and smaller fluctuations in quarterly
total return from a diversified, hedged common stock portfolio than would be
realized from the same portfolio unhedged.
The Fund seeks to achieve its investment objective by investing primarily
in dividend paying common stocks on which options are traded on national
securities exchanges and in securities convertible into common stocks, by
selling covered call options and secured put options and by entering into
closing purchase transactions with respect to certain of such options. The Fund
may also hedge its portfolio securities by purchasing put and call options on
its portfolio securities, purchasing put and selling call options on the same
securities, and engaging in transactions in stock index and interest rate
futures, stock index options, and options on stock index and interest rate
futures. The Fund's strategy is to create a well diversified and significantly
hedged portfolio using combined stock and option and fixed income and option
positions. Typically, the Fund remains diversified across all industries
represented in the Standard & Poor's 500 Index with similar industry weightings.
Total return will be obtained from the following sources:
o premiums from expired options.
o net profits, if any, from closing purchase or closing sale
transactions.
o dividends received on the securities in the Fund's portfolio.
o net realized capital gains, if any.
o net changes in unrealized capital appreciation, if any.
o interest income from money market instruments, U.S. Government
securities, convertible securities, and short sales.
In seeking a greater long-term total return, the PBHG Advisor Defensive
Equity Fund will equally emphasize current return and long-term capital gains.
Since opportunities to realize net gains from covered option writing programs
and yields on stocks, money market instruments, U.S. Government securities
convertible debt securities, and short sales vary from time to time because of
general economic and market conditions and many other factors, it is anticipated
that the Fund's total return will fluctuate and therefore there can be no
assurance that the Fund will be able to achieve its investment objective.
Except as described below, at least 65% of the PBHG Advisor Defensive
Equity Fund's total assets, and at least 80% of the Fund's total assets (taken
at current value) excluding cash, cash equivalents and U.S. Government
securities, will be invested in dividend paying common stocks which have been
approved by one or more exchanges as underlying securities for listed call or
put options, or securities which are convertible into such common stocks without
the payment of further consideration. The Fund may invest its cash reserves in
securities of the U.S. Government and its agencies or the following cash
equivalents: deposits in domestic banks, bankers' acceptances, certificates or
deposit, commercial paper, or securities of registered investment companies.
Commercial paper investments will be limited to investment grade issues, rated
A-1 or A-2 by Standard & Poor's Corporation, or Prime 1 or Prime 2 by Moody's
Investors Service, Inc. The Fund
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may also enter into short-term repurchase agreements with respect to the
foregoing securities, the sellers of which, usually banks, agree to repurchase
the securities subject to the agreement at the Fund's cost plus interest within
a specified time, usually one day.
The Fund may invest in the securities of other investment companies.
Investments in the securities of other investment companies are intended to (i)
provide an investment vehicle for the Fund's cash reserves that the Fund does
not want to commit to riskier investments, (ii) facilitate investment strategies
in which highgrade collateral is required, or (iii) facilitate investment
strategies by acquiring investments in portfolios of securities more diversified
or with specialized characteristics that could not be efficiently acquired
directly.
The PBHG Advisor Defensive Equity Fund will not engage in transactions in
futures contracts or related options for speculation but only as a hedge against
changes resulting from market conditions in the values of its securities or
securities which it intends to purchase. The Fund will not enter into any stock
index or financial futures contract or related option if, immediately
thereafter, more than one-third of the Fund's net assets would be represented by
futures contracts or related options. In addition, the Fund may not purchase or
sell futures contracts or purchase or sell related options if, immediately
thereafter, the sum of the amount of margin deposits on its existing futures and
related options positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. In instances involving the
purchase of futures contracts or related call options, money market instruments
equal to the market value of the futures contract or related option will be
deposited in a segregated account with the custodian or broker to collateralize
such long positions and thereby insure that the use of such futures contracts or
related options is unleveraged.
The Fund's sale of futures contracts and purchase of put options on futures
contracts will be solely to protect its investments against declines in value.
The Fund expects that in the normal course it will purchase securities upon
termination of long futures contracts and long call options on futures contracts
most of the time, but under unusual market conditions it may terminate any of
such positions without a corresponding purchase of securities.
PBHG Advisor Enhanced Equity Fund
The PBHG Advisor Enhanced Equity Fund, a diversified portfolio, seeks above
average total returns through investments in Equity Securities. For this
purpose, "above average total returns" means returns above the average long-term
total returns of other mutual funds with similar investment policies and risk
characteristics. The Fund seeks to achieve its objective by investing primarily
in a diversified equity portfolio consisting of publicly traded Equity
Securities of U.S. domiciled corporations and options and futures that relate to
such securities.
While the Fund may invest in stocks of any market capitalization, it is
anticipated that the average capitalization of the Fund's stocks will be typical
of medium to large companies (typically $15 billion or higher). Under normal
market conditions, the PBHG Advisor Enhanced Equity Fund will invest at least
65% of its total assets in Equity Securities of U.S. domiciled corporations.
PBHG ADVISOR GROWTH FUNDS
PBHG Advisor Blue Chip Growth Fund
The PBHG Advisor Blue Chip Growth Fund, a diversified portfolio, seeks
long-term growth of capital by investing primarily in Equity Securities of
well-known and established companies, both domestic and foreign. The Adviser
normally will invest at least 65% of the Fund's net assets in Equity Securities
of "blue chip" companies, i.e., companies which have leading market positions in
their respective industries and strong financial characteristics, as determined
by the Adviser. The Adviser defines blue chip companies to include those in the
Standard & Poor's 500 Composite Stock Price Index ("S&P 500") or the Dow Jones
Industrial Average, or which have a market capitalization of at least $4 billion
if not included in either index. Within this 65% policy, the Adviser may also
include Equity Securities of companies that demonstrate the potential to become
blue chip companies in the future.
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Blue chip companies typically have a large number of publicly held shares
and a high trading volume, resulting in a high degree of liquidity. These tend
to be quality companies with strong management organizations.
When choosing the PBHG Advisor Blue Chip Growth Fund's domestic or foreign
investments, the Adviser will seek companies that it expects will demonstrate
greater long-term earnings growth than the average company included in the S&P
500. This method of selecting stocks is based on the belief that growth in a
company's earnings will eventually translate into growth in the price of its
stock. The Adviser looks at strong market sectors and then identifies those
companies that offer the most attractive values based upon earnings prospects.
The Fund's sector emphasis may shift based on changes in the sector's earnings
outlook.
Portfolio candidates for the PBHG Advisor Blue Chip Growth Fund can be
identified as companies that typically possess any of the following
characteristics and which, in the Adviser's opinion, exhibit high earnings
growth relative to their current valuation measures:
Market Leadership
o Superior potential for growth relative to other companies in the same
industry
o Proprietary technology with the potential to bring about major changes
within an industry
o Leading sales or market share within an industry
Financial Leadership
o Superior earnings growth rates or earnings growth prospects relative to
industry peers
o Higher profitability characteristics (e.g., higher profit margins and
returns on equity) than comparable industry competitors
o Stronger balance sheet characteristics (e.g., low debt levels) relative
to industry competitors
PBHG Advisor Large Cap Concentrated Fund
The PBHG Advisor Large Cap Concentrated Fund, a non-diversified portfolio,
seeks long-term growth of capital. The Fund will normally invest at least 65% of
its total assets in securities of large capitalization companies. The Fund will
normally be substantially invested in Equity Securities (including ADRs and
foreign equity securities). The Fund may invest in convertible debt securities
but only if such securities are rated investment grade by an NRSRO (i.e., within
one of the four highest rating categories). The Adviser will consider a broad
range of industries in choosing investments for the Fund.
Under normal market conditions, the PBHG Advisor Large Cap Concentrated
Fund will invest substantially all of its assets in Equity Securities of a
limited number (i.e., no more than 20 issuers) of large capitalization companies
that, in the Adviser's opinion, have a strong earnings growth outlook and
potential for capital appreciation. Such large companies have market
capitalization in excess of $1 billion. Because the Fund focuses on Equity
Securities of a small number of companies, the impact of a change in value of a
single stock holding may be magnified.
The PBHG Advisor Large Cap Concentrated Fund may invest up to 10% of its
net assets in restricted securities and securities of foreign issuers traded
outside the United States and Canada. The Fund may also invest up to 15% of its
net assets in illiquid securities, but will not invest more than 5% of its net
assets in restricted securities that the Adviser determines are illiquid based
on guidelines approved by the Board of Directors of the Company.
Although the Fund is classified as a non-diversified investment company
under the 1940 Act, the Fund intends to conduct its operations so as to qualify
as a "regulated investment company" for purposes of the Code which requires
that, at the end of each quarter of the taxable year, (i) at least 50% of the
market value of the Fund's total assets be invested in cash, U.S. Government
securities, the securities of other regulated investment companies, and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the
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value of the Fund's total assets, and (ii) not more than 25% of the value
of its total assets be invested in the securities of any one issuer (other than
U.S. Government securities or the securities of other regulated investment
companies).
PBHG Advisor New Opportunities Fund
The PBHG Advisor New Opportunities Fund, a diversified portfolio, seeks
long-term capital appreciation. The Fund seeks to achieve its objective by
investing principally in Equity Securities of companies in sectors of the
economy which the Adviser believes possess above average long-term growth
potential. As a result of the Fund's long-term investment strategy, it is
possible that the Fund's total return over certain periods may be less than that
of other equity investment vehicles.
The PBHG Advisor New Opportunities Fund will generally invest in companies
which the Adviser identifies as offering the best prospects for long-term growth
within a particular sector. The Fund invests primarily in common stocks, but may
also purchase other Equity Securities and debt securities if the Adviser
believes they would help achieve the Fund's objective of capital appreciation.
The Fund may also hold a portion of its assets in cash or money market
instruments.
The sectors of the economy which offer above average growth potential will
change over time. At present, the Adviser has identified the following sectors
of the economy, and examples of industries within these sectors, as having an
above average growth potential over the next three to five years:
Personal Communications -- long distance telephone, competitive local
exchange carriers, cellular telephone, paging, personal communication
networks;
Media/Entertainment -- cable television system operators, cable
television network programmers, film entertainment providers, theme park
operators, radio and television stations, billboard advertisers;
Medical Technology/Cost-Containment -- home and outpatient care,
medical device companies, biotechnology, health care information services,
physician practice management, managed care providers;
Environmental Services -- solid waste disposal, hazardous waste
disposal, remediation services, environmental testing;
Energy Related Services -- contract drilling services;
Applied/Advanced Technology -- database software, application
software, entertainment software, networking software, computer system
integrators, information services, semiconductors, manufacturing
technology;
Personal Financial Services -- specialty insurance companies, credit
card issuers, and other consumer-oriented financial services companies; and
Value-oriented Consuming -- retailers, restaurants, hotel chains,
casino operators, travel companies, consumer franchise companies and other
consumer product or service companies able to provide quality products or
service at lower prices or offering greater perceived value than
competitors.
In addition, the PBHG Advisor New Opportunities Fund may also invest a
portion of its assets in securities of companies that, although not in any of
the sectors described above, are expected to experience above average growth.
The sectors described above represent the Adviser's current judgment of the
sectors of the economy which offer the most attractive growth opportunities. The
PBHG Advisor New Opportunities Fund will not necessarily be invested in each of
these market sectors at all times. Such sectors are likely to change over time
and may include a variety of industries. Subject to the Fund's restrictions, the
Fund may invest up to one-half of its assets in any one particular sector.
The PBHG Advisor New Opportunities Fund seeks to invest in companies that
offer above average growth prospects in their particular sector of the economy,
without regard to the company's
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size. Companies in the Fund's portfolio will range from small, rapidly
growing companies to larger, well-established firms.
The PBHG Advisor New Opportunities Fund will normally emphasize investments
in particular economic sectors. Although the Fund will not invest 25% or more of
its total assets in any one industry, the Fund's emphasis on particular sectors
of the economy may make the value of the Fund's shares more susceptible to any
single economic, political or regulatory development than the shares of an
investment company which is more widely diversified. As a result, the value of
the Fund's shares may fluctuate more than the shares of a more diversified
investment company.
PBHG ADVISOR FIXED INCOME FUNDS
PBHG Advisor Master Fixed Income Fund
The PBHG Advisor Master Fixed Income Fund, a diversified portfolio, seeks
above average total returns. The Fund will invest in a diversified bond
portfolio consisting primarily of U.S. Government, corporate, and
mortgage-related fixed income securities. For this purpose, "above average total
returns" means returns above the average long-term total returns of other mutual
funds with similar investment policies and risk characteristics.
The PBHG Advisor Master Fixed Income Fund seeks to achieve its objective by
investing primarily in U.S. Treasury, U.S. Government, and U.S. dollar
denominated high grade securities, including mortgage-related securities. The
weighted average duration of the Fund's fixed income investments is generally
expected, under normal market conditions, to range between three and ten years.
Under normal market conditions, the PBHG Advisor Master Fixed Income Fund
will invest at least 65% of its total assets in U.S. dollar denominated, high
grade, fixed income debt securities. The high grade investment standard for the
Fund includes only those securities with (i) over one year original maturity and
rated at the time of purchase a minimum of A by Moody's or Standard & Poor's,
(ii) under one year original maturity and rated at the time of purchase a
minimum of Prime 1 by Moody's or A-1 by Standard & Poor's, or (iii) unrated
securities determined by the Adviser or Analytic Investors at the time of
purchase to be equivalent to these ratings.
Subject to certain additional limitations, under normal market conditions,
the remainder of the PBHG Advisor Master Fixed Income Fund's assets may be
invested in floating rate and other types of debt securities, high grade
non-U.S. dollar denominated debt securities, below high grade fixed income
securities, convertible securities, "synthetic convertible" positions, covered
call and cash secured put investments, preferred stock, and the shares of other
investment companies which invest primarily in high grade debt securities. The
Fund may also invest in interest and currency rate-related derivative
securities.
PBHG Advisor Short-Term Government Fund
The investment objective of the PBHG Advisor Short-Term Government Fund is
to provide a high level of income consistent with both low fluctuations in
market value and low credit risk. The Fund seeks to achieve its investment
objective by investing primarily in U.S. Treasury or U.S. Government agency
securities to minimize credit risk. To minimize fluctuations in market value,
the Fund is expected, under normal market conditions, to maintain a dollar
weighted average maturity and weighted average duration between one and three
years. Duration is the weighted average time to receipt of both principal and
interest payments of a debt security and also a measure of the sensitivity of
fixed income related investments to interest rate changes.
Under normal market conditions, the PBHG Advisor Short-Term Government Fund
will invest at least 80% of its total assets in U.S. Government securities.
Subject to certain additional limitations, the remainder of the Fund's assets
may be invested in other high grade debt securities, debt securities of foreign
governments and supranational organizations considered to be of high grade
investment quality, currency-rate and interest rate-related options and futures,
and cash and cash equivalents. The high grade investment standard for the Fund
includes only those securities with (i) over one year
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original maturity and rated at the time of purchase a minimum of A by
Moody's or Standard & Poor's, (ii) under one year original maturity and rated at
the time of purchase a minimum of Prime 1 by Moody's or A-1 by Standard &
Poor's, or (iii) unrated securities determined by the Adviser or Analytic
Investors at the time of purchase to be equivalent to these ratings. The PBHG
Advisor Short-Term Government Fund may also invest in repurchase agreements
collateralized by U.S. Government securities. For temporary defensive purposes,
the Fund may reduce the average duration to less than one year.
PBHG ADVISOR MONEY MARKET FUNDS
PBHG Advisor Cash Reserves Fund
The PBHG Advisor Cash Reserves Fund, a diversified portfolio, seeks to
preserve principal value and maintain a high degree of liquidity while providing
current income. Under normal market conditions, the Fund will invest in
obligations denominated in U.S. dollars consisting of: (i) commercial paper
issued by U.S. and foreign issuers rated in one of the two highest rating
categories by any two NRSROs at the time of investment, or, if not rated,
determined by the Adviser or Wellington Management to be of comparable quality;
(ii) obligations (including certificates of deposit, time deposits, bank notes
and bankers' acceptances) of U.S. savings and loan and thrift institutions, U.S.
commercial banks (including foreign branches of such banks), and U.S. and
foreign branches of foreign banks, provided that such institutions (or, in the
case of a branch, the parent institution) have total assets of $500 million or
more as shown on their last published financial statements at the time of
investment; (iii) short-term corporate obligations of U.S. and foreign issuers
with a remaining term of not more than one year of issuers with commercial paper
of comparable priority and security meeting the above ratings; (iv) U.S.
Treasury obligations and obligations issued or guaranteed as to principal and
interest by the agencies or instrumentalities of the U.S. government; (v)
securities issued by foreign governments, including Canadian and Provincial
Government and Crown Agency Obligations; (vi) short-term obligations issued by
state and local governmental issuers which are rated at the time of investment
by at least two NRSROs in one of the two highest municipal bond rating
categories and that carry yields that are competitive with those of other types
of money market instruments of comparable quality; and (vii) repurchase
agreements involving any of the foregoing obligations. The Fund will comply with
regulations of the Securities and Exchange Commission (the "SEC") applicable to
money market funds. These regulations impose certain quality, maturity and
diversification restraints on investments. Under these regulations, the Fund
must maintain a dollar-weighted average portfolio maturity of 90 days or less
and, generally, may invest only in securities with maturities of 397 days or
less. The purchase of single rated or unrated securities by the Adviser or
Wellington Management is subject to approval or ratification by the Board of
Directors.
The PBHG Advisor Cash Reserves Fund intends to maintain a constant net
asset value of $1.00 per share. There can be no assurance that the Fund will be
able to maintain a net asset value of $1.00 per share on a continuing basis. The
Fund may invest in U.S. Treasury STRIPS. The Fund may also invest up to 10% of
its net assets in illiquid securities. Certain restricted securities, including
Rule 144A securities and Section 4(2) commercial paper, which might otherwise be
presumed to be illiquid, may be considered liquid pursuant to guidelines
established by the Board of Directors. Rule 144A securities are unregistered
securities that may be resold only to "qualified institutional buyers."
Investments in Rule 144A securities could have the effect of increasing the
level of the Fund's illiquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities.
THERE CAN BE NO ASSURANCE THAT ANY PBHG ADVISOR FUND WILL BE ABLE TO
ACHIEVE ITS INVESTMENT OBJECTIVE.
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GENERAL INVESTMENT POLICIES AND STRATEGIES
Investment Process of The Adviser
The Adviser's investment process is both quantitative and fundamental. With
respect to the PBHG Advisor Large Cap Concentrated Fund and the PBHG Advisor New
Opportunities Fund, the Adviser's investment process is extremely focused on
quality earnings growth. In seeking to identify investment opportunities, the
Adviser begins by creating a universe of rapidly growing companies with market
capitalizations within the parameters described for each of these respective
Funds and that possess certain quality characteristics. Using proprietary
software and research models that incorporate important attributes of successful
growth, such as positive earnings surprises, upward earnings estimate revisions,
and accelerating sales and earnings growth, the Adviser creates a universe of
growing companies. Then, using fundamental research, the Adviser evaluates each
company's earnings quality and assesses the sustainability of the company's
current growth trends. Through this highly disciplined process, the Adviser
seeks to construct investment portfolios that possess strong growth
characteristics. The Adviser tries to keep each Fund fully invested at all
times. Because the universe of companies will undoubtedly experience volatility
in stock price, it is important that shareholders in these Funds maintain a
long-term investment perspective. Of course, there can be no assurance that use
of these techniques will be successful, even over the long term.
With respect to the PBHG Advisor Blue Chip Growth Fund, the Adviser employs
an investment process which is both quantitative and fundamental but which
differs from that employed for the PBHG Advisor Large Cap Concentrated Fund and
the PBHG Advisor New Opportunities Fund. The Adviser screens more than 9,000
companies and ranks them based upon their future earnings growth prospects
relative to their valuation, as calculated by multiple proprietary measures, as
well as measures such as earnings surprises, the ratio of relative price to
sales and the stability of their past sales growth. The Adviser focuses on those
companies which it has identified as having a low valuation relative to
potential earnings growth and then applies intensive fundamental research to
select the securities of only those companies which the Adviser believes are
undervalued relative to their earnings power or cash flow generation
capabilities. The Adviser will consider selling securities of companies that, in
the Adviser's opinion, have reached their full or fair value relative to their
growth prospects or that of their relevant peers. In constructing its investment
portfolios, the Adviser strives to reduce the risk of excessive volatility in
the net asset value of the PBHG Advisor Blue Chip Growth Fund by diversifying
investments for those funds across economic sectors. Of course, there can be no
assurance that the use of these techniques will be successful, even over the
long term.
Investment Process of Value Investors
Value Investors' investment process, like that of the Adviser, is both
quantitative and fundamental. Using custom designed research models and
proprietary software, which incorporate certain key elements of value investing
(such as consistency of dividend payment, balance sheet strength, and low stock
price relative to book, earnings, cash flow, sales and business franchise),
Value Investors screens more than 9,000 possible companies and creates an
initial universe of statistically attractive value companies. Following the
creation of this universe of possible investments, Value Investors uses its
strong fundamental research capabilities to carefully identify securities that
are currently out of favor but which have the potential to achieve significant
appreciation as the marketplace recognizes their fundamental value. Once
constructed, portfolios are continually monitored for change. Value Investors
follows a disciplined valuation approach that generally requires it to sell any
portfolio security that it believes has become overvalued relative to the
market. Sales of portfolio securities are primarily triggered by the relative
change in price/earnings ratio. Adverse changes in other key value elements are,
of course, factors that would also trigger a sale. Of course, there can be no
assurance that use of these techniques will be successful, even over the long
term.
Investment Process of Analytic Investors
Since 1996, Analytic Investors has been using a proprietary model with more
than 50 factors based on work pioneered by Professor Robert A. Haugen to manage
an equity portfolio with similar investment objectives and policies to those of
the PBHG Advisor Enhanced Equity Fund. Using this
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model, Analytic Investors constructs a portfolio of stocks that it believes has
the following attractive characteristics: high return on equity and earnings
growth; high cash flow to price ratio and earnings to price ratio; positive
price momentum over the last six to twelve months; low "beta" and return
volatility; and high trading volume and low bid/ask price spreads.
Such a portfolio of stocks cannot be construed by simply "screening" an
equity data base for individual issues each of which meets all of the desired
characteristics. For example, companies with high profitability generally do not
have low valuations. Analytic Investors believes that the statistical modeling
process developed by Professor Haugen enables it to assemble a portfolio of
securities that in the aggregate has the desired characteristics (a portfolio
with an overall profile that Professor Haugen has called the profile of a "super
stock").
Analytic Investors believes that this approach, which has been discussed in
leading academic journals, has significant ability to identify portfolios of
attractive stocks. Analytic Investors believes that its disciplined multi-factor
approach will result in more consistent value added over a market cycle than
traditional strategies which focus on a single style or factor (e.g., value,
growth, small cap, or earnings momentum). However, because there are risks
inherent in all securities investments, there is no assurance that the PBHG
Advisor Enhanced Equity Funds's investment objective will be achieved.
Using factors from each of the five categories described above, Analytic
Investors determines the relative attractiveness (expected return) of each
security from a universe of approximately 1,100 of the largest publicly traded
domestic equity securities. Once these relative expected returns are calculated,
a portfolio is constructed from the entire universe with the following
constraints and objectives:
Targeted Return -- Expected portfolio return is typically targeted as
3% higher than the annual return on the stocks comprising the S&P 500.
Industry Weightings -- Typically, industry sector weightings are
constrained to closely match those of the S&P 500, deviating no more than
1% above or below the S&P 500 weightings.
Size -- Average market capitalization is typically targeted to be
greater than $15 billion.
Growth -- Using specific accounting-related variables, such as return
on equity, the portfolio is constrained to have higher earnings growth than
the average growth of securities in the universe.
Value -- Using specific accounting-related variables, such as the
ratio of cash flow to price, the portfolio is constrained to be of higher
value than securities in the universe (i.e., its cash flow and earnings are
priced relatively cheaply by the market).
Maximum Issuer Weighting -- The market value of the stock of any
issuer, when added to the portfolio, is constrained to be no greater than
3% of the aggregate market value of the portfolio. The weighting of the
stock of an issuer may increase due to the relative performance of the
stock during the period in which it is held, but under no circumstances
will the weighting of any stock exceed 5% of the aggregate market value of
the portfolio.
Liquidity -- The size of the Fund's position in each security is
evaluated relative to the total outstanding shares of the issuer, the
market "float" and the trading volume to ensure that all positions remain
liquid and that Analytic Investor's periodic rebalancing of the portfolio
does not significantly impact the price of the security.
Analytic Investors seeks to control overall portfolio risk by using a
mathematical model designed to minimize portfolio risk relative to that of the
overall stock market. Analytic Investors uses an optimizer to ensure that it
accurately takes into account the relationship among industries, sectors, and
individual securities in order to capture maximum diversification benefits given
its expected return target.
Analytic Investors monitors the stocks held by a portfolio on a real-time
basis using its proprietary portfolio management system. All holdings are
monitored for new developments in terms of new events (such as lawsuits or
takeover bids) as well as significant changes in fundamental factors.
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Expected returns are updated monthly and are used to reoptimize the portfolio.
Analytic Investors enters into portfolio trades only when it believes the
incremental return more than exceeds the associated transaction costs.
Portfolio Turnover
Portfolio turnover will tend to rise during periods of economic turbulence
and decline during periods of stable growth. A higher turnover rate (100% or
more) increases transaction costs (e.g., brokerage commissions) and increases
realized gains and losses. It is expected that under normal market conditions,
the annual portfolio turnover rates for each of the PBHG Advisor Funds will not
exceed the following levels: the PBHG Advisor Core Value Fund, 200%; the PBHG
Advisor Defensive Equity Fund, 100%; the PBHG Advisor Enhanced Equity Fund,
150%; the PBHG Advisor Blue Chip Growth Fund, 50%; the PBHG Advisor Large Cap
Concentrated Fund, 300%; the PBHG Advisor New Opportunities Fund, 150%; the PBHG
Master Fixed Income Fund, 50%; and the PBHG Short-Term Government Fund, 50%.
High rates of portfolio turnover necessarily result in correspondingly greater
brokerage and portfolio trading costs, which are paid by a Fund. Trading in
over-the-counter and fixed-income securities does not generally involve the
payment of brokerage commissions, but does involve indirect transaction costs.
In addition to portfolio trading costs, higher rates of portfolio turnover may
result in the realization of capital gains. To the extent net short-term capital
gains are realized, any distributions resulting from such gains are considered
ordinary income for federal income tax purposes.
Temporary Defensive Positions
Under normal market conditions, each PBHG Advisor Fund expects to be fully
invested in its primary investments, as described above. However, for temporary
defensive purposes, when the Adviser or the applicable sub-adviser, as
appropriate, determines that market conditions warrant, each Fund may invest up
to 100% of its assets in investment grade debt securities, cash and money market
instruments (consisting of securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; certificates of deposit, time
deposits and bankers' acceptances issued by banks or savings and loan
associations having net assets of at least $500 million as stated on their most
recently published financial statements; commercial paper rated in one of the
two highest rating categories by at least one NRSRO; repurchase agreements
involving such securities; and, to the extent permitted by applicable law and
each Fund's investment restrictions, shares of other investment companies
investing solely in money market securities). To the extent a Fund is invested
in temporary defensive instruments, it will not be pursuing its investment
objective. See "Glossary of Permitted Investments" and the Statement of
Additional Information for additional information.
Common Investment Policies
Except as otherwise discussed in the investment description for each PBHG
Advisor Fund, the following investment policies apply to each Fund except the
PBHG Advisor Master Fixed Income Fund, the PBHG Advisor Short-Term Government
Fund, and the PBHG Advisor Cash Reserves Fund:
Each PBHG Advisor Fund may invest up to 20% of its total assets in foreign
securities (i.e., securities traded outside the United States and Canada). For
purposes of this limitation, "foreign securities" do not include ADRs. Each Fund
may also utilize futures contracts (i.e., purchase and sell futures contracts)
to the extent that (i) aggregate initial margin deposits to establish other than
"bona fide hedging" positions do not exceed 5% of the Fund's net assets, and
(ii) the total market value of securities underlying all futures contracts does
not exceed 50% of the value of the Fund's total assets. In addition, each Fund
may invest up to 15% of its net assets in illiquid securities. This limitation
does not include any Rule 144A or similar security that has been determined to
be liquid pursuant to procedures established by the Board of Directors of the
Company. Each Fund may also engage in securities lending. Each Fund may use
high-quality money market investments or short-term bonds to reduce downside
volatility during uncertain or declining market conditions and, for temporary
defensive purposes, may invest in money market securities or short-term bonds
without limitation. See "Temporary Defensive Positions" for a fuller
description. In addition, each Fund may purchase securities on a when-issued or
delayed delivery basis. See "Glossary of Permitted Investments."
16
<PAGE>
RISK FACTORS
Small and Medium Capitalization Stocks
Investments in Equity Securities in general are subject to market risks
that may cause their prices to fluctuate over time. In certain cases, the PBHG
Advisor Core Value Fund, the PBHG Advisor Defensive Equity Fund, the PBHG
Advisor Enhanced Equity Fund, and the PBHG Advisor New Opportunities Fund may
invest in securities of issuers with small or medium market capitalizations.
While the Adviser and Value Investors intend to invest in small and medium
capitalization companies that have strong balance sheets and favorable business
prospects, any investment in small and medium capitalization companies involves
greater risk and price volatility than that customarily associated with
investments in larger, more established companies. This increased risk may be
due to the greater business risks of their small or medium size, limited markets
and financial resources, narrow product lines and frequent lack of management
depth. The securities of small and medium capitalization companies are often
traded in the over-the-counter market and might not be traded in volumes typical
of securities traded on a national securities exchange. Thus, the securities of
small and medium capitalization companies are likely to be less liquid, and
subject to more abrupt or erratic market movements, than securities of larger,
more established companies.
Over-the-Counter Market
Each PBHG Advisor Fund (except the PBHG Advisor Master Fixed Income Fund,
the PBHG Advisor Short-Term Government Fund, and the PBHG Advisor Cash Reserves
Fund) may invest in over-the-counter stocks. In contrast to the securities
exchanges, the over-the-counter market is not a centralized facility which
limits trading activity to securities of companies which initially satisfy
certain defined standards. Generally, the volume of trading in an unlisted or
over-the-counter common stock is less than the volume of trading in a listed
stock. This means that the depth of market liquidity of some stocks in which
each Fund invests may not be as great as that of other securities and, if a Fund
were to dispose of such a stock, it might have to offer the shares at a discount
from recent prices, or sell the shares in small lots over an extended period of
time.
Foreign Securities and Emerging Markets
Each PBHG Advisor Fund (except the PBHG Advisor Cash Reserves Fund) may
invest in foreign securities. Investing in the securities of foreign issuers
involves special risks and considerations not typically associated with
investing in U.S. companies. These risks and considerations include differences
in accounting, auditing and financial reporting standards, generally higher
commission rates on foreign portfolio transactions, the possibility of
expropriation or of confiscatory taxation, adverse changes in investment or
exchange control regulations, political instability which could affect U.S.
investment in foreign countries and potential restrictions on the flow of
international capital and currencies. Foreign issuers may also be subject to
less government regulation than U.S. companies. Moreover, the dividends and
interest payable on foreign securities may be subject to foreign withholding
taxes, thus reducing the net amount of income available for distribution to a
Fund's shareholders. Further, foreign securities often trade with less frequency
and volume than domestic securities and, therefore, may exhibit greater price
volatility. Changes in foreign exchange rates will affect, favorably or
unfavorably, the value of those securities which are denominated or quoted in
currencies other than the U.S. dollar.
Investments in Technology Companies
Each PBHG Advisor Fund may invest in securities of technology companies.
Such securities have tended to be subject to greater volatility than securities
of companies that are not dependent upon or associated with technological
issues. A Fund may invest in the securities of technology companies operating in
various industries. Many of these industries share common characteristics.
Therefore, an event or issue affecting one such industry may have a significant
impact on these other, related
17
<PAGE>
industries and, thus, may affect the value of a Fund's investments in technology
companies. For example, technology companies may be strongly affected by
worldwide scientific or technological developments and their products and
services may be subject to governmental regulation or adversely affected by
governmental policies. The more extensively that a Fund invests in securities of
technology companies, the greater will be its exposure to these risks.
Options and Futures Contracts
Each PBHG Advisor Fund (except the PBHG Advisor Cash Reserves Fund) may
utilize various call option, put option, and financial futures strategies in
pursuit of its objective. Option contracts, futures contracts, and various other
financial contracts are also known as derivative securities because their values
depend on the values of a more basic underlying security (or perhaps multiple
underlying securities), which may be a common stock, a fixed income or other
debt security, a foreign currency exchange rate, a stock index, or some other
financial instrument or index.
These techniques will be used to hedge against changes in securities
prices, interest rates, or foreign currency exchange rates on securities held or
intended to be acquired by a PBHG Advisor Fund, to reduce the volatility of the
currency exposure associated with foreign securities, or as an efficient means
of adjusting exposure to stock or bond markets, and not for speculation.
A call option on securities gives the purchaser of the option the right
(but not the obligation) to buy from the writer of the option the underlying
securities at the exercise price during the option period. Similarly, a put
option on securities gives the purchaser of the option the right (but not the
obligation) to sell to the writer of the option the underlying securities at the
exercise price during the option period.
A financial futures contract is a commitment by both the buyer and the
seller of the contract to trade the underlying financial instrument at a price
and time agreed upon when the contract is executed. The financial instrument may
be a stock index, bond index, interest rate, foreign currency exchange rate, or
other similar instrument. The contract may include an option held by the seller
with regard to the specific underlying instrument to be delivered from a class
of instruments and the specific day of delivery within a delivery month. Options
on futures contracts are similar to options on securities, with the futures
contract playing the role of the underlying security.
Options on indexes and currencies, and futures on indexes, are similar to
options and futures on securities, with the underlying index or currency playing
the role of the underlying security, and with the difference that at the end of
the option or future period there is generally a cash settlement between buyers
and sellers instead of delivery of the underlying security.
Options may be traded on an exchange ("exchange traded options") or may be
customized agreements between a PBHG Advisor Fund and a counter-party, often a
brokerage firm, bank, or other financial institution. These customized
agreements are also known as "over-the-counter" or OTC options. Futures
contracts are normally traded as standardized contracts on exchanges. When firm
commitment type agreements similar to futures are traded over-the-counter they
are usually known as forward contracts. Exchange-traded options and futures have
the additional financial backing of an intermediary known as a clearing
corporation, whereas OTC options and forwards have no such intermediary and are
subject to the credit risk that the counter-party will not fulfill its
obligations under the contract. While each Fund, to the extent that it utilizes
derivative securities, intends to primarily utilize exchange-traded options and
futures, it may also utilize OTC options, currency forward contracts, and other
OTC derivative securities. No Fund will invest, at the time of purchase, more
than 5% of its net assets in the purchase of OTC options or invest more than 5%
of its net assets in the purchase of forward contracts.
Although options on securities and financial futures by their terms call
for actual delivery and acceptance of securities, in many cases the contracts
are closed out before the expiration date by selling contracts that are owned or
by buying contracts that have been sold or written. Like any security
18
<PAGE>
transaction, this may produce a realized gain or loss to the Fund. Open
positions are valued whenever a Fund's assets are valued and the Fund will have
an unrealized gain or loss depending on the difference between the current value
of the position and the opening value when the position was entered.
Writing Covered Put and Call Options on Securities or Indexes. The PBHG
Advisor Funds will not write uncovered options or utilize written options to
create leverage, but instead will write only covered calls and covered puts.
Writing a covered call option on securities or indexes means that a Fund
will own at the time of selling the option (1) the underlying security (or
securities convertible into the underlying security without additional
consideration), or (2) in the case of an index, a portfolio of securities which
correlates with the index, or (3) a call option on the same security or index
with the same or lesser exercise price, or (4) a call option on the same
security or index with a greater exercise price, with the difference between the
exercise prices maintained as a segregated account containing cash, U.S.
Government securities or other liquid high-grade debt securities, or (5) liquid
high-grade segregated debt securities equal to the fluctuating market value of
the optioned securities which is marked-to-the-market daily.
Writing a covered put option on securities or indexes means that a PBHG
Advisor Fund will, at the time of selling the option (1) enter a short position
in the underlying security or index portfolio, or (2) purchase a put option on
the same security or index with the same or greater exercise price, or (3)
purchase a put option on the same security or index with a lesser exercise
price, with the difference between the exercise prices maintained as liquid
high-grade segregated debt securities, or (4) maintain the entire exercise price
as liquid high-grade segregated debt securities. No Fund will write put options
if as a result more than 25% of the Fund's assets would be represented by debt
securities segregated for such put options.
The PBHG Advisor Master Fixed Income Fund will only write an "in-the-money"
covered call option on common stock or an "out-of-the-money" covered put option
on common stock or stock indexes. An in-the-money covered call option is an
investment in which the Fund purchases common stock and sells a call option with
an exercise price that is below the market price of the stock at the time of the
option sale. An out-of-the-money covered put option is an investment in which
the Fund sells a put option on a common stock or stock index with an exercise
price that is below the market price of the stock or index at the time of the
option sale and maintains the exercise price as high-grade segregated debt
securities.
Purchasing Put and Call Options on Securities or Indexes. Each PBHG
Advisor Fund may purchase put and call options on securities or indexes in
pursuit of its objective. A Fund may, at the same time, have a long or covered
short position in the underlying security or index, and may have written covered
options on the same security or index. Hence the Fund's entire position in a
particular security may be complex, consisting of a number of different option
positions, a possible position in the underlying security, and a possible
segregated debt securities holding.
Convertible Securities, Synthetic Convertible Investments, Certain Covered Call
and Cash Secured Put Investments, and Warrants
The PBHG Advisor Defensive Equity Fund, the PBHG Advisor Enhanced Equity
Fund and the PBHG Advisor Master Fixed Income Fund may invest in securities
which may be exchanged for, converted into, or exercised to acquire a
predetermined number of shares of the issuer's common stock at the option of
each such Fund during a specified time period (such as convertible preferred
stocks, convertible debentures and warrants). A convertible security is
generally a fixed income security which is senior to common stock in an issuer's
capital structure, but is usually subordinated to similar non-convertible
securities. No more than 5% of such Funds' total assets will be invested in
convertible securities rated at the time of purchase lower than A or equivalent.
19
<PAGE>
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed income security) or
its "conversion value" (i.e., its value upon conversion into its underlying
common stock). As a fixed income security, a convertible security tends to
decrease in value when interest rates rise. However, the price of a convertible
security is also influenced by the market value of the security's underlying
common stock. The price of a convertible security tends to increase as the
market value of the underlying stock rises, whereas it tends to decrease as the
market value of the underlying common stock declines. While no securities
investment is without some risk, investments in convertible securities and
synthetic convertible positions generally entail less risk than investments in
the common stock of the same issuer.
Investments in warrants involve certain risks, including the possible lack
of a liquid market for resale of the warrants, potential price fluctuations as a
result of speculation or other factors, and failure of the price of the
underlying security to reach or have reasonable prospects of reaching a level at
which the warrant can be prudently exercised (in which event the warrant may
expire without being exercised, resulting in a loss of a Fund's entire
investment therein).
The PBHG Advisor Defensive Equity Fund, the PBHG Advisor Enhanced Equity
Fund and the PBHG Advisor Master Fixed Income Fund may each invest up to 35% of
their total assets in convertible securities, synthetic convertible and certain
combinations of covered call and cash secured put investments. A synthetic
convertible investment is a combination investment in which the Fund purchases
both (i) high-grade cash equivalents or a high grade debt obligation of an
issuer or U.S. Government securities and (ii) call options or warrants on the
common stock of the same or different issuer with some or all of the anticipated
interest income from the associated debt obligation that is earned over the
holding period of the option or warrant. The Funds may also write an
"in-the-money" covered call option on common stock or an "out-of-the-money"
covered put option on common stock or stock indexes. Convertible securities,
synthetic convertible and in-the-money covered calls and out-of-the-money cash
secured puts are not taken into account when determining whether the Funds have
met the requirements that 65% of their total assets be invested in fixed income
and equity securities.
While providing a fixed income stream (generally higher in yield than the
income derivable from common stock but lower than that afforded by a similar
non-convertible security), a convertible security also affords an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation attendant upon a market price advance in the convertible security's
underlying common stock. A synthetic convertible position has similar investment
characteristics, but may differ with respect to credit quality, time to
maturity, trading characteristics, and other factors. Because the Fund will
create synthetic convertible positions only out of high grade fixed income
securities, the credit rating associated with a Fund's synthetic convertible
investments is generally expected to be higher than that of the average
convertible security, many of which are rated below high grade. However, because
the options used to create synthetic convertible positions will generally have
expirations between one month and three years of the time of purchase, the
maturity of these positions will generally be shorter than average for
convertible securities. Since the option component of a convertible security or
synthetic convertible position is a wasting asset (in the sense of losing "time
value" as maturity approaches), a synthetic convertible position may lose such
value more rapidly than a convertible security of longer maturity; however, the
gain in option value due to appreciation of the underlying stock may exceed such
time value loss, the market price of the option component generally reflects
these differences in maturities, and the Adviser and applicable sub-adviser take
such differences into account when evaluating such positions. When a synthetic
convertible position "matures" because of the expiration of the associated
option, the Fund may extend the maturity by investing in a new option with
longer maturity on the common stock of the same or different issuer. If the Fund
does not so extend the maturity of a position, it may continue to hold the
associated fixed income security.
20
<PAGE>
Covered call and cash secured put investments are subject to the risks
associated with common stocks and options described above. While such
investments have a combined volatility similar to that of long-term corporate
bonds, the Adviser and applicable sub-adviser believe they provide greater
returns than investment in such bonds.
Purchase and Sale of Financial Futures and Options on Financial Futures
Each PBHG Advisor Fund may purchase or sell financial and other futures
contracts and options on financial and other futures contracts in pursuit of its
objective.
Futures contracts and their related options may be purchased or sold for
various reasons: to hedge portfolio securities against adverse fluctuations, to
adjust the level of market exposure of a portfolio, to facilitate trading, to
reduce transaction costs, and/or to seek higher investment returns when a
futures or option contract is attractively priced relative to a typical Fund
investment in the underlying security or index or securities highly correlated
to the underlying index. As with all of the investment strategies that a Fund
may employ, there can be no assurance that any such strategy will achieve its
objective.
A Fund's futures and related options transactions will be conducted within
the following limitations:
(i) When a Fund sells a futures contract, the value of that contract
will not exceed the total market value of the portfolio securities being
hedged;
(ii) A Fund will write only covered call and put options on futures;
(iii) When a Fund purchases a futures contract it will maintain the
market value of the contract in liquid high-grade segregated debt
securities as described above;
(iv) A Fund will not enter into futures and options on futures
contracts which would cause the aggregate sum of the initial margins for
such contracts and related option premiums to exceed 5% of the Fund's net
assets; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be
excluded in computing such 5%.
Certain Risk Factors Associated with Hedging Strategies
When a PBHG Advisor Fund utilizes futures or options to hedge the price
fluctuations of securities it may own or want to purchase, the Fund is exposed
to the risk of imperfect correlation between the futures or options and the
securities being hedged. That is, the prices of the securities being hedged may
not move in the same amount, or even in the same direction, as the hedging
instrument. The Adviser or applicable sub-adviser will attempt to minimize this
risk by investing only in those contracts whose behavior is expected to resemble
the Fund securities being hedged. However, if the Adviser's or applicable
sub-adviser's judgment about the general direction of interest rates, market
value, volatility, and other economic factors is incorrect, the Fund would have
been better off without the use of such hedging techniques. In addition, there
is the risk of a possible lack of a liquid secondary market and the resultant
inability to close a futures or option position prior to its maturity or
expiration date. If the Adviser or applicable sub-adviser determines that the
ability to close such a position early is important to its investment strategy,
it will only enter such positions on an exchange with a secondary market that it
judges to be appropriately active.
For additional information regarding permitted investments for each PBHG
Advisor Fund and other risks, see "Glossary of Permitted Investments" and the
Statement of Additional Information.
21
<PAGE>
INVESTMENT LIMITATIONS
The investment objective of each PBHG Advisor Fund and certain investment
limitations are fundamental policies of each Fund. A Fund's fundamental policies
cannot be changed without the consent of the holders of a majority of such
Fund's outstanding shares. The following description summarizes several of the
PBHG Advisor Funds' fundamental investment limitations which are fully set forth
in the Statement of Additional Information.
No PBHG Advisor Fund mey:
1. Purchase more than 10% of the voting securities of any one issuer
or purchase securities of any one issuer if, at the time of purchase, more
than 5% of its total assets will be invested in that issuer except (a) with
respect to the PBHG Cash Reserves Fund, to the extent permitted by Rule
2a-7 under the 1940 Act and (b) with respect to each other PBHG Advisor
Fund, up to 25% of its assets may be invested without regard to these
limits.
Investment limitation 1 does not apply to the PBHG Large Cap
Concentrated Fund. In addition, for purposes of this investment limitation,
the term "issuer" does not include obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities and repurchase
agreements collateralized by such obligations.
2. Invest 25% or more of its total assets at the time of purchase in
securities of issuers (other than obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities and repurchase
agreements collateralized by such obligations) whose principal business
activities are in the same industry.
3. Borrow money except in the amounts up to (a) 10% of the total
assets of the PBHG Advisor Defensive Equity Fund and the PBHG Advisor Large
Cap Concentrated Fund; (b) 15% of the total assets of the PBHG Advisor
Enhanced Equity Fund, the PBHG Advisor Master Fixed Income Fund and the
PBHG Advisor Short-Term Government Fund; and (c) 33 1/3% of the total
assets of each other PBHG Advisor Fund.
HOW TO PURCHASE FUND SHARES
You may purchase shares of each PBHG Advisor Fund through select
broker-dealers or other financial institutions that are authorized to sell you
shares of the Funds. Such financial institutions may charge you a fee for this
service in addition to each Fund's public offering price. Purchases of shares of
each PBHG Advisor Fund may be made on any day on which the New York Stock
Exchange ("NYSE") is open for business ("Business Day"). Shares of each Fund are
offered only to residents of states in which such shares are eligible for
purchase.
Minimum Investment
The minimum initial investment in Class A and Class B shares of each PBHG
Advisor Fund is $2,500 for regular accounts and $2,000 for traditional or Roth
IRAs. However, investors who establish a Systematic Investment Plan, as
described below, with a minimum investment of $25 per month may at the same time
open a regular account or traditional or Roth IRA with any Fund with a minimum
initial investment of $500. There is no minimum for subsequent investments or
subsequent purchases effected by dividend reinvestment. As described below,
subsequent purchases through the Fund's Systematic Investment Plan must be at
least $25. The minimum initial investment for Education IRAs is $500.
22
<PAGE>
General Information Regarding Purchases
A purchase order will be effective as of the day received by the PBHG
Advisor Funds if the PBHG Advisor Funds receive sufficient information to
execute the order and receive payment before 2:00 p.m. Eastern time for the PBHG
Advisor Cash Reserves Fund and 4:00 p.m. Eastern time for all other PBHG Advisor
Funds. Payment may be made by check or readily available funds. The purchase
price of shares of a Fund is the public offering price per share next determined
after a purchase order is effective. The public offering price per share is, for
Class A shares, the net asset value plus any applicable sales load, and for
Class B shares, the net asset value. See "Determination of Net Asset Value"
below. Purchases will be made in full and fractional shares calculated to three
decimal places. A Fund will not issue certificates representing shares of the
Funds.
For your purchase order to be effective on the day you place your order
with your broker-dealer or other financial institution, such broker-dealer or
financial institution must (i) receive your order before 2:00 p.m. Eastern time
for the PBHG Advisor Cash Reserves Fund and 4:00 p.m. Eastern time for all other
PBHG Advisor Funds and (ii) promptly transmit the order to the PBHG Advisor
Funds. The broker-dealer or financial institution is responsible for promptly
transmitting purchase orders to the PBHG Advisor Funds so that you may receive
the same day's net asset value.
If a check received for the purchase of shares does not clear, the purchase
will be canceled and you could be liable for any losses or fees incurred by the
applicable PBHG Advisor Fund. Each Fund reserves the right to reject a purchase
order when such Fund determines that it is not in the best interests of the Fund
or its shareholders to accept such an order.
No PBHG Advisor Fund or any of its agents will be responsible for any loss,
liability, cost or expenses for acting upon wire instructions or telephone
instructions that it reasonably believes to be genuine. Each Fund and its agents
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine including requiring a form of personal identification
prior to acting upon instructions received by telephone and recording telephone
instructions.
Each PBHG Advisor Fund reserves the right to reject any purchase order or
to suspend or modify the continuous offering of its shares. For example, the
investment opportunities for small or medium capitalization companies may from
time to time be more limited than those in other sectors of the stock market.
Therefore, in order to retain adequate investment flexibility, the Adviser may
from time to time recommend to the Board of Directors of the Company that a Fund
which invests extensively in such companies indefinitely discontinue the sale of
its shares to new or existing investors. In such event, the Board of Directors
would determine whether such discontinuance is in the best interests of the
applicable Fund and its shareholders.
Classes of Shares
Each PBHG Advisor Fund offers three classes of shares -- Classes A, B and
I. Class A and Class B shares, which are described below, are offered by this
Prospectus. Class B shares of the PBHG Advisor Cash Reserves Fund are not
available for direct investment and may only be purchased through an exchange of
Class B shares of another Fund.
Class A Shares. Class A shares are divided into four groups.
Group 1 -- Equity Funds. Class A shares of the following PBHG Advisor
Funds (the "Equity Funds") are currently sold with a sales charge ranging from
5.75% to 2.00% of the offering price on purchases of less than $1 million: the
PBHG Advisor Core Value Fund, the PBHG Advisor Defensive Equity Fund, the PBHG
Advisor Enhanced Equity Fund, the PBHG Advisor Blue Chip Growth Fund, the PBHG
Advisor Large Cap Concentrated Fund and the PBHG Advisor New Opportunities Fund.
23
<PAGE>
<TABLE>
<CAPTION>
Dealer
Concession
Investor's Sales Charge ----------
----------------------------- As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Offering Amount Offering
Amount of Investment in Single Transaction Price Invested Price
------------------------------------------ ------------- ---------- ----------
<S> <C> <C> <C>
$0 - 49,999.................................. 5.75% 6.10% 5.00%
50,000 - 99,999.................................. 4.50% 4.71% 3.75%
100,000 - 249,999.................................. 3.50% 3.63% 2.75%
250,000 - 499,999.................................. 2.50% 2.56% 2.00%
500,000 - 999,999.................................. 2.00% 2.04% 1.75%
</TABLE>
Group 2 -- PBHG Advisor Master Fixed Income Fund. Class A shares of the
PBHG Advisor Master Fixed Income Fund are currently sold with a sales charge
ranging from 4.75% to 2.00% of the offering price on purchases of less than $1
million.
<TABLE>
<CAPTION>
Dealer
Concession
Investor's Sales Charge ----------
----------------------------- As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Offering Amount Offering
Amount of Investment in Single Transaction Price Invested Price
------------------------------------------ ------------- ---------- ----------
<S> <C> <C> <C>
$0 - 49,999.................................. 4.75% 4.99% 4.25%
50,000 - 99,999.................................. 4.50% 4.71% 4.00%
100,000 - 249,999.................................. 3.50% 3.63% 3.00%
250,000 - 499,999.................................. 2.50% 2.56% 2.25%
500,000 - 999,999.................................. 2.00% 2.04% 1.75%
</TABLE>
Group 3 -- PBHG Advisor Short-Term Government Fund. Class A shares of the
PBHG Advisor Short-Term Government Fund are currently sold with a sales charge
ranging from 1.50% to 1.00% of the offering price on purchases of less than $1
million.
<TABLE>
<CAPTION>
Dealer
Concession
Investor's Sales Charge ----------
----------------------------- As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Offering Amount Offering
Amount of Investment in Single Transaction Price Invested Price
------------------------------------------ ------------- ---------- ----------
<S> <C> <C> <C>
$0 - 99,999................................... 1.50% 1.52% 1.25%
100,000 - 499,999................................... 1.25% 1.27% 1.00%
500,000 - 999,999................................... 1.00% 1.01% 0.75%
</TABLE>
Group 4 -- PBHG Advisor Cash Reserves Fund. Class A shares of the PBHG
Advisor Cash Reserves Fund are currently sold without a sales charge.
Further Information on Class A Shares. There is no sales charge on
purchases of $1 million or more; however, the Distributor may pay a dealer
concession and/or advance a service fee on such transactions as described below.
Purchases of $1 million or more are at net asset value. Redemptions of Class A
shares purchased at net asset value may result in the imposition of a limited
contingent deferred sales charge if the dealer's concession referred to above
was paid by the Distributor in connection with the purchase of those shares. See
"How to Redeem Fund Shares -- Contingent Deferred Sales Charge Program for Large
Purchases."
The Distributor may elect to re-allow the entire initial sales charge to
dealers for all sales with respect to which orders are placed with the
Distributor during a particular period. The SEC takes the
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position that dealers to whom substantially the entire sales charge is
re-allowed may be deemed to be "underwriters" as that term is defined under the
Securities Act of 1933.
In addition to amounts paid to dealers as a dealer concession out of the
initial sales charge paid by investors, the Distributor may, from time to time,
at its expense or as an expense for which it may be compensated under a
distribution plan, if applicable, pay a bonus or other consideration or
incentive to dealers who sell a minimum dollar amount of the shares of the PBHG
Advisor Funds during a specified period of time. In some instances, these
incentives may be offered only to certain dealers who have sold or may sell
significant amounts of shares. At the option of the dealer, such incentives may
take the form of payment for travel expenses, including lodging, incurred in
connection with trips taken by qualifying registered representatives and their
families to places within or outside the United States. The total amount of such
additional bonus payments or other consideration will not exceed 0.25% of the
public offering price of the shares sold. Any such bonus or incentive programs
will not change the price paid by investors for the purchase of the applicable
Fund's shares or the amount that any particular Fund will receive as proceeds
from such sales. Dealers may not use sales of the Funds' shares to qualify for
any incentives to the extent that such incentives may be prohibited by
applicable law.
The Distributor may make payments to dealers and institutions who are
dealers of record for purchases of $1 million or more of Class A shares which
are sold at net asset value and are subject to a limited contingent deferred
sales charge, for each PBHG Advisor Fund other than the PBHG Advisor Short-Term
Government Fund and the PBHG Advisor Cash Reserves Fund as follows: 1% of the
first $2 million of such purchases, plus 0.80% of the next $1 million of such
purchases, plus 0.50% of the next $47 million of such purchases, plus 0.25% of
amounts in excess of $50 million of such purchases. The Distributor may make
similar payments in an amount equal to 0.10% of purchases of $1 million or more
of Class A shares of the PBHG Advisor Short-Term Government Fund which are sold
at net asset value and are subject to a limited contingent deferred sales
charge. The Distributor pays dealers of record commissions on sales of Class A
shares based upon the investor's cumulative purchases during the one-year period
beginning with the date of the initial purchase at net asset value. Each
subsequent one-year measuring period for these purposes will begin with the
first net asset value purchase following the end of the prior period. See "How
to Redeem Fund Shares -- Contingent Deferred Sales Charge Program for Large
Purchases."
Reductions in Initial Sales Charges. Reductions in the initial sales
charges shown in the sales charge tables (quantity discounts) apply to purchases
of shares of the PBHG Advisor Funds that are otherwise subject to an initial
sales charge, provided that such purchases are made by a "purchaser" as
hereinafter defined. Purchases of Class A shares of the PBHG Advisor Cash
Reserves Fund and Class B shares of the other PBHG Advisor Funds will not be
taken into account in determining whether a purchase qualifies for a reduction
in initial sales charges.
The term "purchaser" means:
o an individual and his or her spouse and children, including any trust
established exclusively for the benefit of any such person; or a
pension, profit-sharing, or other benefit plan established exclusively
for the benefit of any such person, such as an IRA, a single-
participant money-purchase/profit-sharing plan or an individual
participant in a 403(b) plan (unless such 403(b) plan qualifies as the
purchaser as defined below);
o a 403(b) plan, the employer/sponsor of which is an organization
described under Section 501(c)(3) of the Internal Revenue Code of 1986,
as amended (the "Code"), provided that:
a. the employer/sponsor must submit contributions for all
participating employees in a single contribution transmittal;
b. each transmittal must be accompanied by a single check or wire
transfer; and
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c. all new participants must be added to the 403(b) plan by
submitting an application on behalf of each new participant with
the contribution transmittal;
o a trustee or fiduciary purchasing for a single trust, estate or single
fiduciary account (including a pension, profit-sharing or other
employee benefit trust created pursuant to a plan qualified under
Section 401 of the Code) and 457 plans, although more than one
beneficiary or participant is involved;
o a Simplified Employee Pension ("SEP"), Salary Reduction and other
Elective Simplified Employee Pension account ("SAR-SEP") where the
employer has notified the Distributor in writing that all of its
related employee SEP or SAR-SEP accounts should be linked;
o any other organized group of persons, whether incorporated or not,
provided the organization has been in existence for at least six months
and has some purpose other than the purchase at a discount of
redeemable securities of a registered investment company.
Investors or dealers seeking to qualify orders for a reduced initial sales
charge must identify such orders and, if necessary, support their qualification
for the reduced charge. The Distributor reserves the right to determine whether
any purchaser is entitled, by virtue of the foregoing definition, to the reduced
sales charge. No person or entity may distribute shares of the PBHG Advisor
Funds without payment of the applicable sales charge other than to persons or
entities who qualify for a reduction in the sales charge as provided herein.
Letters of Intent. A "purchaser," as previously defined, may pay reduced
initial sales charges by completing the appropriate section of the account
application and by fulfilling the terms of a Letter of Intent ("LOI"). The LOI
confirms such purchaser's intention as to the total investment to be made in
Class A shares of the PBHG Advisor Funds (except for Class A shares of the PBHG
Advisor Cash Reserves Fund) within the following 13 consecutive months. By
marking the LOI section on the account application and by signing the account
application the purchaser indicates that he understands and agrees to the terms
of the LOI and is bound by the provisions described below.
Each purchase of PBHG Advisor Fund shares normally subject to an initial
sales charge made during the 13-month period will be made at the public offering
price applicable to a single transaction of the total dollar amount indicated by
the LOI, as described under "How to Purchase Fund Shares -- Classes of Shares."
It is the purchaser's responsibility at the time of purchase to specify the
account numbers that should be considered in determining the appropriate sales
charge. The offering price may be reduced further as described under "Rights of
Accumulation" if the PBHG Advisor Funds are advised of all other accounts at the
time of the investment. Shares acquired through reinvestment of dividends and
capital gains distributions will not be applied to the LOI. At any time during
the 13-month period after meeting the original obligation, a purchaser may
revise his intended investment amount upward by submitting a written and signed
request. Such a revision will not change the original expiration date. By
signing an LOI, a purchaser is not making a binding commitment to purchase
additional shares, but if purchases made within the 13-month period do not total
the amount specified, the investor will pay the increased amount of sales charge
as described below. Purchases made within 90 days before signing an LOI will be
applied toward completion of the LOI. The LOI effective date will be the date of
the first purchase within the 90-day period. The Transfer Agent will process
necessary adjustments upon the expiration or completion date of the LOI.
Purchases made more than 90 days before signing an LOI will be applied toward
completion of the LOI based on the value of the shares purchased calculated at
the public offering price on the effective date of the LOI.
To assure compliance with the provisions of the 1940 Act, out of the
initial purchase (or subsequent purchases if necessary) the purchaser will
pledge and the Transfer Agent will escrow in the form of shares an appropriate
dollar amount (computed to the nearest full share). All dividends and any
capital gain distributions on the escrowed shares will be credited to the
purchaser. All shares purchased, including those escrowed, will be registered in
the purchaser's name. If the total investment specified under this LOI is
completed within the 13-month period, the escrowed shares will be
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<PAGE>
promptly released. If the intended investment is not completed, the purchaser
will pay the Transfer Agent the difference between the sales charge on the
specified amount and the amount actually purchased. If the purchaser does not
pay such difference within 20 days of the expiration date, the purchaser
irrevocably constitutes and appoints the Transfer Agent as his agent to
surrender for redemption any or all shares, to make up such difference within 60
days of the expiration date.
If at any time before completing the LOI program the purchaser wishes to
cancel the agreement, he must give written notice to the Distributor. If at any
time before completing the LOI program the purchaser requests the Transfer Agent
to liquidate or transfer beneficial ownership of his total shares, a
cancellation of the LOI will automatically be effected. If the total amount
purchased is less than the amount specified in the LOI, the Transfer Agent will
redeem an appropriate number of escrowed shares equal to the difference between
the sales charge actually paid and the sales charge that would have been paid if
the total purchases had been made at a single time.
Rights of Accumulation. A "purchaser," as previously defined, may also
qualify for reduced initial sales charges based upon such purchaser's existing
investment in shares of any of the PBHG Advisor Funds (except for Class A shares
of the PBHG Advisor Cash Reserves Fund). To determine whether or not a reduced
initial sales charge applies to a proposed purchase, the Distributor takes into
account not only the money which is invested upon such proposed purchase, but
also the value of all Class A shares of the PBHG Advisor Funds (except for Class
A shares of the PBHG Advisor Cash Reserves Fund) owned by such purchaser,
calculated at their then current public offering price. If a purchaser qualifies
for a reduced sales charge, the reduced sales charge applies to the total amount
of money then being invested by such purchaser and not just to the portion that
exceeds the breakpoint above which a reduced sales charge applies. For example,
if a purchaser already owns qualifying shares of any PBHG Advisor Fund with a
value of $20,000 and wishes to invest an additional $40,000 in a PBHG Advisor
Fund with a maximum initial sales charge of 5.75%, the reduced initial sales
charge of 4.50% will apply to the full $40,000 purchase and not just to the
$10,000 in excess of the $50,000 breakpoint. To qualify for obtaining the
discount applicable to a particular purchase, the purchaser or his dealer must
furnish the PBHG Advisor Fund with a list of the account numbers and the names
in which such accounts of the purchaser are registered at the time the purchase
is made.
Purchases At Net Asset Value. Purchases of Class A shares of any of the
PBHG Advisor Funds at net asset value (without payment of an initial sales
charge) may be made in connection with: (a) the reinvestment of dividends and
distributions from a PBHG Advisor Fund (see "General Information -- Dividends
and Distributions"); (b) exchanges of shares of certain other PBHG Advisor Funds
(see "Shareholder Services -- Exchange Privileges"); (c) use of the
reinstatement privilege (see "How to Redeem Fund Shares"); or (d) a merger,
consolidation or acquisition of assets of a PBHG Advisor Fund.
The following persons may purchase Class A shares of the PBHG Advisor Funds
through the Distributor without payment of an initial sales charge: (a) the
Adviser and its affiliated companies; (b) any current or retired officer,
director, trustee or employee, or any member of the immediate family (including
spouse, children, parents and parents of spouse) of any such person, of the
Adviser or its affiliates or of certain mutual funds which are advised or
managed by the Adviser, or any trust established exclusively for the benefit of
such persons; (c) any employee benefit plan established for employees of the
Adviser or its affiliates; (d) discretionary advised clients of the Adviser and
its affiliates; (e) registered representatives and employees of dealers who have
entered into agreements with the Distributor (or financial institutions that
have arrangements with such dealers with respect to the sale of shares of the
PBHG Advisor Funds) and any member of the immediate family (including spouse,
children, parents and parents of spouse) of any such person, provided that
purchases at net asset value are permitted by the policies of such person's
employer; and (f) financial institution trust departments investing an aggregate
of $1 million or more in the PBHG Advisor Funds, (g) clients of certain
administrators of tax-qualified plans when proceeds from repayments of loans to
participants are invested (or reinvested) in the PBHG Advisor Funds, (h) managed
account programs for the benefit of clients of broker-dealers and financial
institutions or financial planners adhering to certain standards
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<PAGE>
established by the PBHG Advisor Funds that provide asset allocation or similar
specialized investment services or investment company transaction services for
their customers, that charge a minimum annual fee for such services, and that
have entered into an agreement with the Distributor with respect to their use of
the PBHG Advisor Funds in connection with such services, (i) clients of
registered representatives of an authorized investment dealer if such purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge, or other sales charge has been assessed, and
(j) former shareholders of the Analytic Enhanced Equity Portfolio, Analytic
Master Fixed Income Portfolio, or Analytic Short-Term Government Fund, each a
series of The Analytic Series Fund, and The Defensive Equity Portfolio of
Analytic Optioned Equity Fund, Inc. who obtained their initial shares of such
PBHG Advisor Fund in a reorganization of such Portfolio into a corresponding
PBHG Advisor Fund.
In addition, Class A shares of any PBHG Advisor Fund may be purchased at
net asset value, without payment of a sales charge, by pension, profit-sharing
or other employee benefit plans created pursuant to a plan qualified under
Section 401 of the Code or plans under Section 457 of the Code, or employee
benefit plans created pursuant to Section 403(b) of the Code and sponsored by
nonprofit organizations defined under Section 501(c)(3) of the Code. Such plans
will qualify for purchases at net asset value provided that (1) the total amount
invested is at least $1 million; (2) the sponsor signs a $1 million LOI; (3)
such shares are purchased by an employer-sponsored plan with at least 100
eligible employees; or (4) all of the plan's transactions are executed through a
single financial institution or service organization which has entered into an
agreement with the Distributor with respect to its use of the PBHG Advisor Funds
in connection with such accounts. Section 403(b) plans sponsored by public
educational institutions will not be eligible for net asset value purchases
based on the aggregate investment made by the plan or the number of eligible
employees. Participants in such plans will be eligible for reduced sales charges
based solely on the aggregate value of their individual investments in the
applicable PBHG Advisor Fund.
Class B Shares. Class B shares are sold at net asset value without an
initial sales charge, but are subject to a contingent deferred sales charge of
up to 5% if redeemed within six years. See "How to Redeem Fund Shares -- Class B
Shares." The Company has adopted a 12b-1 distribution plan applicable to Class B
shares. See "General Information -- Class B Plan." Class B shares will
automatically convert into Class A shares, based on relative net asset value,
eight years after the end of the calendar month in which the order to purchase
such Class B shares was accepted. Class B shares of the PBHG Advisor Cash
Reserves Fund are only available for exchanges from other Class B shares and are
not available for direct purchase.
The Distributor may pay sales commissions to dealers and institutions who
sell Class B shares of the PBHG Advisor Funds at the time of such sales.
Payments with respect to Class B shares will equal 4.00% of the purchase price
of the Class B shares sold by the dealer or institution, and will consist of a
sales commission equal to 3.75% of the purchase price of the Class B shares sold
plus an advance of the first year service fee of 0.25% with respect to such
shares. These payments are recouped by the Distributor through the Class B Rule
12b-1 distribution plan. See "Distribution Plans."
Class A and Class B Shares. For any PBHG Advisor Fund offered by this
Prospectus, the Distributor and its agents reserve the right at any time (1) to
withdraw all or any part of the offering made by this Prospectus; (2) to reject
any purchase or exchange order or to cancel any purchase due to nonpayment of
the purchase price; (3) to increase, waive or lower the minimum investment
requirements; or (4) to modify any of the terms or conditions of purchase of
shares of such Fund. The Distributor and its agents will use their best efforts
to provide notice of any such actions through correspondence with broker-dealers
and existing shareholders, supplements to the PBHG Advisor Funds' prospectuses,
or other appropriate means, and will provide notice to the extent required by
law in the case of termination or material modification to the exchange
privilege discussed under "Shareholder Services -- Exchange Privileges."
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SHAREHOLDER SERVICES
Shareholder Services Offered
The PBHG Advisor Funds offer the shareholder services described below. Each
PBHG Advisor Fund reserves the right to amend such shareholder services or to
change the terms or conditions relating to such services. Shareholders will be
notified of such action to the extent required by law. You may, however,
discontinue any service you select, provided that with respect to the Systematic
Investment and Systematic Withdrawal Plans described below, the PBHG Advisor
Funds receive your notification to discontinue such service(s) at least ten (10)
days before the next scheduled investment or withdrawal date.
Systematic Investment Plan. The Systematic Investment Plan is a convenient
way for you to purchase shares in the PBHG Advisor Funds at regular monthly or
quarterly intervals selected by you. The Systematic Investment Plan enables you
to achieve dollar-cost averaging with respect to investments in the PBHG Advisor
Funds despite their fluctuating net asset values through regular purchases of a
fixed dollar amount of shares in the Funds. Dollar-cost averaging brings
discipline to your investing. Dollar-cost averaging results in more shares being
purchased when a Fund's net asset value is relatively low and fewer shares being
purchased when a Fund's net asset value is relatively high, thereby helping to
decrease the average price of your shares. Investors who establish a Systematic
Investment Plan may open an account with a minimum balance of $500. Through the
Systematic Investment Plan, shares are purchased by transferring monies (minimum
of $25 per transaction per Fund) from your designated checking or savings
account or from another PBHG Advisor Fund account. Your systematic investment in
the PBHG Advisor Funds designated by you will be processed on a regular basis at
your option beginning on any day (from the first through the twenty-eighth) of
the month or quarter you select. This Systematic Investment Plan must be
established on your account at least 15 days prior to the intended date of your
first systematic investment.
Systematic Withdrawal Plan. The Systematic Withdrawal Plan provides a
convenient way for you to receive current income while maintaining your
investments in the PBHG Advisor Funds. The Systematic Withdrawal Plan permits
you to have payments of $50 or more automatically transferred from your
account(s) in the Funds to your designated checking or savings account on a
monthly, quarterly, semi-annual or annual basis. The Systematic Withdrawal Plan
also provides the option of having a check mailed to the address of record for
your account. In order to start this Plan, you must have a minimum balance of
$5,000 in any account using this feature. Your systematic withdrawals will be
processed on a regular basis beginning on any day (from the first through the
twenty-eighth) of the month, quarter, semi-annual or annual period you select.
You may request a specific dollar amount or an annualized percentage of the
market value of your account.
Exchange Privileges. You can exchange your shares for shares of the same
class of other PBHG Advisor Funds at net asset value.
Certain Class A Exchanges. As noted above, the Equity Funds are the PBHG
Advisor Core Value Fund, the PBHG Advisor Defensive Equity Fund, the PBHG
Advisor Enhanced Equity Fund, the PBHG Advisor Blue Chip Growth Fund, the PBHG
Advisor Large Cap Concentrated Fund, and the PBHG Advisor New Opportunities
Fund. Class A shares of the Equity Funds may be exchanged for Class A shares of
any PBHG Advisor Fund at relative net asset value without payment of sales
charges.
Class A shares of the PBHG Advisor Master Fixed Income Fund, the PBHG
Advisor Short-Term Government Fund, and the PBHG Advisor Cash Reserves Fund (the
"Fixed Income Funds") may be exchanged for Class A shares of any PBHG Advisor
Fund and the exchange will be made at: the public offering price if the PBHG
Advisor Cash Reserves Fund shares are being exchanged for Class A shares of
another PBHG Advisor Fund; net asset value if the Fixed Income Fund shares being
exchanged were acquired upon an exchange of an Equity Fund's shares; and the
difference in sales charge will apply if Equity Fund shares are being acquired
upon exchange of Fixed Income Fund shares. See "How To Purchase Fund Shares --
Purchases at Net Asset Value."
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Class A Large Purchases and Class B Shares. If you exchange shares that
are subject to a contingent deferred sales charge, the exchange transaction will
not be subject to the contingent deferred sales charge. However, when you redeem
the shares acquired through the exchange, the redemption may be subject to the
contingent deferred sales charge, depending upon when you originally purchased
the shares. For purposes of computing the contingent deferred sales charge, the
length of time you have owned your shares will be measured from the date of
original purchase and will not be affected by any exchange.
For federal income tax purposes, an exchange is treated as a sale of shares
and generally results in a capital gain or loss.
The exchange privilege is not intended as a vehicle for short-term trading.
Excessive exchange activity may interfere with portfolio management and have an
adverse effect on all shareholders. In order to limit excessive exchange
activity and in other circumstances where the Adviser or the Board of Directors
believe doing so would be in the best interests of a PBHG Advisor Fund, each
Fund reserves the right to revise or terminate the exchange privilege, limit the
amount or number of exchanges or reject any exchange. The exchange privilege is
not an option or right to purchase shares but is permitted under the respective
policies of the participating PBHG Advisor Funds, and may be modified or
discontinued by any of such Funds or by the Distributor at any time, and to the
extent permitted by applicable law, without notice.
Shares of any PBHG Advisor Fund (other than the PBHG Advisor Cash Reserves
Fund) to be exchanged are redeemed at their net asset value as determined at the
close of the NYSE, which is normally 4:00 p.m. Eastern Time ("NYSE Close") on
the day that an exchange request in proper form (described below) is received.
Exchange requests received after the NYSE Close will result in the redemption of
shares at their net asset value at the NYSE Close on the next business day.
Normally, shares of a Fund to be acquired by exchange are purchased at their net
asset value or applicable offering price, as the case may be, determined on the
date that such request is received, but under unusual market conditions such
purchases may be delayed for up to five business days if it is determined that
such Fund would be materially disadvantaged by an immediate transfer of the
proceeds of the exchange.
Exchanging by Mail. You may exchange your shares by mail by sending a
written request to the PBHG Advisor Funds. The request should contain the
account registration and account number, the dollar amount or number of shares
to be exchanged, and the names of the PBHG Advisor Funds from which and into
which the exchange is to be made. Your request should comply with all of the
requirements for redemption by mail, except those required for redemption of
IRAs. See "How to Redeem Fund Shares."
Exchanging by Telephone. You or your investment professional may request
an exchange by telephone. If you do not wish to allow telephone exchanges by any
person in your account, you should decline that option on the account
application. The Distributor has made arrangements with certain dealers and
investment advisory firms to accept telephone instructions to exchange shares
among any of the PBHG Advisor Funds. The Distributor reserves the right to
impose conditions on dealers or investment advisers who make telephone exchanges
of shares among the Funds, including the condition that any such dealer or
investment adviser enter into an agreement (which contains additional conditions
with respect to exchanges of shares) with the Distributor. To exchange shares by
telephone, you or your investment professional who has satisfied the foregoing
conditions must call the PBHG Advisor Funds at 1-888-800-2685. If you are unable
to reach the PBHG Advisor Funds by telephone, you may use overnight courier
services to expedite exchanges by mail, which will be effective on the Business
Day received by the PBHG Advisor Funds as long as such request is received prior
to the NYSE Close. No PBHG Advisor Fund or any of its agents will be liable for
any loss, expense or cost arising out of any telephone exchange request that it
reasonably believes to be genuine, but may be liable in certain cases for losses
due to unauthorized or fraudulent transactions if they do not follow reasonable
procedures for verification of telephone transactions. Such reasonable
procedures may include recordings of telephone transactions (maintained for six
months), requests for confirmation of the shareholder's Social Security Number
and current address, and mailings of confirmations promptly after the
transaction.
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The exchange privilege may be exercised only in those states where the
shares of the PBHG Advisor Fund being purchased in an exchange may legally be
sold.
Tax-Sheltered Retirement Plans. A variety of retirement plans, including
IRAs, SEP-IRAs, 401(a) Keogh and corporate money purchase pension and profit
sharing plans, and 401(k) and 403(b) plans are available to investors in the
PBHG Advisor Funds.
Traditional IRAs. You may save for your retirement and shelter your
investment income from current taxes by either: (a) establishing a new
traditional IRA; or (b) "rolling-over" to a PBHG Advisor Fund monies from other
IRAs or lump sum distributions from a qualified retirement plan. If you are
between 18 and 70 1/2 years of age, you can use a traditional IRA to invest up
to $2,000 per year of your earned income in any of the PBHG Advisor Funds. You
may also invest up to $2,000 per year in a spousal IRA if your spouse has no
earned income. There is a $10.00 annual maintenance fee charged for each type of
IRA. If you maintain IRA accounts in more than one PBHG Advisor Fund, you will
only be charged one fee. This fee can be prepaid or will be debited from your
account if not received by the announced deadline.
Roth IRAs. Roth IRAs are similar to traditional IRAs in many respects and
provide a unique opportunity for qualifying individuals to accumulate investment
earnings tax free. Contributions to Roth IRAs are not tax-deductible (while
contributions to traditional IRAs may be), however, if you meet the distribution
requirements, you can withdraw your investments without paying any taxes on the
earnings. In addition to establishing a new Roth IRA, you may be eligible to
convert a traditional IRA into a Roth IRA. Maintenance fees charged for Roth
IRAs are similar to those for traditional IRAs.
SEP-IRAs. If you are a self-employed person, you can establish a
Simplified Employee Pension Plan ("SEP-IRA"). A SEP-IRA is designed to provide
persons with self-employed income (and their eligible employees) with many of
the same tax advantages as a Keogh, but with fewer administrative requirements.
401(a) Keogh and Corporate Retirement Plans. Both a prototype money
purchase pension plan and a profit sharing plan, which may be used alone or in
combination, are available for self-employed individuals and their partners, and
corporations to provide tax-sheltered retirement benefits for individuals and
employees.
401(k) Plans. Through the establishment of a 401(k) plan by a corporation
of any size, employees can invest a portion of their wages in the PBHG Advisor
Funds on a tax-deferred basis in order to help them meet their retirement needs.
403(b) Plans. Section 403(b) plans are custodial accounts which are
available to employees of most non-profit organizations and public schools.
Other Special Accounts. The PBHG Advisor Funds also offer the following
special accounts to meet your needs:
Education IRAs. Education IRAs allow you to save for qualified higher
education expenses of designated beneficiaries. Like traditional and Roth IRAs,
Education IRAs provide an opportunity for your investment to grow tax-free until
distributed. Contributions to an Education IRA are not tax deductible, however,
distributions from an Education IRA which are used to pay qualified higher
education expenses are tax-free. You may contribute up to $500 per year for the
benefit of each prospective student under the age of 18. There is a $7.00 annual
maintenance fee charged to Education IRA accounts. This fee can be prepaid or
will be deducted from your account if not received by the announced deadline.
Uniform Gift to Minors/Uniform Transfers to Minors. By establishing a
Uniform Gift to Minors Account/Uniform Transfers to Minors Account with the PBHG
Advisor Funds you can build a fund for your children's education or a nest egg
for their future and, at the same time, potentially reduce your own income
taxes.
Custodial and Fiduciary Accounts. The PBHG Advisor Funds provide a
convenient means of establishing custodial and fiduciary accounts for investors
with fiduciary responsibilities.
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For further information regarding any of the above retirement plans and
accounts, please contact your investment or tax professional.
HOW TO REDEEM FUND SHARES
General
You may sell (redeem) shares in your account by contacting your investment
dealer or the Company. If you sell shares through an investment dealer you may
be charged for this service. Shares held for you in your dealer's street name
must be sold through the dealer.
Redemption orders received by the PBHG Advisor Funds prior to 2:00 p.m.
Eastern time for the PBHG Advisor Cash Reserves Fund and 4:00 p.m. Eastern time
for each of the other PBHG Advisor Funds on any Business Day will be effective
that day. The redemption price of shares is the net asset value per share of a
Fund next determined after the redemption order is effective. The redemption
price of Class B shares and Class A shares subject to a contingent deferred
sales charge will be reduced by any applicable contingent deferred sales charge.
The contingent deferred sales charge may be deducted from your redemption
proceeds or from your account balance. If no preference is stated at the time of
redemption, the charge will be deducted from the redemption proceeds. Payment of
redemption proceeds will be made as promptly as possible and, in any event,
within seven days after the redemption order is received, provided, however,
that redemption proceeds for shares purchased by check (including certified or
cashier's checks) or by ACH will be forwarded only upon collection of payment
for such shares; collection of payment will take 15 days.
In order for your redemption order to be effective on the day you place
your redemption order with your broker-dealer or other financial institution,
such broker-dealer or financial institution must (i) receive your order before
2:00 p.m. Eastern time for the PBHG Advisor Cash Reserves Fund and 4:00 p.m.
Eastern Time for each other PBHG Advisor Fund and (ii) promptly transmit the
order to the Transfer Agent. See "Determination of Net Asset Value." The
financial institution is responsible for promptly transmitting redemption orders
to the Transfer Agent so that your shares are redeemed at the same day's net
asset value per share.
You may receive redemption payments in the form of a check or by Federal
Reserve wire or ACH transfer.
By Mail
Redemption requests must be in writing and sent to the PBHG Advisor Funds.
Requests for redemption must include: (a) original signatures of each
registered owner exactly as the shares are registered; (b) the name of the PBHG
Advisor Fund, the account number and number of shares to be redeemed; (c)
signature guarantees, as described below; and (d) any additional documents that
may be required for redemption by corporations, partnerships, trusts or other
entities. The burden is on the shareholder to inquire as to whether any
additional documentation is required. Any request not in proper form may be
rejected and in such case must be renewed in writing.
In addition to these requirements, shareholders who have invested in a PBHG
Advisor Fund to establish an IRA should include the following information along
with a written request for either partial or full liquidation of Fund shares:
(a) a statement as to whether or not the shareholder has attained age 59 1/2;
and (b) a statement as to whether or not the shareholder elects to have federal
income tax withheld from the proceeds of the liquidation.
By Telephone
Shareholders may request a redemption by telephone. If a shareholder does
not wish to allow telephone redemptions by any person for his account, the
shareholder should decline that option on the account application. The telephone
redemption feature can be used only if: (a) the redemption proceeds are to be
mailed to the address of record or wired to the pre-authorized bank account as
indicated on the account application; (b) there has been no change of address of
record on the account within the preceding 30 days; (c) the person requesting
the redemption can provide proper identification
32
<PAGE>
information; and (d) the proceeds of the redemption do not exceed $50,000.
Accounts in the Distributor's prototype retirement plans (such as IRA and
IRA/SEP) or 403(b) plans are not eligible for the telephone redemption option.
The Distributor has made arrangements with certain dealers and investment
advisers to accept telephone instructions for the redemption of shares. The
Distributor reserves the right to impose conditions on these dealers and
investment advisers, including the condition that they enter into agreements
(which contain additional conditions with respect to the redemption of shares)
with the Distributor. No PBHG Advisor Fund or any of its agents will be liable
for any loss, expense or cost arising out of any telephone redemption request
effected in accordance with the authorization set forth in the account
application if it reasonably believes such request to be genuine, but may in
certain cases be liable for losses due to unauthorized or fraudulent
transactions if they do not follow reasonable procedures for verification of
telephone transactions. Such reasonable procedures may include recordings of
telephone transactions, requests for confirmation of the shareholder's Social
Security Number and current address, and mailings of confirmations promptly
after the transaction.
By Wire
The Transfer Agent will deduct a wire charge, currently $10.00, from the
amount of a Federal Reserve wire redemption payment made at the request of a
shareholder. Shareholders cannot receive proceeds from redemptions of shares of
a PBHG Advisor Fund by Federal Reserve wire on federal holidays restricting wire
transfers.
BY ACH
The PBHG Advisor Funds do not charge for ACH transactions; however,
proceeds from such transactions will not be posted to your bank account until
the second Business Day following the transaction. In order to process a
redemption by ACH, banking information must be established on your account at
least 15 days prior to initiating a transaction. A voided check or deposit slip
must accompany requests to establish this option.
Expedited Redemptions (PBHG Advisor Cash Reserves Fund Only)
If a redemption order is received by the PBHG Advisor Funds prior to 2:00
p.m. Eastern Time, the redemption will be effective on that day and the PBHG
Advisor Cash Reserves Fund will endeavor to transmit payment on that same
business day. If the redemption order is received after 2:00 p.m. and prior to
the NYSE Close, the redemption will be made at the next determined net asset
value and payment will generally be transmitted on the next business day.
Redemptions by Check (PBHG Advisor Cash Reserves Fund Only)
After completing the appropriate authorization form, shareholders may use
checks to effect redemptions from the PBHG Advisor Cash Reserves Fund. This
privilege does not apply to retirement accounts or qualified plans. Checks may
be drawn in any amount of $250 or more. Checks drawn against insufficient shares
in the account, against shares held less than fifteen business days, or in
amounts of less than the applicable minimum will be returned to the payee. The
payee of the check may cash or deposit it in the same way as an ordinary bank
check. When a check is presented to the Transfer Agent for payment, the Transfer
Agent will cause a sufficient number of shares of such Fund to be redeemed to
cover the amount of the check. Shareholders are entitled to dividends on the
shares redeemed through the day on which the check is presented to the Transfer
Agent for payment.
Check writing service is offered free of charge to shareholders of the PBHG
Advisor Cash Reserves Fund. If you have an account balance of $5,000 or more,
you may redeem shares by writing checks on your account for $250 or more. To
establish this privilege, please call 1-888-800-2685 to request a signature
card. Once you have signed and returned a signature card, you will receive a
supply of checks. A check may be made payable to any person, and your account
will continue to earn dividends until the check clears. Because of the
difficulty of determining in advance the exact value of your account, you may
not use a check to close your account. Your account will be charged a fee for
stopping payment of a check upon your request, or if the check cannot be honored
because of insufficient funds or other valid reasons.
33
<PAGE>
Signature Guarantees
A signature guarantee is a widely accepted way to protect you by verifying
the signature on certain redemption requests. The PBHG Advisor Funds require
signature guarantees to be provided in the following circumstances: (1) written
requests for redemptions in excess of $50,000; (2) all written requests to wire
redemption proceeds; (3) redemption requests that provide that the redemption
proceeds should be sent to an address other than the address of record or to a
person other than the registered shareholder(s) for the account; (4) redemptions
requesting proceeds to be sent to a new address or an address that has been
changed within the past 30 days; (5) requests to transfer the registration of
shares to another owner; (6) written requests to add telephone exchange and
telephone redemption options to an account; and (7) changes in previously
designated wiring instructions. These requirements may be waived or modified
upon notice to shareholders.
Acceptable guarantors include banks, broker-dealers, credit unions,
national securities exchanges, savings associations and any other organization,
provided that such institution or organization qualifies as an "eligible
guarantor institution" as that term is defined in rules adopted by the
Securities and Exchange Commission ("SEC"), and further provided that such
guarantor institution is listed in one of the reference guides contained in the
Transfer Agent's current Signature Guarantee Standards and Procedures, such as
certain domestic banks, credit unions, securities dealers, or securities
exchanges. The Transfer Agent will also accept signatures with either: (1) a
signature guaranteed with a medallion stamp of the STAMP Program, or (2) a
signature guaranteed with a medallion stamp of the NYSE Medallion Signature
Program, provided that in either event, the amount of the transaction involved
does not exceed the surety coverage amount indicated on the medallion. For
information regarding whether a particular institution or organization qualifies
as an "eligible guarantor institution," an investor should contact your
investment dealer. The PBHG Advisor Funds do not accept guarantees from notaries
public or organizations that do not provide reimbursement in the case of fraud.
Minimum Account Size
Due to the relatively high cost of maintaining smaller accounts, each PBHG
Advisor Fund, with respect to its Class A shares and Class B shares, will impose
an annual $12.00 minimum account charge and reserves the right to redeem shares
in any non-retirement account if, as the result of redemptions, the value of any
account drops below the minimum initial investment amount, specified above, for
such Fund. See "Minimum Investment," "Systematic Investment Plans" and
"Systematic Withdrawal Plans" for minimum investments. You will be allowed at
least 60 days after notice from the applicable PBHG Advisor Fund to make an
additional investment to bring your account value up to at least the applicable
minimum account size before the annual $12.00 minimum account fee is charged
and/or the redemption of a non-retirement account is processed. The applicable
minimum account charge will be imposed annually on any such account until the
account is brought up to the applicable minimum account size.
The right of redemption may be suspended or the date of payment of
redemption proceeds postponed during certain periods as set forth more fully in
the Statement of Additional Information.
Class B Shares
Class B shares may be redeemed on any Business Day at the net asset value
per share next determined following receipt of the redemption order, less the
applicable contingent deferred sales charge shown in the table below. No
contingent deferred sales charge will be imposed (i) on redemptions of Class B
shares following six years from the date such shares were purchased, (ii) on
Class B shares acquired through reinvestments of dividends and distributions
attributable to Class B shares, or (iii) on amounts that represent capital
appreciation in the shareholder's account above the purchase price of the Class
B shares.
34
<PAGE>
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
Year Since as % of Dollar Amount
Purchase Made Subject to Change
- ------------- --------------------------------
<S> <C>
First...................................... 5%
Second..................................... 4%
Third...................................... 3%
Fourth..................................... 3%
Fifth...................................... 2%
Sixth...................................... 1%
Seventh.................................... 0%
</TABLE>
In determining whether a contingent deferred sales charge is applicable, it
will be assumed that a redemption is made: first, of any shares held in the
shareholder's account that are not subject to such charge; second, of shares
derived from reinvestment of dividends and distributions; third, of shares held
for more than six years from the date such shares were purchased; and fourth, of
shares held less than six years from the date such shares were purchased. The
applicable sales charge will be applied against the original cost of the
redeemed shares.
The contingent deferred sales charge on Class B shares will be waived on
redemptions (1) following the death or post purchase disability, as defined in
Section 72(m)(7) of the Code, of a shareholder or as settlor of a living trust
(provided the PBHG Advisor Funds are notified of such death or post-purchase
disability at the time of the redemption request and are provided with
satisfactory evidence of such death or post-purchase disability), (2) in
connection with certain distributions from individual retirement accounts,
custodial accounts maintained pursuant to Code Section 403(b), deferred
compensation plans qualified under Code Section 457 and plans qualified under
Code Section 401 (collectively, "Retirement Plans"), (3) pursuant to a
Systematic Withdrawal Plan, provided that amounts withdrawn under such plan do
not exceed on an annual basis 12% of the value of the shareholder's investment
in Class B shares at the time the shareholder elects to participate in the
Systematic Withdrawal Plan, (4) effected pursuant to the right of each PBHG
Advisor Fund to liquidate a shareholder's account if the aggregate net asset
value of shares held in the account is less than the designated minimum account
size described in the prospectus of such Fund, and (5) effected by the Adviser,
the sub-advisers or their affiliates of any of their investments in Class B
shares.
Waiver category (1) above applies only to redemptions of Class B shares
held at the time of death or initial determination of post-purchase disability.
Waiver category (2) above applies only to redemptions resulting from:
(i) required minimum distributions to plan participants or
beneficiaries who are age 70 1/2 or older, and only with respect to that
portion of such distributions which does not exceed 12% annually of the
participant's or beneficiary's account value;
(ii) in kind transfers of assets where the participant or beneficiary
notifies the PBHG Advisor Funds of such transfer no later than the time
such transfer occurs;
(iii) tax-free rollovers or transfers of assets to another Retirement
Plan invested in Class B shares of one or more of the PBHG Advisor Funds;
(iv) tax-free returns of excess contributions or returns of excess
deferral amounts; and
(v) distributions upon the death or disability (as defined in the
Code) of the participant or beneficiary.
Contingent Deferred Sales Charge Program for Large Purchases
A contingent deferred sales charge applies to purchases of $1 million or
more of Class A shares of each PBHG Advisor Fund other than the PBHG Advisor
Cash Reserves Fund that are redeemed within 12 months of the date of purchase.
This charge will be of based on the lesser of the value of the shares redeemed
(excluding reinvested dividends and capital gain distributions) or the total
original cost of such shares and will be charged at rates as follows: (i) for
each Fund other than the PBHG Advisor Short-Term Government Fund, 1% of the
first $2 million of purchases, plus 0.80% of the next $1
35
<PAGE>
million of purchases, plus 0.50% of the next $47 million of purchases, plus
0.25% of purchases in excess of $50 million; and (ii) for the PBHG Advisor
Short-Term Government Fund, 0.10% of all purchases of $1 million or more. In
determining whether a contingent deferred sales charge is payable, and the
amount of any such charge, shares not subject to the contingent deferred sales
charge are redeemed first (including shares purchased by reinvested dividends
and capital gains distributions and amounts representing increases from capital
appreciation), and then other shares are redeemed in the order of purchase. No
such charge will be imposed upon exchanges unless the shares acquired by
exchange are redeemed within 12 months of the date the shares were originally
purchased. The charge will be waived in the following circumstances: (1)
redemptions of shares by employee benefit plans ("Plans") qualified under
Sections 401 or 457 of the Code, or Plans created under Section 403(b) of the
Code and sponsored by nonprofit organizations as defined under Section 501(c)(3)
of the Code, where shares are being redeemed in connection with employee
terminations or withdrawals, and (a) the total amount invested in a Plan is at
least $1 million; (b) the sponsor of a Plan signs a Letter of Intent to invest
at least $1 million in one or more of the PBHG Advisor Funds, or (c) the shares
being redeemed were purchased by an employer-sponsored Plan with at least 100
eligible employees; provided, however, that Plans created under Section 403(b)
of the Code which are sponsored by public educational institutions shall qualify
under (a), (b) or (c) above on the basis of the value of each Plan participant's
aggregate investment in the PBHG Advisor Funds, and not on the aggregate
investment made by the Plan or on the number of eligible employees; (2)
redemptions of shares following the death or post-purchase disability, as
defined in Section 72(m)(7) of the Code, of a shareholder or a settlor of a
living trust; (3) redemptions of shares purchased at net asset value by private
foundations or endowment funds where the initial amount invested was at least $1
million; (4) redemptions of shares purchased by an investor in amounts of $1
million or more where such investor's dealer of record, due to the nature of the
investor's account, notifies the Distributor prior to the time of investment
that the dealer waives the payments otherwise payable to the dealer; and (5)
pursuant to a Systematic Withdrawal Plan, provided that amounts withdrawn under
such plan do not exceed on an annual basis 12% of the value of the shareholder's
investment in Class A shares at the time the shareholder elects to participate
in the Systematic Withdrawal Plan.
Reinstatement Privilege (Class A Shares Only)
Within 90 days of a redemption, a shareholder may reinvest all or part of
the redemption proceeds in Class A shares of any PBHG Advisor Fund (except Class
A shares of the PBHG Advisor Cash Reserves Fund) at the net asset value next
computed after receipt by the Distributor of the proceeds to be reinvested. The
shareholder must ask for such privilege at the time of reinvestment. A realized
gain on the redemption is taxable, and reinvestment may alter any capital gains
payable. If there has been a loss on the redemption and shares of the same Fund
are repurchased, all of the loss may not be tax deductible, depending on the
timing and amount reinvested. Under the Code, if the redemption proceeds of Fund
shares on which a sales charge was paid are reinvested in (or exchanged for)
shares of another PBHG Advisor Fund at a reduced sales charge within 90 days of
the payment of the sales charge, the shareholder's basis in the Fund shares
redeemed may not include the amount of the sales charge paid, thereby reducing
the loss or increasing the gain recognized from the redemption; however, the
shareholder's basis in the Fund shares purchased will include the sales charge.
Each PBHG Advisor Fund may amend, suspend or cease offering this privilege at
any time as to shares redeemed after the date of such amendment, suspension or
cessation. This privilege may only be exercised once each year by a shareholder
with respect to each Fund.
Shareholders who are assessed a contingent deferred sales charge in
connection with the redemption of Class A shares and who subsequently reinvest a
portion or all of the value of the redeemed shares in Class A shares of any PBHG
Advisor Fund within 90 days after such redemption may do so at net asset value
if such privilege is claimed at the time of reinvestment. Such reinvested
proceeds will not be subject to either a front-end sales charge at the time of
reinvestment or an additional contingent deferred sales charge upon subsequent
redemption. In order to exercise this reinvestment privilege, the shareholder
must notify the PBHG Advisor Funds of his or her intent to do so at the time of
reinvestment. This reinvestment privilege does not apply to Class B shares.
36
<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each PBHG Advisor Fund, other than the
PBHG Advisor Cash Reserves Fund, is determined by dividing the total market
value of such Fund's investments and other assets, less any liabilities, by the
total outstanding shares of the Fund. Net asset value per share is determined
daily as of the NYSE Close on any Business Day. The net asset value per share of
each PBHG Advisor Fund, other than the PBHG Advisor Cash Reserves Fund, is
listed under PBHG Advisor in the mutual fund section of most major daily
newspapers, including The Wall Street Journal. Each Fund's assets (other than
the PBHG Advisor Cash Reserves Fund) are valued primarily on the basis of market
quotations. Foreign securities are valued on the basis of quotations from the
primary market in which they are traded, and are translated from the local
currency into U.S. dollars using current exchange rates. In addition, if
quotations are not readily available, or if the values have been materially
affected by events occurring after the closing of a foreign market, assets may
be valued by another method that the Board of Directors believes accurately
reflects fair value.
The PBHG Advisor Cash Reserves Fund values its portfolio securities using
the amortized cost method of valuation, approximating market value. Net asset
value per share is determined daily as of 2:00 p.m. Eastern time on each
Business Day.
PERFORMANCE ADVERTISING
From time to time, each PBHG Advisor Fund may advertise its yield and total
return. These figures will be based on historical earnings and are not intended
to indicate future performance. No representation can be made regarding actual
future yields or returns. For Funds other than the PBHG Advisor Cash Reserves
Fund, yield refers to the annualized income generated by an investment in such
Fund over a specified 30-day period. The yield is calculated by assuming that
the same amount of income generated by the investment during that period is
generated in each 30-day period over one year and is shown as a percentage of
the investment.
The "current yield" of the PBHG Advisor Cash Reserves Fund refers to the
net change (excluding capital changes and income other than investment income)
in the value of an investment in such Fund over a seven-day period (which period
will be stated in the advertisement). This income is then "annualized." That is,
the amount of income generated by the investment during that week is assumed to
be generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" (also called "effective compound yield") is
calculated similarly but, when annualized, the income earned by an investment in
the PBHG Advisor Cash Reserves Fund is assumed to be reinvested. The effective
yield will be slightly higher than the current yield because of the compounding
effect of this assumed reinvestment. The Fund may also from time to time
advertise its total return along with the current yield. The current yield
quotation more closely reflects the current earnings of the Fund than the total
return.
The total return of each PBHG Advisor Fund refers to the average compounded
rate of return on a hypothetical investment for designated time periods
(including but not limited to the period from which the applicable Fund
commenced operations through the specified date), assuming that the entire
investment is redeemed at the end of each period and assuming the reinvestment
of all dividend and capital gain distributions.
Each PBHG Advisor Fund may periodically compare its performance to that of
other mutual funds tracked by mutual fund rating services (such as Lipper
Analytical Services, Inc.) or by financial and business publications and
periodicals, broad groups of comparable mutual funds, unmanaged indices which
may assume investment of dividends but generally do not reflect deductions for
administrative and management costs and other investment alternatives. Each Fund
may quote services such as Morningstar, Inc., a service that ranks mutual funds
on the basis of risk-adjusted performance, and Ibbotson Associates of Chicago,
Illinois, which provides historical returns of the capital markets in the U.S.
Each Fund may use long-term performance of these capital markets to demonstrate
general
37
<PAGE>
long-term risk versus reward scenarios and could include the value of a
hypothetical investment in any of the capital markets. Each Fund may also quote
financial and business publications and periodicals as they relate to fund
management, investment philosophy, and investment techniques.
Each PBHG Advisor Fund may quote various measures of volatility and
benchmark correlation in advertising and may compare these measures to those of
other funds. Measures of volatility attempt to compare historical share price
fluctuations or total returns to a benchmark while measures of benchmark
correlation indicate how valid a comparative benchmark might be. Measures of
volatility and correlation are calculated using averages of historical data and
cannot be calculated precisely.
RELATED PERFORMANCE
Certain of the PBHG Advisor Funds have not commenced operations as of the
date of this Prospectus. Consequently, these Funds have not yet established
their own performance records. However, the investment objective, policies and
strategies of several of the Funds are substantially similar to those of the
portfolios of certain other mutual funds whose performance may be relevant to an
investor deciding whether to invest in such Funds.
PBHG Advisor Defensive Equity Fund
The PBHG Advisor Defensive Equity Fund will acquire the assets and assume
the liabilities of The Defensive Equity Portfolio, a series of Analytic Optional
Equity Fund, Inc., pursuant to a reorganization of The Defensive Equity
Portfolio expected to be effective August 28, 1998. The Defensive Equity
Portfolio is managed by Analytic Investors, which manages the PBHG Advisor
Defensive Equity Fund as its sub-adviser. The investment objective, policies and
strategies of the Fund are substantially similar to those of The Defensive
Equity Portfolio. For the one year period ended June 30, 1998, the total return
of The Defensive Equity Portfolio was 26.20%. The average annual total return of
The Defensive Equity Portfolio for the three year period ended June 30, 1998 was
20.77%. The average annual total return of The Defensive Equity Portfolio for
the five year period ended June 30, 1998 was 15.71%. The average annual total
return of The Defensive Equity Portfolio for the ten year period ended June 30,
1998 was 12.55%.
PBHG Advisor Enhanced Equity Fund
The PBHG Advisor Enhanced Equity Fund will acquire the assets and assume
the liabilities of the Analytic Enhanced Equity Portfolio (the "Enhanced Equity
Portfolio"), a series of The Analytic Series Fund, pursuant to a reorganization
of the Enhanced Equity Portfolio expected to be effective July 24, 1998. The
Enhanced Equity Portfolio is managed by Analytic Investors, which manages the
PBHG Advisor Enhanced Equity Fund as its sub-adviser. The investment objective,
policies and strategies of the Fund are substantially similar to those of the
Enhanced Equity Portfolio. For the one year period ended June 30, 1998, the
total return of the Enhanced Equity Portfolio was 38.45%. The average annual
total return of the Enhanced Equity Portfolio for the three year period ended
June 30, 1998 was 30.88%. The average annual total return of the Enhanced Equity
Portfolio for the five year period ended June 30, 1998 was 22.85%. The average
annual total return of the Enhanced Equity Portfolio from July 1, 1993
(commencement of public offering) through June 30, 1998 was 22.85%.
PBHG Advisor Blue Chip Growth Fund
Robert Urquhart, CFA, is the portfolio manager for the PBHG Advisor Blue
Chip Growth Fund and is primarily responsible for the day-to-day management of
the Fund. See "General Information -- The Adviser." Before joining the Adviser,
Mr. Urquhart was Managing Director of PNC Equity Advisor where he was
responsible for managing the Compass Capital Large Cap Growth Equity Portfolio
(the "Compass Large Cap Growth Portfolio"). Mr. Urquhart had full discretionary
authority over the selection of investments for that fund during the period June
30, 1995 through August 29,
38
<PAGE>
1997. The investment objective, policies and strategies of the PBHG Advisor Blue
Chip Growth Fund are substantially similar to those of the Compass Large Cap
Growth Portfolio.
The following table compares the performance of the Compass Large Cap
Growth Portfolio during Mr. Urquhart's tenure as its portfolio manager to the
Russell 1000 Growth Index during the same time period.
<TABLE>
<CAPTION>
One Year June 30,
Period Ended 1995 through
August 29, August 29,
1997(1) 1997(2)
------------ ------------
<S> <C> <C>
Compass Large Cap Growth Portfolio (Institutional Shares)... 37.93% 27.34%
Compass Large Cap Growth Portfolio (Class A Shares)......... 37.31% 26.77%
Compass Large Cap Growth Portfolio (Class B Shares)......... 36.32% N/A
Russell 1000 Growth Index................................... 39.36% 28.37%
</TABLE>
- ------------------
(1) Total Return for the period.
(2) Annualized.
The PBHG Advisor Blue Chip Growth Fund and the Compass Large Cap Growth
Portfolio are separate funds and the historical performance of the Compass Large
Cap Growth Portfolio is not indicative of the potential performance of the PBHG
Advisor Blue Chip Growth Fund.
The performance data shown above reflect the deduction of historical fees
and expenses paid by the series corresponding to the applicable PBHG Advisor
Funds, and not those expected to be paid by such PBHG Advisor Funds. The data
also do not reflect the sales load borne by investors in Class A shares of the
PBHG Advisor Funds, expenses paid under the Rule 12b-1 distribution plans for
Class A and Class B shares of such Funds, or the contingent deferred sales
charge applicable to Class B shares and certain Class A share purchases. In
addition, although it is anticipated that each applicable PBHG Advisor Fund and
its corresponding series will invest in similar securities, their investment
results are expected to differ. In particular, differences in asset size and in
cash flow resulting from purchases and redemptions of shares may result in
different security selections, differences in the relative weightings of
securities or differences in the price paid for particular portfolio holdings.
The results shown reflect the reinvestment of dividends and distributions, and
were calculated in the same manner that will be used by the PBHG Advisor Funds
to calculate their own performance.
PBHG Advisor Large Cap Concentrated Fund
The investment objective, policies and strategies of the PBHG Advisor Large
Cap Concentrated Fund are substantially similar to those of the PBHG Large Cap
20 Fund (the "Large Cap 20 Fund"), a series of The PBHG Funds, Inc. The Large
Cap 20 Fund is also managed by the Adviser. The total return of the Large Cap 20
Fund for the one-year period ended June 30, 1998 was 52.65%. The average annual
return of the Large Cap 20 Fund since commencement of operations (December 2,
1996) through June 30, 1998 was 42.85%.
PBHG Advisor Master Fixed Income Fund
The PBHG Advisor Master Fixed Income Fund will acquire the assets and
assume the liabilities of the Analytic Master Fixed Income Portfolio (the
"Master Fixed Income Portfolio"), a series of The Analytic Series Fund, pursuant
to a reorganization of the Master Fixed Income Portfolio expected to be
effective July 24, 1998. The Master Fixed Income Portfolio is managed by
Analytic Investors, which manages the PBHG Advisor Master Fixed Income Fund as
its sub-adviser. The investment objective, policies and strategies of the Fund
are substantially similar to those of the Master Fixed Income Portfolio. For the
one year period ended June 30, 1998, the total return of the Master Fixed Income
Portfolio was 10.76%. The average annual return of the Master Fixed Income
Portfolio for the three year period ended June 30, 1998 was 8.57%. The average
annual total return of the Master Fixed Income Portfolio for the five year
period ended June 30, 1998 was 7.60%. The average annual total
39
<PAGE>
return of the Master Fixed Income Portfolio from July 1, 1993 (commencement of
public offering) through June 30, 1998 was 7.60%.
PBHG Advisor Short-Term Government Fund
The PBHG Advisor Short-Term Government Fund will acquire the assets and
assume the liabilities of the Analytic Short-Term Government Portfolio (the
"Short-Term Government Portfolio"), a series of The Analytic Series Fund,
pursuant to a reorganization of the Short-Term Government Portfolio expected to
be effective July 24, 1998. The Short-Term Government Portfolio is managed by
Analytic Investors, which manages the PBHG Advisor Short-Term Government Fund as
its sub-adviser. The investment objective, policies and strategies of the Fund
are substantially similar to those of the Short-Term Government Portfolio. For
the one year period ended June 30, 1998, the total return of the Short-Term
Government Portfolio was 6.29%. The average annual return of the Short-Term
Government Portfolio for the three year period ended June 30, 1998 was 5.88%.
The average annual total return of the Short-Term Government Portfolio for the
five year period ended June 30, 1998 was 5.20%. The average annual total return
of the Short-Term Government Portfolio from July 1, 1993 (commencement of public
offering) through June 30, 1998 was 5.20%.
TAXES
The following summary of federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial
or administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of the PBHG
Advisor Funds or their shareholders. Accordingly, you are urged to consult your
tax advisers regarding specific questions as to federal, state and local income
taxes. See the Statement of Additional Information.
Tax Status of The Funds
Each PBHG Advisor Fund is treated as a separate entity for federal income
tax purposes and is not combined with the other PBHG Advisor Funds. Each Fund
intends to qualify or to continue to qualify for the special tax treatment
afforded RICs as defined under Subchapter M of the Code. So long as a Fund
qualifies for this special tax treatment, it will be relieved of federal income
tax on that part of its net investment income and net capital gain (the excess
of net long-term capital gain over net short-term capital loss) which it
distributes to shareholders.
Tax Status of Distributions
Each PBHG Advisor Fund will distribute all of its net investment income
(including, for this purpose, net short-term capital gain) to shareholders.
Dividends from net investment income will be taxable to shareholders as ordinary
income whether received in cash or in additional shares. Dividends from net
investment income will qualify for the dividends-received deduction for
corporate shareholders only to the extent such distributions are derived from
dividends paid by domestic corporations. It can be expected that only certain
dividends of a Fund will qualify for that deduction. Any net capital gains will
be distributed annually and will be taxed to shareholders as long-term capital
gains, regardless of how long the shareholder has held shares and regardless of
whether the distributions are received in cash or in additional shares. The PBHG
Advisor Funds will make annual reports to shareholders of the federal income tax
status of all distributions, including the amount of dividends eligible for the
dividends-received deduction.
Certain securities purchased by the PBHG Advisor Funds (such as U.S.
Treasury STRIPS, defined in the "Glossary of Permitted Investments") are sold
with original issue discount and thus do not make periodic cash interest
payments. Each Fund will be required to include as part of its current net
investment income the accrued discount on such obligations for purposes of the
distribution requirement even though such Fund has not received any interest
payments on such obligations during
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that period. Because a Fund distributes all of its net investment income to its
shareholders, the Fund may have to sell portfolio securities to distribute such
accrued income, which may occur at a time when the Adviser or sub-adviser would
not have chosen to sell such securities and which may result in a taxable gain
or loss.
Income received on direct U.S. obligations is exempt from income tax at the
state level when received directly by a PBHG Advisor Fund and may be exempt,
depending on the state, when received by a shareholder as income dividends from
such Fund provided certain state-specific conditions are satisfied. Not all
states permit such income dividends to be tax exempt and some require that a
certain minimum percentage of an investment company's income be derived from
state tax-exempt interest. Each Fund will inform shareholders annually of the
percentage of income and distributions derived from direct U.S. obligations. You
should consult your tax adviser to determine whether any portion of the income
dividends received from a PBHG Advisor Fund is considered tax exempt in your
particular state.
Dividends declared by a PBHG Advisor Fund in October, November or December
of any year and payable to shareholders of record on a date in one of those
months will be deemed to have been paid by such Fund and received by the
shareholders on December 31 of that year if paid by the Fund at any time during
the following January.
Each PBHG Advisor Fund intends to make sufficient distributions prior to
the end of each calendar year to avoid liability for the federal excise tax
applicable to regulated investment companies.
Tax Treatment of Transactions
Each sale, exchange or redemption of a PBHG Advisor Fund's shares is a
taxable event to the shareholder.
Income derived by a PBHG Advisor Fund from securities of foreign issuers
may be subject to foreign withholding taxes. The PBHG Advisor Funds may be able
to treat shareholders as having paid their proportionate share of such foreign
taxes.
GENERAL INFORMATION
The Company
PBHG Advisor Funds, Inc., an open-end management investment company, was
incorporated in Maryland on January 9, 1998. The Company reserves the right to
create and issue shares of additional portfolios. Each PBHG Advisor Fund pays
its respective expenses relating to its operation, including fees of its service
providers, audit and legal expenses, expenses of preparing prospectuses, proxy
solicitation material and reports to shareholders, costs of custodial services
and registering the shares of the Funds under federal and state securities laws,
pricing and insurance expenses, and pays additional expenses including
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses. In addition to the Class A and Class B shares
offered for sale by this Prospectus, the Company offers Class I shares which are
available only to certain institutional investors and are not offered by this
Prospectus. Class I shares do not carry the same sales charges and other
expenses as Class A and Class B shares, which may affect performance. Class I
shares have no preference over Class A and Class B shares. Investors may obtain
more information concerning Class I shares by calling 1-888-800-2685.
The Adviser
Pilgrim Baxter & Associates, Ltd. is a professional investment management
firm and registered investment adviser that, along with its predecessors, has
been in business since 1982. The sole shareholder of the Adviser is United Asset
Management Corporation ("UAM"), a NYSE listed holding company principally
engaged, through affiliated firms, in providing institutional investment
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management services and acquiring institutional investment management firms.
UAM's corporate headquarters are located at One International Place, Boston,
Massachusetts 02110. The Adviser currently has discretionary management
authority with respect to approximately $15 billion in assets. In addition to
advising the PBHG Advisor Funds, the Adviser provides advisory services to
pension and profit-sharing plans, charitable institutions, corporations, trusts
and estates, and other investment companies. The principal business address of
the Adviser is 825 Duportail Road, Wayne, Pennsylvania 19087.
The Adviser serves as the investment adviser to each PBHG Advisor Fund
under an investment advisory agreement with the Company (the "Advisory
Agreement"), on behalf of each of the Funds. The Adviser makes the investment
decisions for the assets of each Fund and continuously reviews, supervises and
administers the investment program of each Fund, subject to the supervision of,
and policies established by, the Board of Directors of the Company.
For its services, the Adviser is entitled to a fee, which is calculated
daily and paid monthly, at an annual rate of: 0.60% for the PBHG Advisor Core
Value Fund; 0.60% for the PBHG Advisor Defensive Equity Fund; 0.60% for the PBHG
Advisor Enhanced Equity Fund; 0.60% for the PBHG Advisor Blue Chip Growth Fund;
0.85% for the PBHG Large Cap Concentrated Fund; 0.75% for the PBHG Advisor New
Opportunities Fund; 0.45% for the PBHG Advisor Master Fixed Income Fund; 0.30%
for the PBHG Advisor Short-Term Government Fund; and 0.30% for the PBHG Advisor
Cash Reserves Fund.
In the interest of limiting the expenses of the PBHG Advisor Funds, the
Adviser has entered into an Expense Limitation Agreement with the Company, on
behalf of each Fund. The Adviser has agreed to waive or limit its advisory fees
or assume other expenses in an amount that operates to limit the aggregate
annual total of certain operating expenses of each Fund as follows: 0.82% of the
PBHG Advisor Core Value Fund, the PBHG Advisor Defensive Equity Fund, the PBHG
Advisor Enhanced Equity Fund and the PBHG Advisor Blue Chip Growth Fund; 1.07%
of the PBHG Advisor Large Cap Concentrated Fund; 0.97% of the PBHG Advisor New
Opportunities Fund; 0.67% of the PBHG Advisor Master Fixed Income Fund; 0.52% of
the PBHG Advisor Short-Term Government Fund and PBHG Advisor Cash Reserves Fund.
The expenses subject to such limitation are those that are not specifically
allocated to a class of shares of a Fund under the Company's multiple class plan
(the "Rule 18f-3 Plan") including, but not limited to, investment advisory fees
of the Adviser, but excluding: (i) interest, taxes, brokerage commissions, and
other expenditures which are capitalized in accordance with generally accepted
accounting principles; (ii) expenses specifically allocated to a class of shares
of a Fund under the Rule 18f-3 Plan, such as Rule 12b-1 expenses and transfer
agency fees; and (iii) other extraordinary expenses not incurred in the ordinary
course of a Fund's business. Reimbursement by the Funds of the advisory fees
waived or limited and other expenses paid by the Adviser pursuant to the Expense
Limitation Agreement may be made at a later date when such Funds have reached a
sufficient asset size to permit reimbursement to be made without causing the
total annual expense ratio of each Fund to exceed the percentages discussed in
this paragraph. Consequently, no reimbursement by a Fund will be made unless:
(i) the Fund's assets exceed $75 million; (ii) the Fund's total annual expense
ratio is less than the specified percentage; and (iii) the payment of such
reimbursement was approved by the Board of Directors on a quarterly basis.
Gary L. Pilgrim, CFA serves as the portfolio manager of the PBHG Advisor
New Opportunities Fund. Mr. Pilgrim has served as the Chief Investment Officer
for the Adviser for the past six years and is also a Director of the Adviser.
James D. McCall, CFA manages the PBHG Advisor Large Cap Concentrated Fund.
Mr. McCall has been a portfolio manager with the Adviser since 1994. Prior to
joining the Adviser, Mr. McCall was a portfolio manager with First National Bank
of Maryland.
Robert Urquhart, CFA manages the PBHG Advisor Blue Chip Growth Fund. Mr.
Urquhart joined the Adviser from PNC Equity Advisor, where he was Managing
Director responsible for management of approximately $1.5 billion in assets
concentrated in large cap growth and growth and income
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products. Previously, Mr. Urquhart was Chief Financial Officer for Cole
Financial Group where he had portfolio management responsibilities. Mr. Urquhart
earned an MBA degree from Harvard University and a BS degree in Business/Finance
from the University of Colorado.
Value Investors
Pilgrim Baxter Value Investors, Inc. (formerly, Newbold's Asset Management,
Inc.), 825 Duportail Road, Wayne, PA 19087, a registered investment adviser that
was formed in 1940, is a wholly-owned subsidiary of the Adviser. Value Investors
currently has discretionary management authority with respect to over $4 billion
in assets. In addition to sub-advising certain of the PBHG Advisor Funds, Value
Investors provides advisory services to pension and profit-sharing plans,
charitable institutions, trusts, estates and other investment companies. Value
Investors serves as the investment sub-adviser for the PBHG Advisor Core Value
Fund pursuant to an investment sub-advisory agreement with the Company, on
behalf of such Fund, and the Adviser (the "Sub-Advisory Agreement"). Under the
Sub-Advisory Agreement, Value Investors manages the investments of the Fund,
selects investments, and places all orders for purchases and sales of the Fund's
securities, subject to the general supervision of the Board of Directors of the
Company and the Adviser.
For the services provided and expenses incurred pursuant to the
Sub-Advisory Agreement for the PBHG Advisor Core Value Fund, Value Investors is
entitled to receive from the Adviser a sub-advisory fee with respect to the
average daily net assets of the Fund that is computed daily and paid monthly at
annual rates of 0.40%.
Gary D. Haubold, CFA manages the PBHG Advisor Core Value Fund. Mr. Haubold
joined Value Investors in January 1997. Prior to joining Value Investors, Mr.
Haubold was employed by Miller Anderson & Sherrerd ("MAS") from 1993 until 1997.
At MAS, Mr. Haubold served as the co-manager of the Mid-Cap Value Fund of the
MAS Fund from its inception in December 1994 through January 1997 and the
co-manager of the Small Cap Value Fund of the MAS Fund from December 1994
through January 1997. Mr. Haubold was the person primarily responsible for the
day-to-day management of those two mutual funds during the periods noted. Prior
to joining MAS, Mr. Haubold was Senior Vice President of Wood, Struthers &
Winthrop.
Analytic Investors
Effective July 20, 1998, Analytic Investors will become a wholly-owned
subsidiary of the Adviser and will change its name from AnalyticoTSA Global
Asset Management, Inc. to Pilgrim Baxter Analytic Investors, Inc. As of the date
of this Prospectus, Analytic Investors is a wholly-owned subsidiary of UAM, the
parent company of the Adviser, and is located at 700 South Flower Street, Suite
2400, Los Angeles, CA 90017.
Analytic Investors was founded in 1970 as Analytic Investment Management,
Inc., one of the first independent investment counsel firms specializing in the
creation and continuous management of optioned equity and optioned debt
portfolios for fiduciaries and other long term investors. It is one of the
oldest and largest independent investment management firms in this specialized
area. In January 1996, Analytic Investment Management, Inc. acquired and merged
with TSA Capital Management ("TSA") which emphasizes U.S. and global tactical
asset allocation, currency management, quantitative equity and fixed income
management, as well as option yield curve strategies. Analytic Investors serves,
among others, pension and profit-sharing plans, endowments, foundations,
corporate investment portfolios, mutual savings banks, and insurance companies,
for which it manages in excess of $1 billion. It has also managed another
registered investment company since 1978.
Pursuant to an investment sub-advisory agreement with the Company and the
Adviser, on behalf of the PBHG Advisor Defensive Equity Fund, the PBHG Advisor
Enhanced Equity Fund, the PBHG Advisor Master Fixed Income Fund and the PBHG
Advisor Short-Term Government Fund, Analytic Investors, subject to the control
and direction of the Adviser and the Board of Directors of the
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Company, will manage the Funds in accordance with each Fund's stated investment
objective and policies and will make investment decisions for the Funds.
Dennis M. Bein and Harindra de Silva are the portfolio managers for the
PBHG Advisor Defensive Equity Fund and the PBHG Advisor Enhanced Equity Fund.
Mr. Bein has been a member of the portfolio management and research team for
Analytic Investors since August 1995. He concurrently served as a senior
associate for Analysis Group, Inc. from August 1990 until April 1998. Dr. de
Silva is the President of the Analytic Optioned Equity Fund and serves as a
President of Analytic Investors, which he joined in May of 1995. He concurrently
served as a principal of Analysis Group, Inc. from March 1986 until April 1998.
The portfolio managers are subject to the supervision of Analytic Investors'
investment management committee.
Scott Barker, Greg McMurran and Bob Bannon are the portfolio managers for
the PBHG Advisor Master Fixed Income Fund and PBHG Advisor Short-Term Government
Fund. Mr. Barker has been a member of the portfolio management and research team
for Analytic Investors since August 1995. He concurrently served as a research
analyst with Analysis Group, Inc. from October 1993 until April 1998. Previously
he was with Zontech, Inc. for six years as a scientific analyst. Mr. McMurran is
the Chief Investment Officer of Analytic Investors and has been with the firm
since October of 1976 as a portfolio manager. Mr. Bannon is a managing director
of Analytic Investors specializing in the fixed income area. He initially joined
the firm in January 1996 when TSA merged with Analytic Investment Management,
Inc. He was formerly a managing director with TSA since April 1995. Previously,
he served as a senior bond strategist with IDEA for four years. The portfolio
managers are subject to the supervision of Analytic Investors' investment
management committee.
As compensation for furnishing investment advisory, management, and other
services, and costs and expenses assumed, pursuant to the sub-advisory
agreement, the Adviser pays Analytic Investors an annual fee based on the
average daily net assets of each Fund as follows:
<TABLE>
<S> <C>
PBHG Advisor Defensive Equity Fund.......................... 0.40%
PBHG Advisor Enhanced Equity Fund........................... 0.40%
PBHG Advisor Master Fixed Income Fund....................... 0.25%
PBHG Advisor Short-Term Government Fund..................... 0.10%
</TABLE>
Wellington Management
Wellington Management Company, LLP serves as the investment sub-adviser for
the PBHG Advisor Cash Reserves Fund pursuant to an investment sub-advisory
agreement with the Company, on behalf of the PBHG Advisor Cash Reserves Fund,
and the Adviser. Under the sub-advisory agreement, Wellington Management manages
the investments of the Fund, selects investments, and places all orders for
purchases and sales of the Fund's securities, subject to the general supervision
of the Board of Directors of the Company and the Adviser.
For the services provided and expenses incurred pursuant to the
sub-advisory agreement, Wellington Management is entitled to receive from the
Adviser a fee, computed daily and paid monthly, at the annual rate equal to
0.075% of the PBHG Advisor Cash Reserves Fund's average daily net assets up to
and including $500 million and 0.020% of the Fund's average daily net assets
over $500 million, but subject to a minimum annual fee of $50,000.
Wellington Management is a professional investment counseling firm which
provides investment services to investment companies, employee benefit plans,
endowments, foundations, and other institutions and individuals. As of December
31, 1997, Wellington Management had investment management authority with respect
to approximately $174.5 billion of assets. Wellington Management and its
predecessor organizations have provided investment advisory services to
investment companies since 1933 and to investment counseling clients since 1960.
Wellington Management, 75 State Street, Boston, Massachusetts 02109, is a
Massachusetts limited liability partnership, of which the following persons are
managing partners: Robert W. Doran, Duncan M. McFarland and John R. Ryan.
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The Administrator and Sub-Administrator
The Administrator provides the Company with administrative services,
including regulatory reporting and all necessary office space, equipment,
personnel and facilities. For these administrative services, the Administrator
is entitled to a fee, which is calculated daily and paid monthly, at an annual
rate of 0.15% of the average daily net assets of the Company. The principal
place of business of the Administrator is 825 Duportail Road, Wayne, PA 19087.
The Sub-Administrator, an indirect wholly-owned subsidiary of SEI
Investments Company ("SEI"), assists the Administrator in providing
administrative services to the Company. For acting in this capacity, the
Administrator pays the Sub-Administrator fees at an annual rate based on the
combined average daily net assets of the Company, The PBHG Funds, Inc., and PBHG
Insurance Series Fund, Inc., calculated as follows: (i) 0.040% of the first $2.5
billion, plus (ii) 0.025% of the next $7.5 billion, plus (iii) 0.020% of the
excess over $10 billion.
The Transfer Agent
DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri, 64141-6534,
serves as the transfer agent and dividend disbursing agent for the Company under
a transfer agency agreement with the Company. From time to time, the Company may
pay amounts to third parties that provide sub-transfer agency and other
administrative services relating to the Company to persons who beneficially own
interests in the Company, such as participants in 401(k) plans. These services
may include, among other things, sub-accounting services, answering inquiries
relating to the PBHG Advisor Funds, delivering, on behalf of the Company, proxy
statements, annual reports, updated prospectuses, other communications regarding
the Company, and related services as the Company or the beneficial owners may
reasonably request.
Shareholder Servicing Agents
The Administrator acts as shareholder servicing agent for the Company. UAM
SSC acts as sub-shareholder servicing agent for the Company.
The Distributor
The Company has entered into distribution agreements relating to the PBHG
Advisor Funds (the "Distribution Agreements"), dated April 1, 1998, with the
Distributor, a registered broker-dealer, pursuant to which the Distributor acts
as the distributor of Class A and Class B shares of the PBHG Advisor Funds. The
address of the Distributor is 825 Duportail Road, Wayne, Pennsylvania 19087.
Certain directors and officers of the Company are affiliated with the
Distributor.
The Distribution Agreements provide the Distributor with the exclusive
right to distribute shares of the Funds directly and through institutions with
whom the Distributor has entered into selected dealer agreements. Under the
Distribution Agreement for the Class B shares, the Distributor sells Class B
shares at net asset value subject to a contingent deferred sales charge
established by the Distributor. The Distributor is authorized to advance to
institutions through whom Class B shares are sold a sales commission under
schedules established by the Distributor. The Distribution Agreement for the
Class B shares provides that the Distributor (or its assignee or transferee)
will receive 0.75% (of the total 1.00% payable under the 12b-1 distribution plan
applicable to Class B shares) of each Fund's average daily net assets
attributable to Class B shares attributable to the sales efforts of the
Distributor. In the event the Class B shares Distribution Agreement is
terminated, the Distributor would continue to receive payments of asset-based
sales charges in respect of the outstanding Class B shares attributable to the
distribution efforts of the Distributor; provided, however, that a complete
termination of the Class B shares distribution plan (as defined in the plan)
would terminate all payments to the Distributor. Termination of the Class B
shares distribution plan or Distribution Agreement does not affect the
obligation of Class B shareholders to pay contingent deferred sales charges.
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Distribution Plans
The PBHG Advisor Funds have adopted Distribution Plans applicable to Class
A and Class B shares.
Class A Plan. The Distribution Plan applicable to Class A shares of the
PBHG Advisor Funds (the "Class A Plan") pursuant to Rule 12b-1 under the 1940
Act authorizes the Company to pay an aggregate amount of up to 0.35% of the
average daily net assets of Class A shares of each Fund on an annualized basis
to compensate the Distributor for certain promotional and other sales-related
costs, and to pay selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A shares of a Fund. The
Company's directors have determined that payments under the 12b-1 distribution
plan will currently be limited to 0.25%. Notice will be given to shareholders of
any proposed increase in such amount. Payments can also be directed to selected
institutions who have entered into service agreements with respect to Class A
shares of the Funds and who provide continuing personal services to their
customers who own Class A shares of a Fund. The service fees payable to selected
institutions are calculated at the annual rate of 0.25% of the average daily net
asset value of those Fund shares that are held in such institution's customers'
accounts.
Of the aggregate amount payable under the Class A Plan, payments to dealers
and other financial institutions that provide continuing personal shareholder
services to their customers who purchase and own shares of a PBHG Advisor Fund,
in amounts of up to 0.25% of the average net assets of such Fund attributable to
the customers of such dealers or financial institutions, are characterized as a
service fee, and payments to dealers and other financial institutions in excess
of such amount and payments to the Distributor in excess of 0.25% are
characterized as an asset-based sales charge pursuant to the Class A Plan.
Class B Plan. Each PBHG Advisor Fund also has adopted a Distribution Plan
applicable to Class B shares of the Funds (the "Class B Plan"). Under the Class
B Plan, each Fund pays an aggregate amount of 1.00% of the average daily net
assets on an annualized basis attributable to such Fund's Class B shares. Of
such amount, the Fund pays a service fee of 0.25% of the average daily net
assets attributable to such Fund's Class B shares to selected dealers and
financial institutions who furnish continuing personal shareholder services to
their customers who purchase and own Class B shares of the Fund. Any amounts not
paid as a service fee would constitute an asset based sales charge. Amounts paid
in accordance with the Class B Plan with respect to any Fund may be used to
finance any activity primarily intended to result in the sale of Class B shares
of such Fund.
Class A and Class B Plans. Activities that may be financed under the Class
A Plan and the Class B Plan (collectively, the "Plans") include, but are not
limited to: printing of prospectuses and statements of additional information
and reports for other than existing shareholders, overhead, preparation and
distribution of advertising material and sales literature, supplemental payments
to dealers and other institutions such as asset-based sales charges or payments
of service fees under shareholder service arrangements, and the cost of
administering the Plans. These amounts payable by a PBHG Advisor Fund under the
Plans need not be directly related to the expenses actually incurred by the
Distributor on behalf of each Fund. Thus, even if the Distributor's actual
expenses exceed the fee payable to the Distributor thereunder at any given time,
the Company will not be obligated to pay more than that fee, and if the
Distributor's expenses are less than the fee it receives, the Distributor will
retain the full amount of the fee. Payments pursuant to the Plans are subject to
any applicable limitations imposed by the rules of NASD Regulation, Inc.
Each of the Plans may be terminated at any time by a vote of the majority
of those directors who are not "interested persons" of the Company, as defined
by the 1940 Act, or by a vote of the holders of the majority of the outstanding
shares of the applicable class.
Under the Plans, the Distributor may, in its discretion, from time to time
agree to waive voluntarily all or any portion of its fee that has not been
assigned or transferred, while retaining its ability to be reimbursed for such
fee prior to the end of each fiscal year.
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Financial intermediaries and any other person entitled to receive
compensation for selling PBHG Advisor Fund shares may receive different
compensation for selling shares of one class rather than another class.
For additional information concerning the operation of the Plans see the
Statement of Additional Information.
Directors of the Company
The management and affairs of the Company are supervised by the Board of
Directors under the laws of the State of Maryland. The Directors have approved
contracts under which, as described above, certain companies provide essential
management services to the Company.
Voting Rights
Each share held entitles the shareholder of record to one vote for each
dollar of net asset value of shares of stock owned by the shareholder.
Shareholders of each PBHG Advisor Fund will vote separately on matters relating
solely to it, such as approval of advisory agreements and changes in fundamental
policies, and matters affecting some but not all Funds of the Company will be
voted on only by shareholders of the affected series. Shareholders of all series
of the Company will vote together in matters affecting the Fund generally, such
as the election of Directors or selection of independent accountants.
Shareholders of each class of shares of the Company will vote separately on
matters relating solely to that class of shares and not on matters relating
solely to another class of shares. As a Maryland corporation, the Company is not
required to hold annual meetings of shareholders, but shareholder approval will
be sought for certain changes in the operation of the Company and for the
election of directors under certain circumstances. In addition, a director may
be removed by the remaining directors or by shareholders at a special meeting
called upon written request of shareholders owning at least 10% of the
outstanding shares of the Company. In the event that such a meeting is
requested, the Company will provide appropriate assistance and information to
the shareholders requesting the meeting.
Reporting
The Company issues unaudited financial information semi-annually and
audited financial statements annually for each PBHG Advisor Fund. The Company
also furnishes periodic reports and, as necessary, proxy statements to
shareholders of record.
Year 2000 Compliance
There is general concern throughout the industry that a number of computer
systems and software packages in use today may not be able to recognize the Year
2000 or accurately process information after December 31, 1999. The Company is
actively working with the Adviser, the sub-advisers and the Company's other
service providers, including but not limited to, the Administrator,
Sub-Administrator, Distributor, Transfer Agent and shareholder servicing agents
to identify potential problems and develop plans reasonably designed to address
these potential problems before the Year 2000. While there can be no absolute
assurance that all service providers will be fully Year 2000-compliant or that
non-compliant systems or software will have no impact at all, the Company
believes that these steps are reasonable and will be successful in identifying
and minimizing any negative impact associated with Year 2000 processing
problems. Furthermore, the Company does not currently anticipate that there will
be any material cost to the Company or any PBHG Advisor Fund as a result of this
project.
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<PAGE>
Shareholder Inquiries
You may direct inquiries to the Company by writing to PBHG Advisor Funds,
Inc., P.O. Box 419229, Kansas City, Missouri 64141-6229.
Dividends and Distributions
Substantially all of the net investment income (exclusive of capital gains)
of a PBHG Advisor Fund (except the PBHG Advisor Master Fixed Income Fund, the
PBHG Advisor Short-Term Government Fund and the PBHG Advisor Cash Reserves Fund)
is distributed in the form of annual dividends. If any capital gain is realized,
substantially all of it will be distributed by each Fund at least annually. The
PBHG Advisor Master Fixed Income Fund, the PBHG Advisor Short-Term Government
Fund and the PBHG Advisor Cash Reserves Fund accrue dividends daily and pay them
monthly to shareholders.
Shareholders automatically receive all dividends and capital gain
distributions in additional shares at the net asset value determined on the next
Business Day after the record date, unless the shareholder has elected to take
such payment in cash. Shareholders may change their election by providing
written notice to the Transfer Agent at least 15 days prior to the distribution.
Shareholders may receive payments for cash distributions in the form of a check
or by Federal Reserve wire or ACH transfer. If a shareholder has elected to
receive dividends and/or capital gains distributions in cash and the postal or
other delivery service is unable to deliver checks to the shareholder's address
of record, such shareholder's distribution option will automatically be
converted to having all dividend and other distributions reinvested in
additional shares. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
Dividends and distributions of the PBHG Advisor Funds are paid on a per
share basis. The value of each share will be reduced by the amount of the
payment. If shares are purchased shortly before the record date for a dividend
or distribution of capital gains, a shareholder will pay the full price for the
shares and receive some portion of the price back as a taxable dividend or
distribution.
Counsel and Independent Accountants
Ballard Spahr Andrews & Ingersoll, LLP serves as counsel to the Company.
Coopers & Lybrand L.L.P. serves as the independent accountants of the Company.
Custodian
First Union National Bank (successor to CoreStates Bank, N.A.), 530 Walnut
Street, Philadelphia, Pennsylvania 19106, serves as the custodian for the
Company and each PBHG Advisor Fund (the "Custodian"). The Custodian holds cash,
securities and other assets of the Funds as required by the 1940 Act.
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APPENDIX
GLOSSARY OF PERMITTED INVESTMENTS
The following is a description of permitted investments for certain of the
PBHG Advisor Funds:
American Depositary Receipts ("ADRs") and Global Depositary Receipts
("GDRs") -- ADRs are securities, typically issued by a U.S. financial
institution (a "depositary"), that evidence ownership interests in a security or
a pool of securities issued by a foreign issuer and deposited with the
depositary. ADRs include American Depositary Shares and New York Shares. GDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, GDRs and CDRs may be available for investment
through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt and a
depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depositary receipt generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through to the holders of the
receipts voting rights with respect to the deposited securities.
Bankers' Acceptance -- A bill of exchange or time draft drawn on and
accepted by a commercial bank. It is used by corporations to finance the
shipment and storage of goods and to furnish dollar exchange. Maturities are
generally six months or less.
Certificate of Deposit -- A negotiable interest bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit
generally carry penalties for early withdrawal.
Commercial Paper -- The term used to designate unsecured short-term
promissory notes issued by corporations and other entities. Maturities on these
issues typically vary from a few days to nine months.
Convertible Securities -- Securities such as rights, bonds, notes and
preferred stocks which are convertible into or exchangeable for common stocks.
Convertible securities have characteristics similar to both fixed income and
equity securities. Because of the conversion feature, the market value of
convertible securities tends to move together with the market value of the
underlying common stock. As a result, a Fund's selection of convertible
securities is based, to a great extent, on the potential for capital
appreciation that may exist in the underlying stock. The value of convertible
securities is also affected by prevailing interest rates, the credit quality of
the issuer, and any call provisions.
Demand Instruments -- Certain instruments may involve a conditional or
unconditional demand feature which permits the holder to demand payment of the
principal amount of the instrument. Demand instruments may include variable
amount master demand notes.
Derivatives -- Derivatives are securities that derive their value from
other securities. The following are considered derivative securities: futures,
options on futures, options (e.g., puts and calls), swap agreements,
mortgage-backed securities (e.g., CMOs, REMICs, IOs and POs), when-issued
securities and forward commitments, floating and variable rate securities,
convertible securities, "stripped" U.S. Treasury securities (e.g., Receipts and
STRIPS) and privately issued stripped securities (e.g., TGRs, TRs and CATS). See
elsewhere in this "Glossary of Permitted Investments" for discussions of these
various instruments, and see "Investment Objective and Policies" for more
information about the investment policies and limitations applicable to their
use.
Equity Securities -- Securities that evidence ownership interests in a
company, such as common stock and preferred stock. Investments in equity
securities are subject to market risks which may cause their prices to fluctuate
over time.
Foreign Currency Transactions -- Each PBHG Advisor Fund may hold foreign
currency deposits from time to time, and may convert dollars and foreign
currencies in the foreign exchange markets. Currency conversion involves dealer
spreads and other costs, although commissions usually are not
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charged. Currencies may be exchanged on a spot (i.e., cash) basis, or by
entering into forward contracts to purchase or sell foreign currencies at a
future date and price. Forward contracts generally are traded in an interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. The parties to a forward contract may agree to
offset or terminate the contract before maturity, or may hold the contract to
maturity and complete the contemplated currency exchange.
A PBHG Advisor Fund may use currency forward contracts to manage currency
risks and to facilitate transactions in foreign securities. The following
discussion summarizes the principal currency management strategies involving
forward contracts that could be used by the Funds.
In connection with purchases and sales of securities denominated in foreign
currencies, a PBHG Advisor Fund may enter into currency forward contracts to fix
a definite price for the purchase or sale in advance of the trade's settlement
date. This technique is sometimes referred to as a "settlement hedge" or
"transaction hedge." The Adviser or the applicable sub-adviser may enter into
settlement hedges in the normal course of managing the Fund's foreign
investments. A Fund may also enter into forward contracts to purchase or sell a
foreign currency in anticipation of future purchases or sales of securities
denominated in foreign currency, even if the specific investments have not yet
been selected by the Adviser or the sub-adviser.
A PBHG Advisor Fund may also use forward contracts to hedge against a
decline in the value of existing investments denominated in foreign currency.
For example, if a Fund owned securities denominated in pounds sterling, it could
enter into a forward contract to sell pounds sterling in return for U.S. dollars
to hedge against possible declines in the pound's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. A Fund could also hedge the position by selling another
currency expected to perform similarly to the pound sterling -- for example, by
entering into a forward contract to sell Deutschemarks in return for U.S.
dollars. This type of hedge, sometimes referred to as a "proxy hedge," could
offer advantages in terms of cost, yield, or efficiency, but generally would not
hedge currency exposure as effectively as a simple hedge into U.S. dollars.
Proxy hedges may result in losses if the currency used to hedge does not perform
similarly to the currency in which the hedged securities are denominated.
Under certain conditions, guidelines of the Securities and Exchange
Commission ("SEC") require mutual funds to set aside appropriate liquid assets
in a segregated account to cover currency forward contracts. As required by SEC
guidelines, each PBHG Advisor Fund will segregate assets to cover currency
forward contracts, if any, whose purpose is essentially speculative. A Fund will
not segregate assets to cover forward contracts entered into for hedging
purposes, including settlement hedges, position hedges, and proxy hedges.
Successful use of forward currency contracts will depend on the skill of
the Adviser or the applicable sub-adviser in analyzing and predicting currency
values. Forward contracts may substantially change a PBHG Advisor Fund's
investment exposure to changes in currency exchange rates, and could result in
losses to a Fund if currencies do not perform as the Adviser or the applicable
sub-adviser anticipates. For example, if a currency's value rose at a time when
the Adviser or sub-adviser had hedged a Fund by selling that currency in
exchange for dollars, a Fund would be unable to participate in the currency's
appreciation. If the Adviser or a sub-adviser hedges a Fund's currency exposure
through proxy hedges, the Fund could realize currency losses from the hedge and
the security position at the same time if the two currencies do not move in
tandem. Similarly, if the Adviser or the applicable sub-adviser increases a
Fund's exposure to a foreign currency and that currency's value declines, the
Fund will realize a loss. There is no assurance that the use of forward currency
contracts by the Adviser or the sub-advisers will be advantageous to a Fund or
that it will hedge at an appropriate time.
Futures Contracts and Options on Futures Contracts -- The PBHG Advisor
Funds may enter into futures contracts for the purchase or sale of securities,
including, for the Fund, index contracts on foreign currencies. A purchase of a
futures contract means the acquisition of a contractual right to obtain delivery
of the securities or foreign currency called for by the contract at a specified
price during a specified future month. When a futures contract is sold, the Fund
incurs a contractual
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obligation to deliver the securities or foreign currency underlying the contract
at a specified price on a specified date during a specified future month. Each
of the specified Funds may sell stock index futures contracts in anticipation
of, or during, a market decline to attempt to offset the decrease in market
value of its common stocks that might otherwise result; and it may purchase such
contracts in order to offset increases in the cost of common stocks that it
intends to purchase. Each of the specified Funds may enter into futures
contracts, and with respect to the Fund options thereon, to the extent that (i)
aggregate initial margin deposits to establish positions other than "bona fide
hedging" positions (and premiums paid for unexpired options on futures
contracts) do not exceed 5% of the Fund's net assets and (ii) the total market
value of obligations underlying all futures contracts does not exceed 20% of the
value of the Fund's total assets or 50% of the value of each of the other
specified Fund's total assets.
The PBHG Advisor Funds may also purchase and write options to buy or sell
futures contracts. The Funds may write options on futures only on a covered
basis. Options on futures are similar to options on securities except that
options on futures give the purchaser the right, in return for the premium paid,
to assume a position in a futures contract, rather than actually to purchase or
sell the futures contract, at a specified exercise price at any time during the
period of the option.
Each PBHG Advisor Fund will maintain assets sufficient to meet its
obligations under such futures contracts in a segregated margin account with the
custodian bank or will otherwise comply with the SEC's position on asset
coverage. The prices of futures contracts are volatile and are influenced by,
among other things, actual and anticipated changes in the market and interest
rates.
Illiquid Securities -- Illiquid securities are investments that cannot be
sold or disposed of in the ordinary course of business within seven (7) days at
approximately the prices at which they are valued. Under the supervision of the
Board of Directors of the Company, the Adviser (as defined hereinafter) or
applicable sub-adviser determines the liquidity of each PBHG Advisor Fund's
investments and, through reports from the Adviser or sub-adviser, the Board
monitors investments in illiquid instruments. In determining the liquidity of a
Fund's investments, the Adviser or sub-adviser may consider various factors
including: (i) the frequency of trades and quotations; (ii) the number of
dealers and prospective purchasers in the marketplace; (iii) dealer undertakings
to make a market; (iv) the nature of the security (including any demand or
tender features); and (v) the nature of the marketplace for trades (including
the ability to assign or offset a Fund's rights and obligations relating to the
investment). Investments currently considered by a Fund to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days, over-the-counter options, and non-government
stripped fixed-rate mortgage backed securities. Also, the Adviser or sub-
adviser may determine that some government-stripped fixed-rate mortgage backed
securities, loans and other direct debt instruments, and swap agreements are
illiquid. However, with respect to over-the-counter options a Fund writes, all
or a portion of the value of the underlying instrument may be illiquid depending
on the assets held to cover the option and the nature and terms of any agreement
a Fund may have to close out the option before expiration. In the absence of
market quotations, illiquid investments are priced at fair value as determined
in good faith by a committee appointed by the Board of Directors. If, through a
change in values, net assets or other circumstances, a Fund was in a position
where more than 15% of its net assets were invested in illiquid securities (10%
for the PBHG Advisor Cash Reserves Fund), it would seek to take appropriate
steps to protect liquidity.
Mortgage-Related Securities -- Securities that include interests in pools
of mortgage loans made to U.S. residential home buyers, including mortgage loans
made by savings and loan institutions, mortgage bankers, commercial banks, and
others. Mortgage-related securities not issued or guaranteed by U.S. Government
agencies or instrumentalities are not considered U.S. Government securities for
purposes of the 80% test for such securities in the PBHG Advisor Short-Term
Government Fund. Pools of mortgage loans are assembled as securities for sale to
investors by various governmental, government-related and private organizations.
The interest rates earned on such securities may be fixed, in the case of pools
of fixed-rate mortgages, or variable, in the case of pools of adjustable-rate
mortgages. Each PBHG Advisor Fund may also invest in debt securities which are
secured with collateral consisting of U.S. mortgage-related securities, such as
collateralized mortgage obligations, and in other types of mortgage-related
securities.
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An example of a mortgage-related security is a GNMA mortgage-backed
certificate. Although the mortgage loans in the pool underlying the certificate
will have maturities of up to 30 years, the actual average life of a GNMA
certificate will be substantially less because the mortgages may be prepaid
prior to maturity. Prepayment rates vary widely and may be affected by changes
in mortgage interest rates. In periods of falling interest rates, the rate of
prepayment on higher interest rate mortgages increases, thereby shortening the
average life of the GNMA certificate. Conversely, when interest rates are
rising, the rate of prepayment decreases, thereby lengthening the actual average
life of the certificate. Reinvestment of prepayments may occur at higher or
lower rates than the original yield on the certificates. Due to the possibility
of prepayment and the need to reinvest prepayments of principal at current
rates, GNMA certificates can be less effective then typical non-callable bonds
of similar maturities at "locking in" higher yields during periods of declining
rates, although they may have comparable risks to decline in value during
periods of rising interest rates.
Options -- The PBHG Advisor Funds may invest in put and call options for
various stocks and stock indices that are traded on national securities
exchanges, from time to time as the Adviser deems to be appropriate. Options
will be used for hedging purposes and will not be engaged in for speculative
purposes. The aggregate value of option positions may not exceed 10% of a Fund's
net assets as of the time a Fund enters into such options.
A put option gives the purchaser of the option the right to sell, and the
writer the obligation to buy, the underlying security at any time during the
option period. A call option gives the purchaser of the option the right to buy,
and the writer of the option the obligation to sell, the underlying security at
any time during the option period. The premium paid to the writer is the
consideration for undertaking the obligations under the option contract.
Although the Funds will engage in option transactions only as hedging
transactions and not for speculative purposes, there are risks associated with
such investment including the following: (i) the success of a hedging strategy
may depend on the ability of the Adviser or the sub-adviser to predict movements
in the prices of the individual securities, fluctuations in markets and
movements in interest rates; (ii) there may be an imperfect correlation between
the changes in market value of the stocks held by the Funds and the prices of
options; (iii) there may not be a liquid secondary market for options; and (iv)
while the Funds will receive a premium when it writes covered call options, it
may not participate fully in a rise in the market value of the underlying
security. When writing options (other than covered call options), the Funds must
establish and maintain a segregated account with the Fund's Custodian containing
cash or other liquid assets in an amount at least equal to the market value of
the option.
Receipts -- Separately traded interest and principal component parts of
U.S. Treasury obligations that are issued by banks or brokerage firms and are
created by depositing U.S. Treasury obligations into a special account at a
custodian bank. The custodian bank holds the interest and principal payments for
the benefit of the registered owners of the receipts. The custodian bank
arranges for the issuance of the receipts evidencing ownership and maintains the
register.
Repurchase Agreements -- Repurchase agreements are agreements by which a
person (e.g., a PBHG Advisor Fund) obtains a security and simultaneously commits
to return the security to the seller (a member bank of the Federal Reserve
System or primary securities dealer as recognized by the Federal Reserve Bank of
New York) at an agreed upon price (including principal and interest) on an
agreed upon date within a number of days (usually not more than seven) from the
date of purchase. The resale price reflects the purchase price plus an agreed
upon market rate of interest which is unrelated to the coupon rate or maturity
of the underlying security. A repurchase agreement involves the obligation of
the seller to pay the agreed upon price, which obligation is in effect secured
by the value of the underlying security.
Repurchase agreements are considered to be loans by a PBHG Advisor Fund for
purposes of its investment limitations. The repurchase agreements entered into
by the Funds will provide that the underlying security at all times shall have a
value at least equal to 102% of the resale price stated in the agreement. With
respect to all repurchase agreements entered into by a Fund, the Fund's
custodians or their agents must take possession of the underlying collateral.
However, if the seller defaults, the Fund could realize a loss on the sale of
the underlying security to the extent that the proceeds of the sale, including
accrued interest, are less than the resale price provided in the agreement
including interest. In
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addition, even though the Bankruptcy Code provides protection for most
repurchase agreements, if the seller should be involved in bankruptcy or
insolvency proceedings, the Fund may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the Fund
is treated as an unsecured creditor of the seller and is required to return the
underlying security to the seller's estate.
Restricted Securities -- Securities that may not be sold freely to the
public absent registration under the Securities Act of 1933, as amended ("1933
Act"), or an exemption from registration. A Fund may invest in restricted
securities that the Adviser determines are not illiquid, based on guidelines and
procedures developed and established by the Board of Directors of the Company.
The Board of Directors will periodically review such procedures and guidelines
and will monitor the Adviser's implementation of such procedures and guidelines.
Under these procedures and guidelines, the Adviser will consider the frequency
of trades and quotes for the security, the number of dealers in, and potential
purchasers for, the securities, dealer undertakings to make a market in the
security, and the nature of the security and of the marketplace trades. A Fund
may purchase restricted securities sold in reliance upon the exemption from
registration provided by Rule 144A under the 1933 Act. Investing in Rule 144A
securities may increase the level of a Fund's illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
these securities. Restricted securities may be difficult to value because market
quotations may not be readily available. Because of the restrictions on the
resale of restricted securities, they may pose liquidity problems for the Funds.
Securities Lending -- In order to generate additional income, certain of
the PBHG Advisor Funds may lend the securities in which they are invested
pursuant to agreements requiring that the loan be continuously secured by cash,
securities of the U.S. Government or its agencies or any combination of cash and
such securities as collateral equal at all times to 100% of the market value of
the securities lent. Each Fund will continue to receive interest on the
securities lent while simultaneously earning interest on the investment of cash
collateral in U.S. Government securities. Collateral is marked to market daily
to provide a level of collateral at least equal to the value of the securities
lent. There may be risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Adviser or
sub-advisers to be of good standing and when, in the judgment of the Adviser or
sub-advisers, the consideration which can be earned currently from such
securities loans justifies the attendant risk.
Swaps -- As a way of managing its exposure to different types of
investments, a PBHG Advisor Fund may enter into interest rate swaps, currency
swaps and other types of swap agreements such as caps, collars and floors. In a
typical interest rate swap, one party agrees to make regular payments equal to a
floating interest rate times a "notional principal amount" in return for
payments equal to a fixed rate times the same amount, for a specific period of
time. If a swap agreement provides for payment in different currencies, the
parties might agree to exchange the notional principal amount as well. Swaps may
also depend on other prices or rates, such as the value of an index or mortgage
prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specific interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift a Fund's investments exposure from one
type of investment to another. For example, if the Fund agrees to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options. Depending on how they are used, swap
agreements may increase or decrease the overall volatility of investments and
their share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed.
As a result, swaps can be highly volatile and have a considerable impact on a
Fund's performance. Swap agreements are subject to risks related to the
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counterparty's ability to perform and may decline in value if the counterparty's
creditworthiness deteriorates. The Fund may also suffer losses if it is unable
to terminate outstanding swap agreements or reduce its exposure through
offsetting transactions. Any obligation the Fund may have under these types of
arrangements will be covered by setting aside high quality liquid securities in
a segregated account. The Fund will enter into swaps only with counterparties
deemed creditworthy by the Adviser.
Time Deposit -- A non-negotiable receipt issued by a bank in exchange for
the deposit of funds. Like a certificate of deposit, it earns a specified rate
of interest over a definite period of time; however, it cannot be traded in the
secondary market. Time deposits with a withdrawal penalty are considered to be
illiquid securities.
U.S. Government Agency Obligations -- Certain Federal agencies such as the
Government National Mortgage Association ("GNMA") have been established as
instrumentalities of the United States Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the United States Government, are either backed by the full faith
and credit of the United States (e.g., GNMA securities) or supported by the
issuing agencies' right to borrow from the Treasury. The issues of other
agencies are supported by the credit of the instrumentality (e.g., Fannie Mae
securities).
U.S. Government Securities -- Bills, notes and bonds issued by the U.S.
Government and backed by the full faith and credit of the United States.
U.S. Treasury Obligations -- Bills, notes and bonds issued by the U.S.
Treasury, and separately traded interest and principal component parts of such
obligations that are transferable through the Federal book-entry system known as
Separately Traded Registered Interest and Principal Securities ("STRIPS").
STRIPS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. One type of STRIPS will have one class receiving all of the interest
("interest only" or "IO class"), while the other class will receive all of the
principal ("principal-only" or "PO class"). The yield to maturity on IO classes
and PO classes is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on the portfolio
yield to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities, even if the security is in one of the
highest rating categories.
Variable and Floating Rate Instruments -- Certain of the obligations
purchased by the Fund may carry variable or floating rates of interest, may
involve a conditional or unconditional demand feature and may include variable
amount master demand notes. Such instruments bear interest at rates which are
not fixed, but which vary with changes in specified market rates or indices,
such as a Federal Reserve composite index. The interest rates on these
securities may be reset daily, weekly, quarterly or some other reset period, and
may have a floor or ceiling on interest rate changes. There is a risk that the
current interest rate on such obligations may not accurately reflect existing
market interest rates. A demand instrument with a demand notice exceeding seven
days may be considered illiquid if there is no secondary market for such
securities.
When-Issued and Delayed-Delivery Securities -- When-issued and
delayed-delivery securities are securities subject to settlement on a future
date. For fixed income securities, the interest rate realized on when-issued or
delayed-delivery securities is fixed as of the purchase date and no interest
accrues to the Fund before settlement. These securities are subject to market
fluctuation due to changes in market interest rates and will have the effect of
leveraging the Fund's assets. The PBHG Advisor Funds are permitted to invest in
forward commitments or when-issued securities where such purchases are for
investment and not for leveraging purposes. One or more segregated accounts will
be established with the Custodian, and the Funds will maintain liquid assets in
such accounts in an amount at least equal in value to each Fund's commitments to
purchase when-issued securities.
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PBHD ADVISOR FUNDS, INC.
Investment Adviser:
Pilgrim Baxter & Associates, Ltd.
Distributor:
PBHG Fund Distributors
The Power of Discipline
The rewards of time. (Servicemark)
[LOGO]
To open an account, receive information,
make inquiries or request literature:
1-888-800-2685
<PAGE>
[LOGO]
PBHG ADVISOR FUNDS
Prospectus
July 14, 1998
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