As filed with the Securities and Exchange Commission on April 23, 1998
Securities Act Registration No. 333-44193
Investment Company Act Registration No. 811-08605
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-effective Amendment No. 2 Post-effective Amendment No. __
PBHG ADVISOR FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
825 Duportail Road
Wayne, Pennsylvania 19087
(Address of Principal Executive Offices:
Number, Street, City, State, Zip Code)
(610) 647-4100
(Area Code and Telephone Number)
Harold J. Baxter
Pilgrim Baxter & Associates, Ltd.
825 Duportail Road
Wayne, Pennsylvania 19087
(Name and Address of Agent for Service)
Copies to:
Thomas H. Duncan, Esq. John M. Zerr, Esq.
Ballard Spahr Andrews & Ingersoll, LLP General Counsel
1225 Seventeenth Street, Suite 2300 Pilgrim Baxter & Associates, Ltd.
Denver, Colorado 80202 825 Duportail Road
(303) 292-2400 Wayne, Pennsylvania 19087
(610) 647-4100
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
The securities being registered are Class A shares of the Registrant's PBHG
Advisor Enhanced Equity Fund, PBHG Advisor Master Fixed Income Fund and PBHG
Advisor Short-Term Government Fund. No filing fee is required because an
indefinite number of shares is being registered pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended.
It is proposed that this registration statement shall hereafter become
effective on May 25, 1998, in accordance with Rule 488.
<PAGE>
THE PBHG ADVISOR FUNDS, INC.
FORM N-14
Cross Reference Sheet
Pursuant to Rule 481(a) under the 1933 Act
Item Location in Combined Proxy
No. Statement and Prospectus
- ----- ------------------------------
Part A
1. Beginning of Registration Cover Page
Statement and Outside Front
Cover Page or Prospectus
2. Beginning and Outside Back Table of Contents
Cover Page
3. Fee Table, Synopsis and Risk Summary; Risk Factors
Factors
4. Information About the Transaction Summary; Information About the
Agreement
5. Information About the Registrant Summary; Comparison of Investment
Objectives and Policies;
Information About the Agreement;
Rights of Shareholders;
Additional Information About Each
Fund; Capitalization
6. Information About the Company Summary; Comparison of Investment
Being Acquired Objectives and Policies;
Information About the Agreement;
Rights of Shareholders;
Additional Information About Each
Fund; Capitalization; Financial
Statements; Ownership of Analytic
Portfolio Shares
7. Voting Information Summary; Information Relating to
Voting Matters
8. Interest of Certain Persons and Summary; Additional Information
Experts About Each Fund
9. Additional Information Required Not Applicable
for Reoffering by Persons
Deemed to be Underwriters
Location in Statement of
Part B Additional Information
-------------------------------
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. Additional Information About the The Company; Description of
Registrant Permitted Investments; Directors
and Officers of the Company;
Advisory and Management-Related
Services Agreement and Plans of
Distribution; Portfolio
Transactions; Description of
Shares; Determination of Net
Asset Value; Taxes; Performance
Data; Financial Information
13. Additional Information About the Not Applicable
Company Being Acquired
14. Financial Statements Financial Information
<PAGE>
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this document.
<PAGE>
THE ANALYTIC SERIES FUND
Dear Shareholder:
The accompanying Combined Proxy Statement and Prospectus contains an important
proposal for your consideration as a shareholder of Analytic Enhanced Equity
Portfolio, Analytic Master Fixed Income Portfolio or Analytic Short-Term
Government Portfolio (the "Analytic Portfolios"). Your Board of Trustees has
proposed that the Enhanced Equity Portfolio combine with PBHG Advisor Enhanced
Equity Fund, the Master Fixed Income Portfolio combine with PBHG Advisor Master
Fixed Income Fund and the Short-Term Government Portfolio combine with PBHG
Advisor Short-Term Government Fund (the "Reorganizations"). If the proposed
Reorganizations are approved, you will receive shares of the corresponding PBHG
Advisor Fund having an aggregate net asset value equal to the aggregate net
asset value of your Analytic Portfolio shares, with no tax effect to you.
The Analytic Portfolios have distinct investment objectives that were designed
to offer investors a range of investment opportunities within a single fund
family. While the Analytic Portfolios have performed well, they have not reached
the "critical mass" necessary to achieve operating efficiencies.
Your Board of Trustees believes that the Reorganizations are in the best
interests of the shareholders of the Analytic Portfolios. The investment
objectives and policies of the PBHG Advisor Funds are the same as those of the
corresponding Analytic Portfolios. Analytic TSA Global Asset Management, Inc.
("Analytic TSA"), the adviser to the Analytic Portfolios, is the sub-adviser to
the PBHG Advisor Funds, so your investment will continue to benefit from
Analytic TSA's distinctive investment philosophy. If, as expected, the
distributor of the PBHG Advisor Funds is able to distribute PBHG Advisor Fund
shares successfully, growth in assets would make possible the realization of
economies of scale and attendant savings in costs to the PBHG Advisor Funds and
their shareholders. In addition, following the Reorganizations, you will be able
to purchase additional shares of the other funds in PBHG Advisor Funds without
paying a sales charge and you will be able to freely exchange your PBHG Advisor
Fund shares without paying a sales charge for shares of the same class of the
other funds in PBHG Advisor Funds representing a wide range of investment
objectives and policies.
The enclosed materials provide more information about the proposal. Please read
this information carefully and call us if you have any questions. Our toll free
number is 1-800-374-2633.
Your vote is important no matter how many shares you own. Voting your shares
early will help us avoid follow-up mailings and telephone solicitations.
After reviewing the enclosed materials, we ask that you vote FOR the proposed
Reorganizations by completing, dating, and signing your proxy card, and mailing
it to us.
Sincerely,
Michael Koehn
Chairman
The Analytic Series Fund
<PAGE>
PBHG ADVISOR FUNDS, INC.
Dear Shareholder:
On behalf of the PBHG Advisor Funds let me welcome you and say we look forward
to the opportunity to have you join us as a shareholder of the PBHG Advisor
Enhanced Equity Fund; the PBHG Advisor Master Fixed Income; or the PBHG
Advisor Short-Term Government Fund.
In recommending approval of the proposed Reorganizations of your Analytic
Portfolio into the corresponding PBHG Advisor Fund, the Analytic Board of
Trustees asked us to make certain additional shareholder services available to
you as a former Analytic Portfolio shareholder. We are pleased to be able to
honor this request and provide to you the following opportunity:
After the Reorganization, you will be able to continue to purchase additional
Class A Shares of your new PBHG Advisor Fund portfolio without paying a sales
charge. You will also be able to purchase Class A Shares of any other PBHG
Advisor Fund portfolio without paying a sales charge and to exchange among
any of the PBHG Advisor Fund portfolios without paying a sales charge.
We believe this is a significant benefit to you as the maximum sales charge for
Class A Shares would normally be 5.75% for the PBHG Advisor Enhanced Equity
Fund, 4.75% for the PBHG Advisor Master Fixed Income Fund and 1.00% for the
PBHG Advisor Short-Term Government Fund.
We are happy to provide you with this unique opportunity to purchase Class A
Shares of any PBHG Advisor Fund portfolio at NAV for the lifetime of your
account and look forward to having you join us as a PBHG Advisor Fund
shareholder.
Sincerely,
Paul J. Hondros
Executive Vice President
PBHG Advisor Funds, Inc.
<PAGE>
THE ANALYTIC SERIES FUND
Analytic Enhanced Equity Portfolio
Analytic Master Fixed Income Portfolio
Analytic Short-Term Government Portfolio
IMPORTANT NEWS FOR SHAREHOLDERS
Q. What is Happening?
A. Your are being asked to vote on the Agreement and Plan of Reorganization
(the "Agreement"), dated as of March 23, 1998, between the Analytic Series
Fund (the "Fund") and PBHG Advisor Funds, Inc., a Maryland corporation
("PBHG Advisor Funds") as it relates to each of the Analytic Enhanced Equity
Portfolio, Analytic Master Fixed Income Portfolio and Analytic Short-Term
Government Portfolio (the "Analytic Portfolios"). The Agreement provides for the
reorganization of the Analytic Portfolios into three newly created investment
portfolios of PBHG Advisor Funds (the "PBHG Funds"). The Board of Trustees of
the Fund has unanimously approved the Agreement and the reorganizations (the
"Reorganizations") as being fair to and in the best interests of the Analytic
Portfolio shareholders.
Q. Why am I Being Asked to Approve the Agreement?
A. Under applicable law, a majority of the shareholders of each of the Analytic
Portfolios must approve the Agreement before the Reorganizations can take
effect.
Q. Why are the Analytic Portfolios Undergoing the Reorganizations?
A. Analytic Portfolios have relatively small asset levels and because of this,
the investment advisor Analytic o TSA Global Asset Management, Inc.
("Analytic o TSA") has been voluntarily waiving a substantial portion of its
advisory fees and reimbursing the Fund for certain of its expenses since the
Fund was organized in 1992. Analytic o TSA has advised the Board of Trustees
that the fee waiver and expense reimbursements will not be continued, and once
terminated, the Board of Trustees does not believe Analytic Portfolios will be
able to maintain competitive expense ratios. The Board of Trustees believes
the reorganization should provide shareholders of the Fund with a more
advantageous long-term cost structure than could be achieved by the Analytic
Portfolios.
Q. How Will the Reorganizations Affect Me as a Shareholder?
A. Under the terms of the Agreement, the Enhanced Equity Portfolio will be
combined with the PBHG Advisor Enhanced Equity Fund, the Master Fixed Income
Portfolio will be combined with the PBHG Advisor Master Fixed Income Fund
and the Short-Term
<PAGE>
Government Portfolio will be combined with the PBHG Advisor Short-Term
Government Fund. On the closing date for the Reorganizations, substantially
all of the property and assets of each Analytic Portfolio will be transferred
to the corresponding PBHG Fund. Upon such transfer, PBHG Advisor Funds will
issue Class A shares of the corresponding PBHG Funds to the Analytic Portfolios.
The Analytic Portfolios will then distribute the PBHG Fund shares to the
shareholders of the Analytic Portfolios, so that you will receive PBHG Fund
shares having an aggregate net asset value equal to the net asset value of
your Analytic Portfolio Shares.
Q. When Will the Reorganizations be Completed?
A. Assuming approval by shareholders and satisfaction of other closing
conditions, the transction is scheduled to be completed by June 1, 1998.
Q. Once the Transaction Has Been Completed, Who Will Manage the PBHG Funds?
A. Analytic o TSA will continue to be responsible for the day to day management
of the PBHG Funds. PBHG Advisor Funds and Pilgrim Baxter & Associates, Ltd.
("Pilgrim Baxter") have entered into an investment advisory agreement with
respect to the PBHG Funds (the "Advisory Agreement"). PBHG Advisor Funds,
Pilgrim Baxter, and Analytic o TSA have entered into an investment sub-advisory
agreement pursuant to which Analytic o TSA has assumed responsibility for
management of the PBHG Funds. Thus, you will continue to benefit from
Analytic o TSA's unique investment philosophy.
Q. Will I Continue to be Able to Purchase Shares Without a Sales Charge?
A. Following the reorganization, you will be able to purchase additional shares
of all other funds in PBHG Advisor Funds, representing a wide range of
investment objectives and policies, without paying a sales charge for those
shares.
Q. Whom Should Shareholders Call if They Have Questions?
A. Contact Pilgrim Baxter & Associates, Ltd. at 1-888-800-2685.
2
<PAGE>
THE ANALYTIC SERIES FUND
ANALYTIC ENHANCED EQUITY PORTFOLIO
ANALYTIC MASTER FIXED INCOME PORTFOLIO
ANALYTIC SHORT-TERM GOVERNMENT PORTFOLIO
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on May 28, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of The Analytic Series Fund (the "Fund"), will be held at the offices
of the Fund, 700 South Flower Street, Suite 2400, Los Angeles, California 90017,
on May 28, 1998, at 10:00 a.m., for the following purposes.
1. To consider and vote on a proposed Agreement and Plan of Reorganization
(the "Agreement") between the Fund and PBHG Advisor Funds, Inc. ("PBHG
Advisor Funds"), providing for (a) the acquisition of all the assets of the
Enhanced Equity Portfolio, Master Fixed Income Portfolio, and Short-Term
Government Portfolio series of the Fund by the corresponding series of PBHG
Advisor Funds (the PBHG Advisor Enhanced Equity Fund, PBHG Advisor Master
Fixed Income Fund, and PBHG Advisor Short-Term Government Fund series,
respectively), in exchange for Class A shares of such respective series of
PBHG Advisor Funds, and (b) the liquidation of the Fund and its Portfolios,
and the pro rata distribution of each Portfolio's holdings of PBHG Fund
shares to its shareholders.
2. To transact any other business that may properly come before the Special
Meeting.
Only shareholders of record at the close of business on April 14, 1998, the
record date for the Special Meeting, will be entitled to vote at the Special
Meeting or any adjournments thereof.
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY CARD PROMPTLY.
As a shareholder you are asked to attend the Special Meeting either in person or
by proxy. If you are unable to attend the Special Meeting in person, we urge you
to complete, sign, date, and return the enclosed proxy in the enclosed postage
prepaid envelope. Your prompt return of the proxy will help assure a quorum at
the Special Meeting and avoid further solicitation. Sending in your proxy will
not prevent you from voting your shares in person at the Special Meeting and you
may revoke your proxy by advising the Secretary of the Fund in writing (by
subsequent proxy or otherwise) of such revocation at any time before it is
voted.
By Order of the Board of Trustees,
Charles L. Dobson
Secretary
April 30, 1998
<PAGE>
THE ANALYTIC SERIES FUND
ANALYTIC ENHANCED EQUITY PORTFOLIO
ANALYTIC MASTER FIXED INCOME PORTFOLIO
ANALYTICSHORT-TERM GOVERNMENT PORTFOLIO
UAM Fund Services, Inc.
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, Massachusetts 02228-2798
Toll Free: (800) 374-2633
PBHG ADVISOR FUNDS, INC.
PBHG ADVISOR ENHANCED EQUITY FUND
PBHG ADVISOR MASTER FIXED INCOME FUND
PBHG ADVISOR SHORT-TERM GOVERNMENT FUND
c/o Pilgrim Baxter & Associates, Ltd.
825 Duportail Road
Wayne, Pennsylvania 19087
Toll Free: (888)-800-2685
COMBINED PROXY STATEMENT AND PROSPECTUS
Dated April 27, 1998
This Combined Proxy Statement and Prospectus is furnished in connection
with the solicitation of proxies by the Board of Trustees of The Analytic Series
Fund (the "Fund") on behalf of Analytic Enhanced Equity Portfolio (the "Enhanced
Equity Portfolio"), Analytic Master Fixed Income Portfolio (the "Master Fixed
Income Portfolio") and Analytic Short-Term Government Portfolio (the "Short-Term
Government Portfolio") (collectively, the "Analytic Portfolios"), each a
separate series of the Fund, in connection with the Special Meeting of
Shareholders of the Fund (the "Special Meeting") to be held at the offices of
the Fund, 700 South Flower Street, Suite 2400, Los Angeles, California 90017 on
May 28, 1998, at 10:00 a.m.
At the Special Meeting, the shareholders of each of the Analytic
Portfolios will be asked to approve or disapprove the Agreement and Plan of
Reorganization (the "Agreement"), dated as of March 23, 1998, between the Fund
and PBHG Advisor Funds, Inc., a Maryland corporation ("PBHG Advisor Funds") as
it relates to the respective Analytic Portfolios. The Agreement provides for the
reorganization of the Analytic Portfolios into three newly created investment
portfolios of PBHG Advisor Funds (the "PBHG Funds"). The Board of Trustees of
the Fund has unanimously approved the Agreement and the reorganizations (the
"Reorganizations") as being fair to and in the best interests of the Analytic
Portfolio shareholders.
Under the terms of the Agreement, the Enhanced Equity Portfolio will be
combined with the PBHG Advisor Enhanced Equity Fund (the "Advisor Enhanced
Equity Fund"), the Master Fixed Income Portfolio will be combined with the PBHG
Advisor Master Fixed Income Fund (the "Advisor Master Fixed Income Fund") and
the Short-Term Government Portfolio will be combined with the PBHG Advisor
Short-Term Government Fund (the "Advisor Short-Term Government Fund"). On the
closing date for the Reorganizations (the "Closing Date"), which is currently
scheduled to take place on June 1, 1998, substantially all of the property and
assets of each Analytic Portfolio (except for certain excluded assets and a
reserve for certain expenses and liabilities) will be transferred to the
corresponding PBHG Fund. Upon such transfer, PBHG Advisor Funds will issue Class
A shares of the voting common stock of the corresponding PBHG Funds to the
Analytic Portfolios. The Analytic Portfolios will then make liquidating
distributions of the PBHG Fund shares to the shareholders of the Analytic
Portfolios, so that each shareholder of an Analytic Portfolio on the Closing
Date will receive PBHG Fund shares having an aggregate net asset value equal to
the aggregate net asset value of the shareholder's Analytic Portfolio shares
immediately
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 COMBINED PROXY STATEMENT AND PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
before the Closing Date. Following the Reorganizations, the Analytic Portfolios
will pay or make provision for payment of all of their respective liabilities.
If any undistributed income and capital gains recognized prior to the transfer
of its assets remain, the Analytic Portfolios will distribute those amounts to
their respective shareholders in the form of dividends. The Analytic Portfolios
will then be terminated as separate series of the Fund and the Fund will be
dissolved under the terms of its Declaration of Trust. For further information
about the Reorganizations and the Agreement, see "Additional Information About
the Agreement."
The Advisor Enhanced Equity Fund, Advisor Master Fixed Income Fund and
Advisor Short-Term Government Fund are separate investment portfolios of PBHG
Advisor Funds that were created specifically for the purpose of the
Reorganizations. The investment objective of the Advisor Enhanced Equity Fund is
the same as that of the Enhanced Equity Portfolio, to achieve above average
total returns by investing in a diversified portfolio consisting primarily of
common stocks and related investments such as options and futures. The
investment objective of the Advisor Master Fixed Income Fund is the same as that
of the Master Fixed Income Portfolio, to achieve above average total returns by
investing in a diversified bond portfolio consisting primarily of domestic
government, corporate and mortgage-related fixed income securities. The
investment objective of the Short-Term Government Portfolio is the same as that
of the Advisor Short-Term Government Fund, to achieve a high level of income
consistent with both low fluctuation in market value and low credit risk. See
"Comparison of Investment Objectives and Policies."
This Combined Proxy Statement and Prospectus sets forth concisely the
information that a shareholder of the Analytic Portfolios should know before
voting on the Agreement and the Reorganizations, and it should be retained for
future reference. The Agreement is attached to this Combined Proxy Statement and
Prospectus as Exhibit A.
The Prospectus for PBHG Advisor Funds, dated April 20, 1998, which
describes the investment program and operation of the Advisor Enhanced Equity
Fund, Advisor Master Fixed Income Fund and Advisor Short-Term Government Fund,
is attached to this Combined Proxy Statement and Prospectus as Exhibit B. A
Prospectus for the Analytic Portfolios dated October 20, 1997, is attached to
this Combined Proxy Statement and Prospectus as Exhibit C. Additional
information concerning the Analytic Portfolios is set forth in the Statement of
Additional Information for the Analytic Portfolios dated October 20, 1997.
Further information concerning the matters considered herein is set forth in the
Statement of Additional Information to this Combined Proxy Statement and
Prospectus dated April 27, 1998. Each of these documents is on file with the
Securities and Exchange Commission ("SEC"), and is available without charge upon
oral or written request by writing or calling the Fund or PBHG Advisor Funds at
the addresses and telephone numbers shown on the cover page of this Combined
Proxy Statement and Prospectus. The SEC maintains a Web site at
http:\\www.sec.gov that contains the Statements of Additional Information,
material incorporated by reference and other information regarding PBHG Advisor
Funds, the Fund, and other registrants that file electronically with the SEC.
The information contained in each of these Prospectuses and the Statement of
Additional Information to this Combined Proxy Statement and Prospectus is
incorporated herein by reference.
This Combined Proxy Statement and Prospectus constitutes the proxy
statement of the Fund for the Special Meeting of Shareholders and the prospectus
for the shares of the PBHG Funds which are to be issued in connection with the
Reorganization.
The Notice of Special Meeting of Shareholders, this Combined Proxy
Statement and Prospectus, and the accompanying proxy are expected to first be
sent to shareholders of the Analytic Portfolios on or about April 30, 1998.
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY .................................................................. 1
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES........................... 7
RISK FACTORS............................................................... 9
INFORMATION ABOUT THE AGREEMENT............................................ 10
RIGHTS OF SHAREHOLDERS..................................................... 13
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.............. 17
ADDITIONAL INFORMATION ABOUT EACH FUND..................................... 18
CAPITALIZATION............................................................. 21
FINANCIAL STATEMENTS....................................................... 22
OWNERSHIP OF ANALYTIC PORTFOLIO SHARES..................................... 22
INFORMATION RELATING TO VOTING MATTERS..................................... 23
Exhibit A: Agreement and Plan of Reorganization
Exhibit B: Prospectus of the PBHG Advisor Funds, Inc.
Exhibit C: Prospectus of The Analytic Series Fund
Exhibit D: Discussion of Performance of the Analytic Portfolios
<PAGE>
SUMMARY
The following is a summary of certain information relating to the
Agreement, the proposed Reorganizations, the Fund and PBHG Advisor Funds. It is
qualified by reference to the more complete information contained elsewhere in
this Combined Proxy Statement and Prospectus and the related Statement of
Additional Information, the Prospectus of PBHG Advisor Funds, Inc. attached as
Exhibit B, the Prospectus of the Fund attached as Exhibit C and the Agreement
attached to this Combined Proxy Statement and Prospectus as Exhibit A.
Proposed Reorganization and the Agreement.
The Agreement and Reorganizations will result in the combination of the
Analytic Portfolios and the PBHG Funds as described below.
Under the terms of the Agreement, the Enhanced Equity Portfolio will be
combined with the Advisor Enhanced Equity Fund, the Master Fixed Income
Portfolio will be combined with the Advisor Master Fixed Income Fund and the
Short-Term Government Portfolio will be combined with the Advisor Short-Term
Government Fund. On the closing date for the Reorganizations (the "Closing
Date"), which is currently scheduled to take place on June 1, 1998,
substantially all of the property and assets of each Analytic Portfolio (except
for certain excluded assets and a reserve for certain expenses and liabilities)
will be transferred to the corresponding PBHG Fund. Upon such transfer, PBHG
Advisor Funds will issue Class A shares of the voting common stock of the
corresponding PBHG Funds to the Analytic Portfolios. The Analytic Portfolios
will then make liquidating distributions of the PBHG Fund shares to the
shareholders of the Analytic Portfolios, so that each shareholder of an Analytic
Portfolio on the Closing Date will receive PBHG Fund shares having an aggregate
net asset value equal to the aggregate net asset value of the shareholder's
Analytic Portfolio shares immediately before the Closing Date. Following the
Reorganizations, the Analytic Portfolios will pay or make provision for payment
of all of their respective liabilities. If any undistributed income and capital
gains recognized prior to the transfer of its assets remain, the Analytic
Portfolios will distribute those amounts to their respective shareholders in the
form of dividends. The Analytic Portfolios will then be terminated as separate
series of the Fund and the Fund will be dissolved. For further information about
the Reorganizations and the Agreement, see "Additional Information About the
Agreement."
Paul, Hastings, Janofsky & Walker LLP, counsel for the Fund, will issue an
opinion as of the Closing Date to the effect that the Reorganizations will
constitute a tax-free reorganization for Federal income tax purposes. Thus,
shareholders will not have to pay Federal income taxes as a result of the
Reorganizations. See "Additional Information About the Agreement -- Federal
Income Tax Consequences."
Reasons for Reorganizations.
The Board of Trustees of the Fund, including the independent trustees, has
determined that it is in the best interests of the Analytic Portfolios and their
shareholders to reorganize into the PBHG Funds. In making such determination,
the Board of Trustees considered, among other things, the relatively small asset
size and lack of significant recent sales growth of the Analytic Portfolios, and
the resulting difficulty in achieving adequate economies of scale. Because of
the Analytic Portfolios' relatively small asset levels, the Fund's investment
adviser, Analytic TSA Global Asset Management, Inc. ("Analytic TSA"), has
voluntarily waived a substantial portion of its advisory fees and has reimbursed
the Fund for certain other expenses since the Fund was organized in 1992.
Analytic TSA has advised the Board of Trustees that such voluntary fee waiver
and expense reimbursements will not be continued. Without the fee waiver and
expense reimbursements, the Board of Trustees does not believe that the Analytic
Portfolios will be able to maintain competitive expense ratios. On the other
hand, the expense ratios for the PBHG Funds are projected to be significantly
less than those of the Analytic Portfolios (absent the expense waivers), and the
Board of Trustees believes that the Reorganizations should provide shareholders
of the Fund with a more advantageous long-term cost structure than could be
achieved by the Analytic Portfolios.
<PAGE>
In addition, the Board of Trustees of the Fund considered the following
factors: (a) the investment objectives and policies of the Analytic Portfolios
and PBHG Funds are the same; (b) Analytic TSA serves as adviser to the Analytic
Portfolios and will serve as sub-adviser to the PBHG Funds, providing day-to-day
portfolio management for both funds; (c) the Reorganizations will be tax-free to
the Analytic Portfolios and their shareholders; (d) holders of shares of the
PBHG Funds will have a broader range of shareholder services available to them
than holders of shares of the Analytic Portfolios; and (e) PBHG Advisor Funds
has good prospects for increasing the assets of the PBHG Funds to levels which
can provide reasonable economics of scale.
See the discussion under "Additional Information About the Agreement -
Board Consideration" for more information concerning the deliberations of the
Board of Trustees.
Risk Considerations.
The risks involved in investing in the Analytic Portfolios and PBHG Funds
are the same, given that the investment objectives, policies and restrictions of
each PBHG Fund are identical to those of the corresponding Analytic Portfolio.
See "Risk Factors" below.
Overview of the Analytic Portfolios and the PBHG Funds.
Investment Objectives and Policies.
The investment objectives and policies of the Analytic Portfolios and the
PBHG Funds are the same. The PBHG Funds were created specifically for the
purpose of the Reorganizations.
The investment objective of the Advisor Enhanced Equity Fund, a diversified
portfolio, is to provide 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
investments policies and risk characteristics. The Advisory Enhanced Equity 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.
The investment objective of the Advisor Master Fixed Income Fund, a
diversified portfolio, is to provide above-average total returns. The Advisor
Master Fixed Income 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 investment objective of the 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 Advisor Short-Term Government 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 Advisor Short-Term Government 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.
Advisory and Administrative Services
Analytic Portfolios
Analytic TSA, 700 South Flower Street, Suite 2400, Los Angeles, CA 90017,
is the adviser of the Fund. Analytic TSA is a wholly owned subsidiary of United
Asset Management Corporation ("UAM").
Pursuant to an Investment Advisory Agreement with the Fund, Analytic TSA,
subject to the control and direction of the Fund's Officers and Board of
Trustees, manages the Analytic Portfolios in accordance with the stated
investment objective and policies and makes investment decisions for the
Analytic Portfolios.
2
<PAGE>
UAM Fund Services, Inc., a wholly-owned subsidiary of UAM, performs and
oversees all administrative, fund accounting, dividend disbursing and transfer
agent services to the Fund pursuant to a Fund Administration Agreement with the
Fund (the "Administration Agreement"). For its services UAM Fund Services
receives a fee based on net assets. UAM Fund Services' principal office is
located at 211 Congress Street, Boston, Massachusetts 02110. UAM Fund Services
has subcontracted some of these services to Chase Global Funds Services Company,
an affiliate of The Chase Manhattan Bank. Chase Global Funds Services Company is
located at 73 Tremont Street, Boston, Massachusetts 02108.
For further information concerning Analytic TSA and management of the Fund,
see the Prospectus of the Fund attached hereto as Exhibit C.
PBHG Funds
PBHG Advisor Funds and Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter")
have entered into an investment advisory agreement with respect to the PBHG
Funds (the "Advisory Agreement"). PBHG Advisor Funds, Pilgrim Baxter, and
Analytic TSA have entered into an investment sub-advisory agreement pursuant to
which Analytic TSA assumes responsibility for management of the PBHG Funds.
Under the terms of the sub-advisory agreement Analytic TSA provides a program of
continuous investment management for the PBHG Funds in accordance with their
investment objectives, policies and limitations, makes investment decisions for
the PBHG Funds, and places orders to purchase and sell securities for the PBHG
Funds, subject to the supervision of the Board of Directors.
PBHG Fund Services, a wholly owned subsidiary of Pilgrim Baxter, serves as
the administrator for PBHG Advisor Funds, and SEI Fund Resources serves as
sub-administrator for PBHG Advisor Funds.
For further information concerning Pilgrim Baxter and management of the
PBHG Funds, see the Prospectus of PBHG Advisor Funds attached hereto as
Exhibit B.
Ownership of Advisors
Pilgrim Baxter is wholly-owned by UAM as is Analytic TSA. Immediately prior
to the mergers, UAM intends to contribute the stock of Analytic TSA to Pilgrim
Baxter so that Analytic TSA will become a wholly-owned subsidiary of Pilgrim
Baxter. For further information concerning UAM, see the discussion under the
heading "General Information -- The Advisor" in the Prospectus of PBHG Advisor
Funds attached hereto as Exhibit B.
Expense Levels
The following table sets forth the current fees and expenses of the
Analytic Portfolios for the fiscal period ended December 31, 1997, and the
expected expenses for the Class A shares of PBHG Funds. Analytic Portfolio
shareholders will be able to purchase additional shares of any portfolio of PBHG
Advisor Funds without paying a sales charge and will be permitted to exchange
their PBHG Funds shares for shares of any portfolio of PBHG Advisor Funds
without payment of a sales charge. The maximum sales load shown in the table
below is not applicable to Analytic Portfolio shareholders. The fees paid by the
PBHG Funds will not be affected by the Reorganizations.
Enhanced Equity Portfolio - Advisor Enhanced Equity Fund
<TABLE>
<CAPTION>
Enhanced
Equity Advisor Enhanced
Portfolio Equity Fund
--------- -----------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases None 5.75%
(as a percentage of the offering price)
</TABLE>
3
<PAGE>
Annual Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Enhanced Advisor
Equity Enhanced Equity
Portfolio Fund
--------- ----
<S> <C> <C>
Advisory Fees(1) 0.60% 0.00%
(after fee waivers for Advisor
Enhanced Equity Fund(4))
12b-1 Fees(2) 0.00% 0.25%
Other Expenses(1) 1.59% 1.16%
(after expense reimbursement for ---- ----
Advisor Enhanced Equity Fund(4))
Total Operating Expenses(1)(3) 2.19% 1.41%
(after fee waivers and expense
reimbursement for Advisor
Enhanced Equity Fund(4))
</TABLE>
Master Fixed Income Portfolio - Advisor Master Fixed Income Fund
<TABLE>
<CAPTION>
Shareholder Transaction Expenses Master Fixed Advisor Master
Income Portfolio Fixed Income Fund
---------------- -----------------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases None 4.75%
(as a percentage of the offering price)
</TABLE>
Annual Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Advisor
Master Fixed Master Fixed
Income Portfolio Income Fund
---------------- -----------
<S> <C> <C>
Advisory Fees(1) 0.45% 0.00%
(after fee waivers for Advisor
Master Fixed Income Fund(4))
12b-1 Fees(2) 0.00% 0.25%
Other Expenses(1) 2.37% 1.01%
(after expense reimbursement for
Advisor Master Fixed Income Fund(4))
----- -----
Total Operating Expenses(1)(3) 2.82% 1.26%
(after fee waivers and expense
reimbursement for Advisor
Master Fixed Income Fund(4))
</TABLE>
Short-Term Government Portfolio - Advisor Short-Term Government Fund
<TABLE>
<CAPTION>
Shareholder Transaction Expenses Short-Term Advisor Short-Term
Government Portfolio Government Fund
-------------------- ---------------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases None 1.50%
(as a percentage of the offering price)
</TABLE>
4
<PAGE>
Annual Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Short-Term Advisor
Government Short-Term
Portfolio Government Fund
--------- ---------------
<S> <C> <C>
Advisory Fees(1) 0.30% 0.00%
(after fee waivers for Advisor
Short-Term Government Fund(4))
12b-1 Fees(2) 0.00% 0.25%
Other Expenses(1) 7.48% 0.86%
(after expense reimbursement for
Advisor Short-Term Government Fund(4))
----- -----
Total Operating Expenses(1)(3) 7.78% 1.11%
(after fee waivers and expense
reimbursement for Advisor
Short-Term Government Fund(4))
</TABLE>
- ----------
(1) Because the PBHG Advisor Funds had not yet commenced operations prior to
the date of this filing, "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 would be as follows:
PBHG Advisor Enhanced Equity Fund 0.60% 1.27% and 2.12%
PBHG Advisor Master Fixed Income Fund 0.45% 1.82% and 2.52%
PBHG Advisor Short-Term Government Fund 0.30% 1.82% and 2.37%
(2) As a result of the 12b-1 fees, long-term shareholders of Class A shares may
pay more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc. The
Company estimates that the maximum permissible front-end sales charge would
not be exceeded for a substantial number of years.
(3) Pilgrim Baxter 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
Advisor Enhanced Equity Fund; 0.67% of the Advisor Master Fixed Income
Fund; and 0.52% of the Advisor Short-Term Government Fund. The expenses
subject to such limitation are those which are not specifically allocated
to a class of shares of a PBHG Fund under its multiple class plan (the
"Rule 18f-3 Plan") including, but not limited to, investment advisory fees
of Pilgrim Baxter, 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 PBHG 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 PBHG Fund's
business. The fee waiver/expense reimbursement arrangement for each PBHG
Fund is expected to remain in effect for the current fiscal year. Each
waiver of Advisory Fees or assumption of Other Expenses by Pilgrim Baxter
is subject to a possible reimbursement by each PBHG Fund in future years if
such reimbursement can be made within the foregoing annual expense limits.
(4) Analytic TSA has voluntarily agreed to reimburse expenses of the Analytic
Portfolios (but excluding interest, taxes and extraordinary expenses), and
to waive advisory fees so that total operating expenses do not exceed
0.60%, 0.90% and 1.00% of average daily net assets for the Short-Term
Government, Master Fixed Income and Enhanced Equity Portfolios,
respectively. Analytic TSA has notified the Fund that it will terminate its
voluntary expense reimbursement on the earlier of the date of consummation
of the Reorganization or the date on which the Agreement terminates.
5
<PAGE>
Example of Fund Expenses
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Enhanced Equity Portfolio $10 $ 32 $ 55 $122
Advisor Enhanced Equity Fund 71 100 130 217
Master Fixed Income Portfolio 9 29 50 111
Advisor Master Fixed Income Fund 60 86 113 193
Short-Term Government Portfolio 6 19 33 75
Advisor Short-Term Government Fund 26 50 75 148
</TABLE>
The examples are based upon total operating expenses for the funds, as set forth
in the "Annual Operating Expenses" tables above. The examples 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 the Analytic Portfolios and in the PBHG Funds
after the Reorganizations.
Organization
The Fund is organized as a Delaware business trust. PBHG Advisor Funds is
organized as a Maryland corporation.
Purchase, Exchange and Redemption Policies
Analytic Portfolios
Shares of the Analytic Portfolios are purchased directly from the Fund by
wire, mail, or exchange from another Analytic Portfolio with no sales charge or
commission at the net asset value per share next computed after an order and
payment are received by the Fund. Any order received after 1:00 p.m. Pacific
Time will be processed at the next day's closing net asset value.
6
<PAGE>
There is no minimum initial or subsequent purchase of Analytic Portfolio shares
by tax deferred retirement plans (including IRA, SEP-IRA and profit sharing and
money purchase plans) or Uniform Gifts to Minors Act accounts. For other
investors the minimum is $5,000 for an initial purchase, in any proportion among
the Analytic Portfolios, and there is no minimum for subsequent purchases.
Redemptions may be made on any business day. Shares are redeemed without
charge and redemptions may be made by telephone, mail, or exchange to another
Analytic Portfolio. Redemption orders placed prior to 4:00 p.m. eastern time
will be effective that day. Shares are redeemed without charge at the net asset
value per share next computed after instructions and required documents are
received in proper form.
Shares of any Analytic Portfolio may be exchanged for shares of any other
Analytic Portfolio at the net asset value per share next computed after the
receipt of instructions in proper form.
Please refer to the Prospectus of the Fund attached hereto as Exhibit C for
further information on its purchase, exchange and redemption policies.
PBHG Funds
Purchases are made through an 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"). A purchase order will
be effective as of the Business Day received by the PBHG Funds if PBHG Advisor
Funds receives sufficient information to execute the order and receive payment
by check or readily available funds prior to 4:00 p.m. Eastern time.
No sales charge will be imposed in connection with the issuance of Class A
shares of the PBHG Advisor Funds as part of the Reorganizations. A sales charge
of up to 5.75% for the Advisor Enhanced Equity Fund, 4.75% for the Advisor
Master Fixed Income Fund, and 1.50% for the Advisor Short-Term Government Fund
is imposed on purchases of Class A shares at the time of purchase. Analytic
Portfolio shareholders will be able to purchase additional shares of any
portfolio of PBHG Advisor Funds without paying a sales charge. Class A
shares are not subject to any charges when they are redeemed (except for sales
at net asset value in excess of $1 million which are not subject to a sales
charge at the time of purchase but are subject to a contingent deferred sales
charge). Certain purchases of Class A shares qualify for a sales charge waiver
or reduction. Class A shares bear a distribution fee currently at the annual
rate of 0.25% of each PBHG Fund's average net assets attributable to Class A
shares which is imposed pursuant to a distribution plan approved by the Board of
Directors of PBHG Advisor Funds pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended ("1940 Act"). Minimum initial investment in
Class A Shares of the PBHG Funds is $2,500 for regular accounts, $2,000 for
Individual Retirement Accounts. There is no minimum for subsequent investments.
Redemptions may be made on any Business Day. Redemption orders placed prior
to 4:00 p.m. Eastern time 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.
Shares of the PBHG Funds may generally be exchanged for shares of the same
class of the other portfolios of PBHG Advisor Funds at net asset value. Analytic
Portfolio shareholders will be permitted to exchange their PBHG Funds shares
for shares of any other PBHG Advisor Funds portfolios without payment of a
sales charge.
Please refer to the Prospectus of the PBHG Funds attached hereto as Exhibit
B for further information on its purchase, exchange and redemption policies.
7
<PAGE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The investment objectives, investment policies and investment restrictions
of the Analytic Portfolios and the PBHG Funds are identical. The PBHG Funds were
created specifically for the purpose of the Reorganizations. The following
discussion summarizes the investment objectives and policies of the PBHG Funds
and is qualified in its entirety by the discussion in the Prospectus and
Statement of Additional Information of the PBHG Funds.
Advisor Enhanced Equity Fund
The Advisor Enhanced Equity Fund, a diversified portfolio, seeks above
average total returns through investments in Equity Securities. ("Equity
Securities" as used herein include common stocks, preferred stocks, warrants and
securities convertible into or exchangeable for common or preferred stocks.) 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 Advisor Enhanced Equity 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 Advisor Enhanced Equity Fund
may invest in stocks of any market capitalization, it is anticipated that the
average capitalization of the Advisor Enhanced Equity Fund's stocks will be
typical of medium to large companies (typically $15 billion or higher). Under
normal market conditions, the Advisor Enhanced Equity Fund will invest at least
65% of its total assets in Equity Securities of U.S. domiciled corporations.
Advisor Master Fixed Income Fund
The Advisor Master Fixed Income Fund, a diversified portfolio, seeks to
provide above-average total returns. The Advisor Master Fixed Income 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 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 Advisor Master Fixed Income Fund's fixed income
investments is generally expected, under normal market conditions, to range
between 3 and 10 years.
Under normal market conditions, the 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 1 year original maturity and rated
at the time of purchase a minimum of A by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("Standard & Poor's"), (ii) under 1
year original maturity and rated at the time of purchase a minimum of Prime 1
8
<PAGE>
by Moody's or A-1 by Standard & Poor's, or (iii) unrated securities determined
by Pilgrim Baxter or Analytic TSA at the time of purchase to be equivalent to
these ratings.
Subject to certain additional limitations, under normal market conditions,
the remainder of the 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 Advisor
Master Fixed Income Fund may also invest in interest and currency rate-related
derivative securities.
Advisor Short-Term Government Fund
The investment objective of the 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 Advisor Short-Term Government 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 Advisor Short-Term Government Fund is expected, under
normal market conditions, to maintain a dollar weighted average maturity and
weighted average duration between 1 and 3 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 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 Advisor Short-Term
Government 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 Advisor Short-Term Government Fund includes only
those securities with (i) over 1 year original maturity and rated at the time of
purchase a minimum of A by Moody's or Standard & Poor's, (ii) under 1 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
Pilgrim Baxter or Analytic TSA at the time of purchase to be equivalent to these
ratings. The Advisor Short-Term Government Fund may also invest in repurchase
agreements collateralized by U.S. Government securities. For temporary defensive
purposes, the Advisor Short-Term Government Fund may reduce the average duration
to less than 1 year.
General Investment Policies
For a discussion of the investment process followed by Pilgrim Baxter and
Analytic TSA, please see "General Investment Policies and Strategies" in the
prospectus of PBHG Advisor Funds attached as Exhibit B.
The investment objectives of the Analytic Portfolios are fundamental
policies, meaning they may not be changed without a vote of a majority of the
particular Analytic portfolios outstanding shares. The investment objectives of
the PBHG Funds are not fundamental policies and may be changed by action of the
Board of Directors of PBHG Advisor Funds. Shareholders will be notified of any
such change.
Pilgrim Baxter and Analytic TSA expect that under normal market conditions
the annual portfolio turnover rate for the Advisor Enhanced Equity Fund will not
exceed 150%, for the Advisor Master Fixed Income Fund will not exceed 50% and
for the Advisor Short-Term Government Fund will not exceed 50%. High rates of
portfolio turnover necessarily result in correspondingly greater brokerage and
portfolio trading costs, which are paid by a PBHG 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.
9
<PAGE>
Under normal market conditions, each PBHG Fund expects to be fully invested
in its primary investments. However, for temporary defensive purposes, when the
adviser or the sub-adviser, as appropriate, determines that market conditions
warrant, each PBHG 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 PBHG Fund's investment restrictions, shares of other
investment companies investing solely in money market securities). To the extent
a PBHG Fund is invested in temporary defensive instruments, it will not be
pursuing its investment objective. See the Statement of Additional Information
for additional information.
Portfolio Managers
Pursuant to the investment sub-advisory agreement by and among PBHG Advisor
Funds, on behalf of each PBHG Fund, Pilgrim Baxter and Analytic TSA.
Analytic TSA is responsible for the management of the PBHG Funds.
The following individuals are currently responsible for managing the Analytic
Portfolios and will be responsible for managing the corresponding PBHG Funds.
Advisor Enhanced Equity Fund
Dennis M. Bein and Harindra de Silva have been the portfolio managers for
the Enhanced Equity Portfolio since November 1996. Mr. Bein has been a member of
the portfolio management and research team for Analytic TSA since August 1995.
He concurrently serves as a senior associate for Analysis Group, Inc. with which
he has been associated with since August 1990. Dr. de Silva is the President of
the Fund and serves as a managing director of Analytic TSA, which he joined in
May of 1995. He concurrently serves as a principal of Analysis Group, Inc.,
which he joined in March 1986. They are subject to the supervision of Analytic
TSA's investment management committee.
Advisor Short-Term Government and Advisor Master Fixed Income Funds
Scott Barker, Greg McMurran and Bob Bannon have been the portfolio managers
for the Short-Term Government and Master Fixed Income Portfolios since November
1996. Mr. Barker has been a member of the portfolio management and research team
for Analytic TSA since August 1995. He concurrently serves as a research analyst
with Analysis Group, Inc., with which he has been associated since October 1993.
Previously, he was with Xontech, Inc. for six years as a scientific analyst. Mr.
McMurran is the Chief Investment Officer of Analytic TSA and has been with the
firm since October 1976 as a portfolio manager. Mr. Bannon is a managing
director of Analytic TSA specializing in the fixed income area. He joined the
firm in January 1996 when TSA Capital Management merged with Analytic TSA. He
was formerly a managing director with TSA since April 1995. Previously, he
served as a senior bond strategist with IDEA for four years. They are subject to
the supervision of Analytic TSA's investment management committee.
RISK FACTORS
The PBHG Funds have the same investment objectives and policies as the
Analytic Portfolios. The investments of the PBHG Funds will be managed by the
same portfolio managers of Analytic TSA that are responsible for management of
the Analytic Portfolios using the same investment techniques and strategies.
Accordingly, the risks associated with an investment in the PBHG Funds should be
the same as the risks associated with an investment in the Analytic Portfolios.
10
<PAGE>
To achieve their investment objectives, the PBHG Funds may invest in
foreign securities, in securities that are considered illiquid and in securities
issued by technology companies or companies with small market capitalizations.
The PBHG Funds may also utilize various call option, put option and financial
future strategies in pursuit of their investment objectives. See the heading
"Risk Factors" in the prospectus for the PBHG Advisor Funds attached as
Exhibit B for a discussion of the risks associated with those investments and
investment strategies.
INFORMATION ABOUT THE AGREEMENT
The terms and conditions under which the Reorganizations may be consummated
are set forth in the Agreement. Significant provisions of the Agreement are
summarized below; however, this summary is qualified in its entirety by
reference to the Agreement attached as Exhibit A.
Description of the Agreement
The Agreement provides that at the Closing Date substantially all of the
property and assets of each Analytic Portfolio will be transferred to the
corresponding PBHG Fund free and clear of all liens, encumbrances, and claims,
except for (a) any unamortized or deferred fees or expenses, prepaid expenses or
goodwill shown as assets on the books of the Analytic Portfolio and (b) cash or
bank deposits (the "Reserve Account") in an amount necessary: to discharge all
of the unpaid liabilities on the books and records of the Analytic Portfolio at
the Closing Date (including any amounts due to shareholders of the Analytic
Portfolio for unpaid dividends or otherwise) and to pay contingent liabilities,
if any, that the Board of Trustees of the Fund may reasonably deem to exist
against the Analytic Portfolio at the Closing Date. (The property and assets to
be transferred to the PBHG Fund are referred to below as the "Analytic
Portfolios' Net Assets.") Upon the satisfaction or other resolution of all such
liabilities and obligations, any amount remaining from the Reserve Account will
be transferred to the PBHG Fund.
In exchange for the transfer to the PBHG Fund of the Analytic Portfolios's
Net Assets, PBHG Advisor Funds will simultaneously issue at the Closing Date
full and fractional Class A shares of the corresponding PBHG Fund to the
Analytic Portfolio for distribution pro rata by the Analytic Portfolio to its
shareholders. The Class A shares issued by PBHG Advisor Funds will have an
aggregate net asset value equal to the value of the Analytic Portfolios' Net
Assets on the Closing Date.
On the Closing Date, each of the Analytic Portfolios will be liquidated and
distribute pro rata to its shareholders the PBHG Fund Class A Shares received by
the Analytic Portfolio. Each shareholder owning Analytic Portfolio Shares at the
Closing Date will receive PBHG Fund Class A shares having an aggregate net asset
value equal to the aggregate net asset value of his or her Analytic Portfolio
Shares, plus the right to receive any dividends or distributions which were
declared before the Closing Date but that remained unpaid at that time on the
Analytic Portfolio Shares. In connection with the Reorganizations, each of the
Analytic Portfolios will be terminated as a series of the Fund.
The share transfer books of the Analytic Portfolios will be permanently
closed as of the close of business on the day immediately preceding the Closing
Date. Redemption requests received thereafter by the Analytic Portfolios will be
deemed to be redemption requests for the corresponding PBHG Fund Class A Shares.
11
<PAGE>
The Reorganizations are subject to a number of conditions, including, among
other things: (a) approval of the Agreement and the transactions contemplated
thereby described in this Combined Proxy Statement and Prospectus by the
Analytic Portfolios' shareholders; (b) that the shares of each PBHG Fund that
will be offered for sale after the Closing Date be duly registered under the
1933 Act on the Closing Date; (c) the receipt of certain legal opinions
described in Sections 7 and 8 of the Agreement, which include a legal opinion
that the PBHG Fund Class A Shares issued and outstanding at the Closing Date
will be duly authorized, validly issued, fully paid, and non-assessable and a
legal opinion that the Reorganizations will not give rise to the recognition of
income, gain, or loss for federal income tax purposes to the Analytic
Portfolios, or their respective shareholders; (d) the receipt of certain
certificates from the parties concerning the continuing accuracy of the
representations and warranties in the Agreement and other matters; and (e) the
parties' performance of their respective agreements and undertakings in the
Agreement. Assuming satisfaction of the conditions in the Agreement, the Closing
Date will be on April 30, 1998, or such other date as is agreed to by the
parties.
Pilgrim Baxter and Analytic TSA will be liable for all reasonable expenses
incurred by the PBHG Funds and the Analytic Portfolios in connection with
entering into and carrying out the transactions contemplated by the Agreement,
whether or not the transactions are consummated. Analytic TSA has agreed to
indemnify two of the trustees ("Trustees") of the Fund against any losses
arising out of their services as Trustees of the Fund.
The Agreement may be terminated and the Reorganizations abandoned at any
time prior to the Closing Date by the mutual consent of the parties to the
Agreement. In such event, there will be no liability for damages on the part of
either the Analytic Portfolios or the PBHG Funds, or the Fund's Board of
Trustees or officers or PBHG Advisor Funds' Board of Directors or officers, but
Pilgrim Baxter and Analytic TSA will be liable for reimbursement of all
reasonable expenses incurred in connection with entering into and carrying out
the transaction contemplated by the Agreement. At any time prior to or after
approval of the Agreement by the Analytic Portfolios' shareholders, the Fund and
PBHG Advisor Funds may amend, modify, or supplement the Agreement. However, no
such amendment, modification, or supplement may have the effect of changing the
provisions for determining the number of PBHG Fund Class A Shares to be
distributed to Analytic Portfolio shareholders under the Agreement to the
detriment of the Analytic Portfolio shareholders, unless the Analytic Portfolio
shareholders approve such change or unless the amendment merely changes the
Closing Date.
Board Consideration
The Board of Trustees of the Fund has unanimously determined that the
proposed Reorganizations are in the best interest of the shareholders of the
Analytic Portfolios, and recommends the approval of the Agreement by such
shareholders at the Special Meeting. The following is a summary of the
information that was presented to, and considered by, the Board of Trustees in
making their determination.
Initially, the Board of Trustees reviewed several areas of concern
regarding the Analytic Portfolios. The Board of Trustees considered that (a) the
relatively small asset size of the Analytic Portfolios has prevented them from
realizing significant economies of scale and reducing their expense ratios
(absent waivers of fees and assumption of expenses by Analytic TSA); (b)
Analytic TSA on a voluntary basis has continuously waived a substantial portion
of its advisory fee since the Analytic Portfolios' inception; (c) based on the
Analytic Portfolios' historical asset growth and the distribution systems
available to the Analytic Portfolios under their current structure, their assets
are unlikely to grow sufficiently in the foreseeable future to result in
significant economies of scale; (d) in the absence of significant asset growth,
it is unlikely that Analytic TSA will receive its full advisory fee in the
future; (e) Analytic TSA has indicated that it will become a wholly-owned
subsidiary of Pilgrim Baxter on May 1, 1998; and (f) because the voluntary fee
cap prevents Analytic TSA from achieving any profits from its services to the
Analytic Portfolios, Analytic TSA and Pilgrim Baxter have indicated that
Analytic TSA will not continue its voluntary fee waiver after April 30, 1998.
At a meeting of the Board of Trustees held on February 26, 1998,
management of the Fund proposed that the Board of Trustees approve the proposed
Reorganizations on behalf of the Analytic Portfolios. During the course of their
review and deliberation, the Trustees evaluated the potential benefits and
detriments to the Analytic
12
<PAGE>
Portfolios and their shareholders. The Trustees requested and received from
Analytic TSA and Pilgrim Baxter written materials containing relevant
information about the PBHG Funds and the proposed Reorganizations, including fee
and expense information on a future estimated basis. Analytic TSA and Pilgrim
Baxter also provided the Trustees with comparative expense ratio information,
analyses of the projected benefits to the shareholders of the Analytic
Portfolios resulting from the proposed Reorganizations, information regarding
the marketing plan for the PBHG Funds and projections of anticipated growth for
the PBHG Funds, and a variety of other information relevant to the consideration
of the proposed Reorganizations.
Although the projected expense ratios of the PBHG Funds are greater than
those of the Analytic Portfolios (after fee waiver and expense reimbursements),
the PBHG Funds have more favorable ratios when fee waivers are eliminated, as
will be the case after April 30, 1998. In addition, Pilgrim Baxter has agreed to
request the Board of Directors of PBHG Advisor Funds to continue the expense
limitations for a period of three years after the Closing Date. Accordingly, the
PBHG Funds are expected to provide the Analytic Portfolios' shareholders with a
more advantageous long-term cost structure than would otherwise be achievable by
the Analytic Portfolios.
In addition, the Board of Trustees noted that the shareholders of the
Analytic Portfolios would not be subject to additional potential or actual risks
as shareholders of the PBHG Funds, and that the Reorganizations would result in
continuity of investment advisory services, since the Analytic Portfolios
currently employ Analytic TSA as investment adviser and the PBHG Funds will
employ Analytic TSA as investment sub-adviser, and the individuals who will
serve as the portfolio managers for the PBHG Funds currently serve as the
portfolio managers for the Analytic Portfolios. The Board of Trustees noted
further that no sales or other charges would be imposed on any of the PBHG Fund
shares acquired by shareholders of the Analytic Portfolios in connection with
the Reorganization and that the shareholders of the Fund would not bear the
costs of the Reorganizations. Finally, the Board of Trustees reviewed the terms
of the Agreement. The Board of Trustees noted that the Analytic Portfolios would
be provided with an opinion of counsel with respect to the tax-free treatment of
the Reorganizations.
At a meeting of the Board of Trustees of the Fund on March 4, 1998, the
proposed Reorganizations were again considered by the Board of Trustees of the
Fund. At a subsequent meeting on March 6, 1998, based upon their evaluation of
the relevant information presented to them, and in light of their fiduciary
duties under federal and state law, the Board of Trustees unanimously determined
that the proposed Reorganizations are in the best interest of the Analytic
Portfolios and their shareholders and that the interests of the Analytic
Portfolios' shareholders will not be diluted as a result of the proposed
Reorganizations, and recommended the approval of the Agreement by shareholders
at the Special Meeting.
13
<PAGE>
On February 20, the Board of Directors of PBHG Advisor Funds considered the
proposed Reorganizations with respect to the PBHG Funds. Based upon their
evaluation of the relevant information provided to them, and in light of their
fiduciary duties under federal and state law, the Board of Directors unanimously
determined that the proposed Reorganizations were in the best interests of the
PBHG Funds and their shareholders and the interests of the existing PBHG Funds
shareholders will not be diluted as a result of the proposed Reorganization.
Federal Income Tax Consequences
The following is a general summary of the material federal income tax
consequences of the Reorganizations to the shareholders of the Fund and is based
upon the current provisions of the Code, the existing Treasury regulations
thereunder, current administrative rulings of the Internal Revenue Service (the
"IRS") and judicial decisions, all of which are subject to change.
The principal Federal income tax consequences that are expected to result
from the Reorganizations, under currently applicable law, are as follows: (i)
the Reorganizations will constitute "reorganizations" within the meaning of
Section 368(a)(1)(C) of the Code; (ii) no gain or loss will be recognized by the
Analytic Portfolios upon the transfer of their assets to the PBHG Funds or upon
the distribution of the shares of the PBHG Funds to their shareholders pursuant
to the Reorganizations; (iii) no gain or loss will be recognized by any
shareholder of the Analytic Portfolios upon the exchange of shares of the
Analytic Portfolios solely for shares of the PBHG Funds; (iv) no gain or loss
will be recognized by the PBHG Funds on the receipt of the assets of the
Analytic Portfolios in exchange for shares of the PBHG Funds as a result of the
Reorganizations; (v) the tax basis of the shares of the PBHG Funds to be
received by a shareholder of the Analytic Portfolios will be the same as the tax
basis of the shares of the Analytic Portfolios surrendered in exchange therefor;
(vi) the basis to the PBHG Funds of the assets of the Analytic Portfolios will
be the same as the basis of those assets in the hands of the Analytic Portfolios
immediately prior to the Reorganizations; (vii) the holding period of the shares
of PBHG Funds to be received by a shareholder of the Analytic Portfolios will
include the holding period for which such shareholder held the shares of the
Analytic Portfolios exchanged therefor, provided that such shares of the
Analytic Portfolios are capital assets in the hands of such shareholder as of
the Closing Date; (viii) the holding period of the assets of the Analytic
Portfolios in the hands of the PBHG Funds will include the period during which
those assets were held by the Analytic Portfolios; and (ix) the taxable year of
the Analytic Portfolios will end on the Closing Date, and each of the PBHG Funds
will succeed to and take into account those attributes of the corresponding
Analytic Portfolio described in Section 381(c) of the Code, subject to the
provisions and limitations specified in Sections 381, 382, 383 and 384, if
applicable, and the Treasury regulations thereunder.
As a condition to the Closing, Paul, Hastings, Janofsky & Walker LLP will
render a favorable opinion as to the foregoing Federal tax consequences of the
Reorganizations, which opinion will be conditioned upon the accuracy, as of the
date of the Agreement and as of the Closing, of certain representations made by
the Fund and PBHG Advisor Funds upon which Paul, Hastings, Janofsky & Walker
LLP will rely. Neither the Fund nor PBHG Advisor Funds has sought a tax ruling
from the Internal Revenue Service ("IRS"). The opinion of counsel is not binding
on the IRS and does not preclude the IRS from adopting a contrary position.
The foregoing description of the Federal income tax consequences of the
Reorganizations is made without regard to the particular facts and circumstances
of any shareholder of the Analytic Portfolios. The tax consequences to certain
shareholders, such as dealers in securities, foreign persons, mutual funds,
insurance companies and tax-exempt entities, that are subject to special
treatment under the Code or under the laws of other jurisdictions may differ
materially from those outlined above. All the Analytic Portfolios shareholders
are urged to consult their own tax advisors as to the specific consequences to
them of the Reorganizations, including the applicability and effect of state,
local, foreign and other tax laws.
Capital Loss Carryforward
Short-Term Government Portfolio had a capital loss carryforward available
to offset future capital gains of approximately $797,773 as of December 31,
1997. Under Section 381 of the Code, the Advisor Short-Term Government Fund will
succeed to the capital loss carryforwards of Short-Term Government Portfolio if,
as described in "Additional Information about the Agreement--Federal Income Tax
Consequences" above, the transfer of the assets of the Short-Term Government
Portfolio to the Advisor Short-Term Government Fund qualifies as a
"reorganization" under Section 368(a)(1)(C) of the Code. The carryforward period
for capital losses is limited to eight years and accordingly, absent realized
capital gains, these capital loss carryforwards will expire in Years 1999, 2001,
2003, 2004 and 2005.
As a result of the Reorganizations, Short-Term Government Portfolio will
undergo an ownership change, as defined under Section 382 of the Code. The
amount of Short-Term Government Portfolio's capital loss carryforwards which can
be taken into account each year by the Advisor Short-Term Government Fund to
offset any realized capital gains will be limited generally to an amount equal
to the fair market value of Short-Term Government Portfolio on the Closing Date
multiplied by the long-term tax-exempt rate in effect at that time.
The amount of such capital loss carryforwards may be different at the
Closing Date. The Agreement does not provide for any adjustment to the number of
shares that Short-Term Government Portfolio shareholders will receive to reflect
any potential income tax effect on the shareholders of Short-Term Government
Portfolio which might result from any differences in the proportionate amounts
of the capital loss carryforward because of the difficulty of predicting the
potential use by the Advisor Short-Term Government Fund of such capital loss
carryforward. It is anticipated that there will be no distributions to
shareholders of current or future net realized gains on investments until the
capital loss carryforwards are offset or expire, although any such gains would
be reflected in the calculation of net asset value.
RIGHTS OF SHAREHOLDERS
PBHG Advisor Funds is a Maryland corporation and the Fund is a Delaware
business trust. There is much that is similar between the two forms of
organization. For example, the responsibilities, powers and fiduciary duties of
the trustees of the Fund are substantially the same as those of the directors of
PBHG Advisor Funds.
14
<PAGE>
There are, however, certain differences between the two forms of
organization. The operations of PBHG Advisor Funds, as a Maryland corporation,
are governed by its Articles of Incorporation, and amendments and supplements
thereto, and applicable Maryland law. The operations of the Fund, as a Delaware
business trust, are governed by its Agreement and Declaration of Trust, as
amended (the "Declaration of Trust") and Delaware law.
Liability of Shareholders
The Delaware Business Trust Act provides that shareholders of a Delaware
business trust shall be entitled to the same limitations of liability extended
to shareholders of private for-profit corporations. There is, however, a remote
possibility that, under certain circumstances, shareholders of a Delaware
business trust might be held personally liable for the trust's obligations to
the extent the courts of another state which does not recognize such limited
liability were to apply the laws of such state to a controversy involving such
obligations. The Declaration of Trust provides that shareholders of the Fund
shall not be subject to any personal liability for acts or obligations of the
Fund and that every written agreement, obligation or other undertaking made or
issued by the Fund shall contain a provision to the effect that shareholders are
not personally liable thereunder. In addition, the Declaration of Trust provides
for indemnification out of the Fund property for any shareholder held personally
liable solely by reason of his or her being or having been a shareholder.
Therefore, the risk of any shareholder incurring financial loss beyond his
investment due to shareholder liability is limited to circumstances in which the
Fund itself is unable to meet its obligations and the express disclaimer of
shareholder liabilities is determined not to be effective. Given the nature of
the Fund's assets and operations, the possibility of the Fund being unable to
meet its obligations is considered remote, and even if a claim were brought
against the Fund and a court determined that shareholders were personally
liable, it would likely not impose a material obligation on a shareholder.
Shareholders of a Maryland corporation generally do not have personal
liability for the corporation's obligations, except that a shareholder may be
liable to the extent that he receives any distribution which exceeds the amount
which he could properly receive under Maryland law or where such liability is
necessary to prevent fraud.
Election of Directors/Trustees; Terms; Annual Shareholder Meetings
The initial shareholders of the Fund elected the Trustees of the Fund at a
meeting of the shareholders held prior to the effective date of its registration
under the 1940 Act and the Securities Act of 1933, as amended ("1933 Act"). Such
Trustee serves for the life of the Fund, subject to the earlier death,
incapacitation, resignation, retirement or removal (see below). Shareholders may
elect successors to such Trustees only at special meetings of shareholders. The
Fund is not required to hold annual meetings and does not do so unless required
by the 1940 Act.
The sole initial shareholder of the PBHG Advisor Funds will elect the
Directors by written consent prior to the Closing Date. Each Director serves
until a successor is elected, subject to earlier death, incapacitiation,
resignation, retirement or removal (see below). Shareholders may elect
successors to such Directors only at annual or special meetings of shareholders.
PBHG Advisor Funds is not required to hold annual meetings unless required by
the 1940 Act, and does not intend to do so.
The By-laws of PBHG Advisor Funds provide that the Directors shall be
elected at the annual meeting of the shareholders provided that such annual
meetings for the election of Directors are required under the 1940 Act. The 1940
Act requires that at least two-thirds of the directors of an investment company
be elected by shareholders. Elections may also be held at a special meeting of
shareholders called for the purpose of electing Directors. The Directors of
PBHG Advisor Funds will be elected by consent of the sole initial shareholder of
PBHG Advisor Funds.
Removal of Trustees/Directors
A Trustee of the Fund may be removed with cause at any time by vote of at
least two-thirds of the Trustees and with or without cause by vote of two-thirds
of the outstanding shares of the Fund. The Declaration of Trust provides that
vacancies may be filled by either of the holders of at least a majority of the
Fund's shares or a majority vote of the remaining Trustees.
15
<PAGE>
A director of PBHG Advisor Funds may be removed by the affirmative vote of
a majority of the Board of Directors, a committee of the Board of Directors
appointed for such purpose, or the holders of the outstanding shares of PBHG
Advisor Funds.
Special Meetings of Shareholders
The Fund's Declaration of Trust provides that a majority of the trustees
may call special meetings of shareholders and the trustees shall call a special
meeting of the shareholders upon written request of the holders of not less than
10% of the Fund's shares. Special meetings may be called for the purpose of
electing trustees or for any other action requiring shareholder approval, or for
any matter deemed by the trustees to be necessary or desirable.
The PBHG Advisor Funds' By-Laws provide that a special meeting of
shareholders may be called by the President, Secretary, a majority of the Board
of Directors or holders of shares entitled to cast at least 10% of the votes
entitled to be cast at the special meeting. Requests for special meetings must,
among other things, state the purpose of such meeting and the matters to be
voted upon. No special meeting may be called to consider any matter previously
voted upon at a special meeting called by the shareholders during the preceding
twelve months, unless requested by a majority of all shares entitled to vote at
such meeting.
Liability of Directors/Trustees and Officers; Indemnification
Delaware law provides that trustees of a business trust shall not be liable
to the business trust or its shareholders for acting in good faith reliance on
the provisions of its governing instrument and that the trustee's liabilities
may be expanded or restricted by such instrument. Under the Fund's Declaration
of Trust, the trustees and officers of the Fund are not liable for any act or
omission or any conduct whatsoever in their capacity as trustees, except for
liability to the trust or shareholders due to willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
the office of trustee. Delaware law allows a business trust to indemnify and
hold harmless any trustee or other person against any and all claims and
demands. The Fund's Declaration of Trust requires the indemnification of its
trustees and officers to the fullest extent permitted by Delaware law, except
with respect to any matter in which it has been determined that such director or
officer acted with willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
Maryland law permits a corporation to eliminate liability of its directors
and officers to the corporation or its stockholders, except for liability
arising from receipt of an improper benefit or profit and from active and
deliberate dishonesty. PBHG Advisor Funds' Articles of Incorporation eliminates
director and officer liability to the fullest extent permitted under Maryland
law. Under Maryland law, indemnification of a corporation's directors and
officers is mandatory if a director or officer has been successful on the merits
or otherwise in the defense of certain proceedings. Maryland law permits
indemnification for other matters unless it is established that the act or
omission giving rise to the proceeding was committed in bad faith, a result of
active and deliberate dishonesty, or one in which a director or officer actually
received an improper benefit.
Termination
The Fund's Declaration of Trust provides that the Fund may be terminated at
any time by the vote of shareholders holding two-thirds of the shares
outstanding, or by the trustees after written notice to shareholders.
Maryland law provides that PBHG Advisor Funds may be dissolved by the vote
of a majority of the Board of Directors and two-thirds of the stockholders
entitled to vote on the dissolution.
16
<PAGE>
Voting Rights of Shareholders
The Fund's Declaration of Trust grants shareholders power to do the
following: (i) elect Trustees; (ii) approve certain contracts, such as
investment advisory contracts, as required by the 1940 Act; (iii) terminate or
reorganize the Fund; and (iv) approve such additional matters as may be required
by law or as the Trustees, in their sole discretion, shall determine.
Shareholders of a Maryland corporation such as PBHG Advisor Funds are
entitled to vote on, among other things, those matters which effect fundamental
changes in the corporate structure (such as a merger, consolidation or sale of
substantially all of the assets of the corporation) as provided by Maryland
corporation law.
Dissenters' Rights
Neither Delaware law nor the Declaration of Trust confer upon the Fund's
shareholders appraisal or dissenters' rights.
Under Maryland law, a PBHG Advisor Funds shareholder may not demand the
fair value of his shares from the successor company in a transaction involving
the transfer of the PBHG Advisor Funds' assets, and is bound by the terms of the
transaction.
Amendments to Organization Documents
Consistent with Delaware law, the Board of Trustees of the Fund may,
without shareholder approval, amend the Declaration of Trust at any time, except
that no amendment may be made which repeals the limitations of personal
liability of any shareholder, which reduces the amount payable in respect of the
Fund's shares upon liquidation of the Fund or which diminishes or eliminates any
voting rights pertaining to the Fund's shares, without approval of the majority
of the Fund's shares. The trustees shall have the power to alter, amend or
repeal the By-Laws of the Trust or adopt new By-Laws at any time.
Consistent with Maryland law, PBHG Advisor Funds reserves the right to
amend, alter, change or repeal any provision contained in its Articles of
Incorporation in the manner now or hereafter prescribed by statute, including
any amendment that alters the contract rights, as expressly set forth in the
Articles of Incorporation, of any outstanding stock, and all rights conferred on
shareholders are granted subject to this reservation. The Board of Directors of
PBHG Advisor Funds may approve amendments to the Articles of Incorporation to
classify or reclassify unissued shares of a class of stock without shareholder
approval. Other amendments to PBHG Advisor Funds' Articles of Incorporation may
be adopted if approved by a vote of a majority of the shares at any meeting at
which a quorum is present. PBHG Advisor Funds' Bylaws provide that the Bylaws
may be amended at any regular meeting or special meeting of the stockholders
provided that notice of such amendment is contained in the notice of the special
meeting. Except as to any particular Bylaw which is specified as not subject to
amendment by the Board of Directors, the Bylaws may be also amended by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board.
17
<PAGE>
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
This Combined Proxy Statement and Prospectus and the related Statement of
Additional Information do not contain all of the information set forth in the
registration statements and the exhibits relating thereto which the Fund and
PBHG Advisor Funds have filed with the SEC or in the annual reports which the
Fund has filed with the SEC pursuant to the requirements of the 1933 Act and the
1940 Act. The SEC file numbers for the Fund registration statement containing
the Prospectus and Statement of Additional Information relating to the Analytic
Portfolios are 33-55758 and 811-7366. Such Prospectus is incorporated herein by
reference. The SEC file numbers for PBHG's registration statement containing the
Prospectus and Statement of Additional Information relating to the PBHG Funds is
333-44193 and 811-08605. Such Prospectus and Statement of Additional Information
are incorporated by reference.
The Fund and the PBHG Advisor Funds are each subject to the informational
reporting requirements of the Securities Exchange Act of 1934, as amended, and
the 1940 Act, as applicable, and, in accordance with such requirements, files
proxy materials, reports, and other information with the SEC. These materials
can be inspected and copied at the Public Reference Facilities maintained by the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at the SEC's Northeast
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048, and
at the SEC's Midwest Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials can also be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549, at prescribed rates.
The SEC maintains a web site at http:\\www.sec.gov that contains information
regarding PBHG Advisor Funds, the Fund, and other registrants that file
electronically with the SEC.
18
<PAGE>
ADDITIONAL INFORMATION ABOUT EACH FUND
Financial Information
The financial statements in the tables below for each of the five years in
the period ended December 31, 1997, and the one month ended December 31, 1992,
have been audited by Deloitte & Touche LLP, independent auditors. Such financial
statements and the report of Deloitte & Touche LLP thereon are included in the
Statement of Additional Information. Copies of the Fund's 1997 Annual Report to
Shareholders may be obtained, at no charge, by telephoning the Fund at the
telephone number appearing on the cover page of this Prospectus.
The Analytic Series Fund
Analytic Enhanced Equity Portfolio
FINANCIAL HIGHLIGHTS
Per Share Data and
Ratios for a Share
Outstanding Throughout
the Period Indicated:
<TABLE>
<CAPTION>
Year Ended December 31, One Month
1996 1995 1994 1993 Ended
---- ---- ---- ---- December 31,
1997 1992
---- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, Beginning
of period......................... $ 12.09 $ 12.94 $ 9.83 $ 10.15 $ 10.02 $ 10.00
------ ------ ------ ------ ------ ------
Net Investment Income............. 0.15 0.21 0.23 0.28 0.40 0.01
Net Realized and Unrealized
Gains or Losses on
Investments...................... 3.45 2.74 3.22 (0.32) 0.62 0.02
------ ------ ------ ------ ------ ------
Total From Investment
Operations....................... 3.60 2.95 3.45 (0.04) 1.02 0.03
------ ------ ------ ------ ------ ------
Distributions From Net
Investment Income................ 0.15 0.21 0.23 0.28 0.40 0.01
In excess of net investment income 0.01 0.00 0.00 0.00 0.00 0.00
Distribution from Net Realized
Gains............................ 1.79 3.58 0.11 0.00 0.37 0.00
In excess of Net Realized Gains... 0.02 0.01 0.00 0.00 0.00 0.00
Return of capital................. 0.00 0.00 0.00 0.00 0.12 0.00
------ ------ ------ ------ ------ ------
Total Distributions............... 1.97 3.80 0.34 0.28 0.89 0.01
------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period........................... $ 13.72 $ 12.09 $ 12.94 $ 9.83 $ 10.15 $ 10.02
====== ====== ====== ====== ====== ======
Total Return:..................... 29.86% 22.95% 35.36% (0.37)% 10.07% 4.08%
===== ===== ====== ===== ===== ======
Ratios and Supplemental Data
Net Assets, End of Period (000)... $ 7,331 $ 3,519 $ 2,318 $ 1,511 $ 903 $12,823
Ratio of Expenses to
Average Net Assets (1).......... 2.24%* 1.51% 1.33% 1.35% 1.35% 1.07%*
Ratio of Net Investment
Income to Average Net
Assets.......................... 1.17%* 1.53% 2.02% 3.24% 2.16% 1.66%*
Portfolio Turnover Rate........... 189.39% 179.47% 10.15% 24.75% 76.34% 25.20%
Average Commission Rate(2)........ $0.0288 $0.0658 $0.0431
</TABLE>
- --------------------
(1) Gross of Advisor reimbursed expenses and expenses paid indirectly through
broker arrangements. With both expense reductions, such ratios would have
been 1.00%, 0.91%, 0.50%, 0.24%, 0.57%, and 0.70%* for each of the years in
the periods ended December 31, 1997, and for the month ended December 31,
1992, respectively.
(2) The formula for calculating the average commission rate is total commission
paid divided by the total shares purchased and sold. Each option contract
is 100 shares.
* Calculated on an annualized basis.
19
<PAGE>
The Analytic Series Fund
Analytic Master Fixed Income Portfolio
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Per Share Data and Ratios for a Share Outstanding Throughout the Period Indicated:
Year Ended December 31, One Month
1996 1995 1994 1993 Ended
---- ---- ---- ---- December 31,
1997 1992
---- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, Beginning
of period......................... $ 10.27 $ 10.41 $ 9.50 $ 10.26 $ 10.06 $ 10.00
------ ------ ------ ------ ------ ------
Net Investment Income............. 0.59 0.58 0.61 0.64 0.67 0.04
Net Realized and Unrealized
Gains or Losses on
Investments...................... 0.41 (0.01) 0.91 (0.75) 0.41 0.06
------ ------ ------ ------ ------ ------
Total From Investment
Operations....................... 1.00 0.57 1.52 (0.11) 1.08 0.10
------ ------ ------ ------ ------ ------
Distributions From Net
Investment Income................ 0.59 0.58 0.61 0.64 0.67 0.04
Distribution from Net Realized
Gains............................ 1.75 0.12 0.00 0.01 0.21 0.00
In excess of Net Realized Gains... 0.09 0.01 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
Total Distributions............... 2.43 0.71 0.61 0.65 0.88 0.04
------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period........................... $ 8.84 $ 10.27 $ 10.41 $ 9.50 $ 10.26 $ 10.06
====== ====== ====== ====== ====== ======
Total Return:..................... 10.04% 5.69% 16.43% (1.04)% 10.94% 13.09%
====== ====== ======= ====== ====== ======
Ratios and Supplemental Data
Net Assets, End of Period (000)... $5,712 $28,926 $24,868 $ 6,155 $ 8,066 $ 9,219
Ratio of Expenses to
Average Net Assets (1).......... 1.0%* 0.97% 1.03% 1.17% 1.04% 1.05%*
Ratio of Net Investment
Income to Average Net
Assets.......................... 5.60%* 5.66% 5.99% 7.16% 6.39% 5.63%*
Portfolio Turnover Rate........... 39.98% 21.95% 31.82% 44.30% 105.39% 0.00%
Average Commission Rate(2)........ $0.0375 $0.0418 $0.0277
</TABLE>
- --------------------
(1) Gross of Advisor reimbursed expenses and expenses paid indirectly through
broker arrangements. With both expense reductions, such ratios would have
been 0.90%, 0.72%, 0.69%, 0.60%, 0.60%, and 0.60%* for each of the years in
the periods ended December 31, 1997, and for the month ended December 31,
1992, respectively.
(2) The formula for calculating the average commission rate is total commission
paid divided by the total shares purchased and sold. Each option contract
is 100 shares.
* Calculated on an annualized basis.
20
<PAGE>
The Analytic Series Fund
Analytic Short-Term Government Portfolio
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Per Share Data and Ratios for a Share Outstanding Throughout the Period Indicated:
Year Ended December 31, One Month
1996 1995 1994 1993 Ended
---- ---- ---- ---- December 31,
1997 1992
---- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, Beginning
of period......................... $ 9.83 $ 9.98 $ 9.55 $ 10.03 $ 10.03 $ 10.00
------ ------ ------ ------ ------ ------
Net Investment Income............. 0.55 0.62 0.56 0.48 0.53 0.05
Net Realized and Unrealized
Gains or Losses on
Investments...................... (0.02) (0.10) 0.43 (0.48) 0.00 0.03
------ ------ ------ ------ ------ ------
Total From Investment
Operations....................... 0.53 0.52 0.99 0.00 0.53 0.08
------ ------ ------ ------ ------ ------
Distributions From Net
Investment Income................ 0.55 0.66 0.56 0.48 0.53 0.05
Return of capital................. 0.00 0.01 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
Total Distributions............... 0.55 0.67 0.56 0.48 0.53 0.05
------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period........................... $ 9.81 $ 9.83 $ 9.98 $ 9.55 $ 10.03 $ 10.03
====== ====== ====== ====== ====== ======
Total Return:..................... 5.54% 5.28% 10.65% 0.00 5.37% 9.38%
====== ====== ======= ====== ====== ======
Ratios and Supplemental Data
Net Assets, End of Period (000)... $ 2,978 $ 1,008 $27,880 $24,481 $26,097 $ 7,619
Ratio of Expenses to
Average Net Assets (1).......... 7.80%* 0.76% 0.82% 0.85% 0.75% 0.77%*
Ratio of Net Investment
Income to Average Net
Assets.......................... 5.53%* 5.99% 5.76% 5.37% 4.91% 5.45%*
Portfolio Turnover Rate........... 33.50% 31.48% 10.15% 3.21% 85.69% 0.00%
</TABLE>
- --------------------
(1) Gross of Advisor reimbursed expenses and expenses paid indirectly through
broker arrangements. With both expense reductions, such ratios would have
been 0.60%, 0.56%, 0.50%, 0.45%, 0.45%, and 0.45%* for each of the years in
the periods ended December 31, 1997, and for the month ended December 31,
1992, respectively.
* Calculated on an annualized basis.
Management Discussion and Analysis of Performance
A discussion of the performance of the Analytic Portfolios for the fiscal
year ended December 31, 1997 is set forth in Exhibit D to this Combined Proxy
Statement and Prospectus.
Further Information About PBHG Advisor Funds
[For more information with respect to PBHG Funds concerning the following
topics, please refer to the PBHG Fund Prospectus attached hereto as Exhibit B as
indicated: (i) see the headings "Summary," "The Company and the Funds," and
"General Information" for information on the organization, management and
operations of PBHG Advisor Funds and the Fund; (ii) see the headings "Investment
Objectives and Policies," "General Investment Policies and Strategies" and
"Investment Limitations" for a description of the investment objectives and
policies of the Fund; (iii) see the headings "Summary," "The Company and the
Funds," "Taxes" and "General Information" for further information concerning the
capital stock of PBHG Advisor Funds; and (iv) see the headings "How to Purchase
Fund Shares," "Shareholder Services" and "How to Redeem Fund Shares" for further
information regarding the purchase, exchange and redemption of shares of the
Fund.]
21
<PAGE>
Further Information About the Fund
For more information with respect to the Fund concerning the following
topics, please refer to the Analytic Portfolios Prospectus as follows: (i) see
the headings "Implementation of Policies," "Management of the Fund," "Investment
Adviser," and "General Information" for further information on the organization,
management and operation of the Fund and the Analytic Portfolios; (ii) see the
headings "Investment Objectives and Policies," and "Who Should Invest" for
further information concerning the investment objectives and policies of the
Analytic Portfolios; (iii) see the headings "Prospectus Summary," "Dividends,
Capital Gain Distributions and Taxes" and "General Information" for further
information concerning the shares of beneficial interest of the Fund; and (iv)
see the headings "Purchasing Shares," "Redeeming Shares," "Exchanging Shares,"
and "Shareholder Guide" for further information concerning the purchase,
exchange and redemption of shares of the Analytic Portfolios.
CAPITALIZATION
The following table sets forth as of March 20, 1998: (i) the
capitalization of the Analytic Portfolios; (ii) the capitalization of the PBHG
Funds; and (iii) the pro forma capitalization of the PBHG Funds as adjusted to
give effect to the Reorganizations. If the Reorganizations are consummated, the
capitalization of the PBHG Funds is likely to be different at the Closing Date
as a result of daily share purchase and redemption activity in the Analytic
Portfolios.
<TABLE>
<CAPTION>
Enhanced Equity Advisor Enhanced Pro Forma
Portfolio Equity Fund Combined
<S> <C> <C> <C>
Total Net Assets $9,982,475 $3,625 $9,986,100
Shares Outstanding 625,467 363 998,610
Net Asset Value Per Share $15.96 $10.00 $10.00
Master Fixed Income Advisor Master Pro Forma
Portfolio Fixed Income Fund Combined
<S> <C> <C> <C>
Total Net Assets $4,241,705 $3,625 $4,245,330
Shares Outstanding 473,441 363 424,533
Net Asset Value Per Share $8.96 $10.00 $10.00
Short-Term Advisor Short-Term Pro Forma
Government Government Fund Combined
Portfolio
<S> <C> <C> <C>
Total Net Assets $3,367,466 $100 $3,367,560
Shares Outstanding 342,654 10 336,757
Net Asset Value Per Share $9.93 $10.00 $10.00
</TABLE>
22
<PAGE>
FINANCIAL STATEMENTS
The financial statements in the Fund's 1997 Annual Report to Shareholders
that are included in the Statement of Additional Information related to this
Combined Proxy Statement and Prospectus, have been audited by the Fund's
independent auditors, Deloitte & Touche LLP, whose report thereon also appears
in such Annual Report. Such financial statements have been incorporated in
reliance upon such reports given upon their authority as experts in accounting
and auditing. Copies of the Fund's Annual Report to Shareholders may be obtained
at no charge by telephoning the Fund at the number on the front page of the
Statement of Additional Information.
Statements of Assets and Liabilities of PBHG Advisor Funds at March 20,
1998, and the report thereon by Coopers & Lybrand, LLP, are included in the
Statement of Additional Information related to this Combined Proxy Statement and
Prospectus.
OWNERSHIP OF ANALYTIC PORTFOLIO SHARES
On January 31, 1998, the name, address, and share ownership of the persons
who owned of record 5% or more of the outstanding shares of the Analytic
Portfolios is as follows:
Analytic Enhanced Equity Portfolio
Analytic TSA Global Asset Management Inc.
Inv. Mgr. for Prison Law Office 25.0%
Attn: Joy Yap
700 S. Flower Street, Suite 2400
Los Angeles, CA 90017
Analytic TSA Global Asset Management Inc.
FBO Mountain Grove Cemetery Assn. 22.9%
700 S. Flower Street, Suite 2400
Los Angeles, CA 90017
Charles Schwab & Co. Inc.
Special Custody Account for Benefit
of Customers 09.8%
101 Montgomery St.
San Francisco, CA 94104
Analytic Master Fixed Income Portfolio
Analytic TSA Global Asset Management Inc.
FBO Mountain Grove Cemetery Assn. 13.8%
700 Flower Street, Suite 2400
Los Angeles, CA 90017
Tucker Anthony Inc.
VMEP NHC Pension 12.6%
Attn: Stephen T. Monahan
4 Landmark Square
Stamford, CT 06901-2700
R. Borzilleri
VMEP 12.3%
Attn: Stephen T. Monahan
4 Landmark Square
Stamford, CT 06901-2700
Greg McNurran 06.3%
2116 N. Westwood Ave.
Santa Ana, CA 92706
Tucker Anthony Inc.
VMEP Blodgett 05.3%
Attn: Stephen T. Monahan
4 Landmark Square
Stamford, CT 06901-2700
Analytic Short-Term Government Portfolio
Analytic TSA Global Asset Management Inc.
Inv. Mgr. 62.7%
FBO Southern Baptist Foundation
700 S. Flower Street, Suite 2400
Los Angeles, Ca 90017
Analytic TSA Global Asset Management Inc.
Inv. Mgr. for Prison Law Office 13.4%
Attn: Joy Yap
700 S. Flower Street, Suite 2400
Los Angeles, CA 90017
Analytic TSA Global Asset Management Inc.
FBO Mountain Grove Cemetery Assn. 05.8%
700 S. Flower Street, Suite 2400
Los Angeles, CA 90017
The Fund has no information regarding the beneficial ownership of the shares.
No shares of the PBHG Funds will be issued in advance of consummation of
the Reorganizations, other than shares purchased by Pilgrim Baxter, as initial
shareholder, to provide initial capitalization for each PBHG Fund.
23
<PAGE>
INFORMATION RELATING TO VOTING MATTERS
General Information
This Combined Proxy Statement and Prospectus is being furnished in
connection with the solicitation of proxies by the Fund's Board of Trustees in
connection with the Special Meeting. Solicitation of proxies will be primarily
by mail. Officers of the Fund, PBHG Advisor Funds, Analytic TSA, and/or Pilgrim
Baxter may also solicit proxies by telephone, telegraph, or personal interview.
Any shareholder giving a proxy may revoke it at any time before it is exercised
by submitting to the Fund a written notice of revocation or a subsequently
executed proxy or by attending the Special Meeting and voting in person.
Only shareholders of record at the close of business on April 14, 1998,
will be entitled to vote at the Special Meeting. On that date there were
outstanding and entitled to be voted 693,193.744 shares of the Enhanced Equity
Portfolio, 487,320.113 shares of the Master Fixed Income Portfolio and
321,599.972 shares of the Short-Term Government Portfolio. Each share or
fraction thereof is entitled to one vote or fraction thereof.
If the accompanying proxy is executed and returned in time for the Special
Meeting, the shares covered thereby will be voted in accordance with the proxy
on all matters that may properly come before the Special Meeting or any
adjournment thereof. For information on adjournment of the Special Meeting, see
"Quorum" below.
Shareholder Approvals
The Agreement and the transactions contemplated thereby are being submitted
at the Special Meeting for approval by the shareholders of the Analytic
Portfolios. In accordance with the provisions of the Agreement and Declaration
of Trust of the Fund and the Delaware Business Trust Act, approval of the
proposal requires the affirmative vote of the lessor of (i) 67% or more of the
shares present or represented at the Special Meeting, provided the holders of
more than 50% of the shares are present or represented by proxy, or (ii) more
than 50% of the shares of each of the Analytic Portfolios. Abstentions will have
the same effect as casting a vote against the proposal. The vote of the
shareholders of the PBHG Funds is not being solicited, because their approval or
consent is not required for the Reorganizations to be consummated.
If for any reason the Reorganizations are not approved, the Board of
Trustees believes that it will have no viable alternative to the dissolution of
the Fund.
The Board of Trustees, including the independent Trustees, recommend that
shareholders vote FOR the Reorganizations.
Quorum
In the event that a quorum is not present at the Special Meeting, or in the
event that a quorum is present at the Special Meeting but sufficient votes to
approve the Agreement and the Reorganizations are not received, the persons
named as proxies may propose one or more adjournments of the Special Meeting to
permit further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of the shares represented at the Special Meeting
in person or by proxy. If a quorum is present, the persons named as proxies will
vote those proxies which they are entitled to vote FOR the Agreement in favor of
such adjournments, and will vote those proxies required to be voted AGAINST such
proposal against any adjournment. A quorum is constituted by the presence in
person or by proxy of the holders of one-third or more of the outstanding
shares. Proxies properly executed and marked with a negative vote or an
abstention, or broker non-votes, will be considered to be present at the Special
Meeting for the purposes of determining the existence of a quorum for the
transaction of business. Broker non-votes occur when a broker proxy indicates
that the broker is not authorized to vote on a particular proposal.
24
<PAGE>
Other Business
The Board of Trustees of the Fund knows of no other business to be brought
before the Special Meeting. However, if any other matters come before the
Special Meeting, proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
Shareholder Inquiries
Shareholder inquiries may be addressed to the Fund in writing at the
address on the cover page of this Combined Proxy Statement and Prospectus or by
telephoning 1-800-374-2633.
* * *
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE SPECIAL MEETING ARE URGED TO
DATE AND SIGN THE ENCLOSED PROXY AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE
WHICH IS ADDRESSED FOR YOUR CONVENIENCE AND NEEDS NO POSTAGE IF MAILED IN THE
UNITED STATES. IN ORDER TO AVOID THE EXPENSE OF FURTHER SOLICITATION, WE ASK
YOUR COOPERATION IN COMPLETING AND RETURNING YOUR PROXY PROMPTLY.
25
<PAGE>
Exhibit A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
the 23rd day of March, 1998, by and between The Analytic Series Fund, a Delaware
business trust (the "Trust"), acting on behalf of Analytic Enhanced Equity
Portfolio, Analytic Master Fixed Income Portfolio and Analytic Short-Term
Government Portfolio, each a separate series of the Trust (the "Acquired
Funds"), and PBHG Advisor Funds, Inc., a Maryland corporation ("PBHG Funds"),
acting on behalf of PBHG Advisor Enhanced Equity Fund, PBHG Advisor Master Fixed
Income Fund and PBHG Advisor Short-Term Government Bond Fund, each a separate
series of PBHG Funds (the "Acquiring Funds"). (The Acquiring Funds and the
Acquired Funds are sometimes referred to collectively as the "Funds" and
individually as a "Fund".)
This Agreement is intended to be and is adopted as a plan of reorganization
within the meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"), pursuant to which Analytic Enhanced Equity Portfolio will
be combined with PBHG Advisor Enhanced Equity Fund, Analytic Master Fixed Income
Portfolio will be combined with PBHG Advisor Master Fixed Income Fund and
Analytic Short-Term Government Portfolio will be combined with PBHG Advisor
Short-Term Government Fund (the "Reorganization"). The Reorganization will
consist of the transfer of substantially all of the property and assets of each
of the Acquired Funds to the corresponding Acquiring Fund in exchange solely for
Class A shares of the voting common stock of the corresponding Acquiring Funds
("Acquiring Funds Shares"), followed by the distribution by the Acquired Funds,
on the Closing Date, as defined herein, of the corresponding Acquiring Funds
Shares to the shareholders of the Acquired Funds, the cancellation of all of the
outstanding shares of each of the Acquired Funds ("Acquired Funds Shares"), the
liquidation of each of the Acquired Funds, and the termination each of the
Acquired Funds as a series of the Trust, as provided herein, all upon the terms
and conditions hereinafter set forth in this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUNDS IN EXCHANGE FOR ACQUIRING FUNDS
SHARES AND LIQUIDATION OF THE ACQUIRED FUNDS
1.1 Reorganization of Analytic Enhanced Equity Portfolio. (a) On the closing
date for the Reorganization (the "Closing Date"), the Analytic Enhanced Equity
Portfolio shall transfer substantially all of its property and assets
(consisting, without limitation, of portfolio securities and instruments,
dividends and interest receivables, claims, cash, cash equivalents, books and
records, and other assets), as set forth in the statement of assets and
liabilities referred to in Section 8.2 hereof (the "Statement of Assets and
Liabilities"), to the PBHG Advisor Enhanced Equity Fund free and clear of all
liens, encumbrances, and claims, except for (i) any unamortized or deferred fees
or expenses, prepaid expenses or goodwill shown as assets on the Analytic
<PAGE>
Enhanced Equity Portfolio's books, and (ii) cash or bank deposits in an amount
necessary: (A) to discharge all of the unpaid liabilities reflected on its books
and records at the Closing Date, including any amounts due to holders of shares
of the Analytic Enhanced Equity Portfolio for unpaid dividends or otherwise; and
(B) to pay such contingent liabilities, if any, as the Board of Trustees of the
Analytic Enhanced Equity Portfolio shall reasonably deem to exist against the
Analytic Enhanced Equity Portfolio at the Closing Date, for which contingent and
other appropriate liability reserves shall be established on the Analytic
Enhanced Equity Portfolio's books. Any unspent portion of such cash or bank
deposits retained shall be delivered by the Trust to the PBHG Advisor Enhanced
Equity Fund upon the satisfaction of all of the foregoing liabilities, costs,
and expenses of the Analytic Enhanced Equity Portfolio. (The property and assets
to be transferred to the PBHG Advisor Enhanced Equity Fund under this Agreement
are referred to herein as the "Analytic Enhanced Equity Portfolio Net Assets".)
In exchange for the transfer of the Analytic Enhanced Equity Portfolio Net
Assets, the PBHG Advisor Enhanced Equity Fund shall deliver to the Analytic
Enhanced Equity Portfolio on the Closing Date, for distribution pro rata by the
Analytic Enhanced Equity Portfolio to its shareholders, a number of the PBHG
Advisor Analytic Enhanced Equity Fund Shares having an aggregate net asset value
equal to the value of the Analytic Enhanced Equity Portfolio Net Assets, all
determined as provided in Section 2 of this Agreement and as of the date and
time specified therein. Such transactions shall take place on the Closing Date
at the time of the closing provided for in Section 3.1 of this Agreement (the
"Closing Time"). The PBHG Advisor Enhanced Equity Fund shall not assume any
liability of the Analytic Enhanced Equity Portfolio and the Analytic Enhanced
Equity Portfolio shall use its reasonable best efforts to discharge all of its
known liabilities, so far as may be possible, from the cash and bank deposits
described above. Following the closing, the Trust shall not be responsible for
the liabilities, costs and expenses of the Analytic Enhanced Equity Portfolio,
and recourse for such liabilities shall be limited to the cash or bank deposits
retained to satisfy such liabilities, costs and expenses, as provided for above
in this Section 1.1(a).
(b) On the Closing Date, the Analytic Enhanced Equity Portfolio shall
liquidate and distribute pro rata to its shareholders of record at the close of
business on the Valuation Date (as defined in Section 2.1 below) (the "Analytic
Enhanced Equity Portfolio Shareholders") the PBHG Advisor Enhanced Equity Fund
Shares received by the Analytic Enhanced Equity Portfolio pursuant to Section
1.1(a) hereof. (The date of such liquidation and distribution is referred to as
the "Liquidation Date.") In addition, each Analytic Enhanced Equity Portfolio
Shareholder shall have the right to receive any dividends or other distributions
that were declared prior to the Closing Date, but unpaid at that time, with
respect to the Analytic Enhanced Equity Portfolio Shares that are held by such
Analytic Enhanced Equity Portfolio Shareholders on the Closing Date. Such
liquidation and distribution shall be accomplished by DST Systems, Inc., in its
capacity as transfer agent for the PBHG Advisor Enhanced Equity Fund,
2
<PAGE>
by opening accounts on the share records of the PBHG Advisor Enhanced Equity
Fund in the names of the Analytic Enhanced Equity Portfolio Shareholders and
transferring to each such Analytic Enhanced Equity Portfolio Shareholder account
the pro rata number of the PBHG Advisor Enhanced Equity Fund Shares due each
such Analytic Enhanced Equity Portfolio Shareholder from the PBHG Advisor
Enhanced Equity Portfolio Shares then credited to the account of the Analytic
Enhanced Equity Portfolio on the PBHG Advisor Enhanced Equity Fund's books and
records. The PBHG Advisor Enhanced Equity Fund shall not issue certificates
representing PBHG Advisor Enhanced Equity Fund Shares in connection with such
distribution.
1.2 Reorganization of Analytic Master Fixed Income Portfolio. (a) On the
Closing Date, the Analytic Enhanced Equity Portfolio shall transfer
substantially all of its property and assets (consisting, without limitation, of
portfolio securities and instruments, dividends and interest receivables,
claims, cash, cash equivalents, books and records, and other assets), as set
forth in its Statement of Assets and Liabilities referred to in Section 8.2
hereof, to the PBHG Advisor Master Fixed Income Fund free and clear of all
liens, encumbrances, and claims, except for (i) any unamortized or deferred fees
or expenses, prepaid expenses or goodwill shown as assets on the Analytic Master
Fixed Income Portfolio's books, and (ii) cash or bank deposits in an amount
necessary: (A) to discharge all of the unpaid liabilities reflected on its books
and records at the Closing Date, including any amounts due to holders of shares
of the Analytic Master Fixed Income Portfolio for unpaid dividends or otherwise;
and (B) to pay such contingent liabilities, if any, as the Board of Trustees of
the Analytic Master Fixed Income Portfolio shall reasonably deem to exist
against the Analytic Master Fixed Income Portfolio at the Closing Date, for
which contingent and other appropriate liability reserves shall be established
on the Analytic Master Fixed Income Portfolio's books. Any unspent portion of
such cash or bank deposits retained shall be delivered by the Trust to the PBHG
Advisor Master Fixed Income Fund upon the satisfaction of all of the foregoing
liabilities, costs, and expenses of the Analytic Master Fixed Income Portfolio.
(The property and assets to be transferred to the PBHG Advisor Master Fixed
Income Fund under this Agreement are referred to herein as the "Analytic Master
Fixed Income Portfolio Net Assets".) In exchange for the transfer of the
Analytic Master Fixed Income Portfolio Net Assets, the PBHG Advisor Master Fixed
Income Fund shall deliver to the Analytic Master Fixed Income Portfolio on the
Closing Date, for distribution pro rata by the Analytic Master Fixed Income
Portfolio to its shareholders, a number of the PBHG Advisor Master Fixed Income
Fund Shares having a aggregate net asset value equal to the value of the
Analytic Master Fixed Income Portfolio Net Assets, all determined as provided in
Section 2 of this Agreement and as of the date and time specified therein. Such
transactions shall take place on the Closing Date at the Closing Time. The PBHG
Advisor Master Fixed Income Fund shall not assume any liability of the Analytic
Master Fixed Income Portfolio and the Analytic Master Fixed Income Portfolio
shall use its reasonable best efforts to discharge all of its known liabilities,
so far as may be possible, from the cash and bank deposits described above.
Following the closing, the Trust shall not be responsible for the liabilities,
costs and expenses of the Analytic Master Fixed Income Portfolio, and recourse
for such liabilities shall be limited to the cash or bank deposits retained to
satisfy such liabilities, costs and expenses, as provided for above in this
Section 1.2(a).
(b) On the Closing Date, the Analytic Master Fixed Income Portfolio
shall liquidate and distribute pro rata to its shareholders of record at the
close of business on the
3
<PAGE>
Valuation Date (the "Analytic Master Fixed Income Portfolio Shareholders") the
PBHG Advisor Master Fixed Income Fund Shares received by the Analytic Master
Fixed Income Portfolio pursuant to Section 1.2(a) hereof. (The date of such
liquidation and distribution is referred to as the "Liquidation Date.") In
addition, each Analytic Master Fixed Income Portfolio Shareholder shall have the
right to receive any dividends or other distributions that were declared prior
to the Closing Date, but unpaid at that time, with respect to the Analytic
Master Fixed Income Portfolio Shares that are held by such Analytic Master Fixed
Income Portfolio Shareholders on the Closing Date. Such liquidation and
distribution shall be accomplished by DST Systems, Inc., in its capacity as
transfer agent for the PBHG Advisor Master Fixed Income Fund, by opening
accounts on the share records of the PBHG Advisor Master Fixed Income Fund in
the names of the Analytic Master Fixed Income Portfolio Shareholders and
transferring to each such Analytic Master Fixed Income Portfolio Shareholder
account the pro rata number of the PBHG Advisor Master Fixed Income Fund Shares
due each such Analytic Master Fixed Income Portfolio Shareholder from the PBHG
Advisor Master Fixed Income Fund Shares then credited to the account of the
Analytic Master Fixed Income Portfolio on the PBHG Advisor Master Fixed Income
Fund's books and records. The PBHG Advisor Master Fixed Income Fund shall not
issue certificates representing PBHG Advisor Master Fixed Income Fund Shares in
connection with such distribution.
1.3 Reorganization of Analytic Short-Term Government Portfolio. (a) On the
Closing Date, the Analytic Short-Term Government Portfolio shall transfer
substantially all of its property and assets (consisting, without limitation, of
portfolio securities and instruments, dividends and interest receivables,
claims, cash, cash equivalents, books and records, and other assets), as set
forth in its Statement of Assets and Liabilities referred to in Section 8.2
hereof, to the PBHG Advisor Short-Term Government Fund free and clear of all
liens, encumbrances, and claims, except for (i) any unamortized or deferred fees
or expenses, prepaid expenses or goodwill shown as assets on the Analytic
Short-Term Government Portfolio's books, and (ii) cash or bank deposits in an
amount necessary: (A) to discharge all of the unpaid liabilities reflected on
its books and records at the Closing Date, including any amounts due to holders
of shares of the Analytic Short-Term Government Portfolio for unpaid dividends
or otherwise; and (B) to pay such contingent liabilities, if any, as the Board
of Trustees of the Analytic Short-Term Government Portfolio shall reasonably
deem to exist against the Analytic Short-Term Government Portfolio at the
Closing Date, for which contingent and other appropriate liability reserves
shall be established on the Analytic Short-Term Government Portfolio's books.
Any unspent portion of such cash or bank deposits retained shall be delivered by
the Trust to the PBHG Advisor Short-Term Government Fund upon the satisfaction
of all of the foregoing liabilities, costs, and expenses of the Analytic
Short-Term Government Portfolio. (The property and assets to be transferred to
the PBHG Advisor Short-Term Government Fund under this Agreement are referred to
herein as the "Analytic Short-Term Government Portfolio Net Assets".) In
exchange for the transfer of the Analytic Short-Term Government Portfolio Net
Assets, the PBHG Advisor Short-Term Government Fund shall deliver to the
Analytic Short-Term Government Portfolio on the Closing Date, for distribution
pro rata by the Analytic Short-Term Government Portfolio to
4
<PAGE>
its shareholders, a number of the PBHG Advisor Short-Term Government Fund Shares
having a aggregate net asset value equal to the value of the Analytic Short-Term
Government Portfolio Net Assets, all determined as provided in Section 2 of this
Agreement and as of the date and time specified therein. Such transactions shall
take place on the Closing Date at the Closing Time. The PBHG Advisor Short-Term
Government Fund shall not assume any liability of the Analytic Short-Term
Government Portfolio and the Analytic Short-Term Government Portfolio shall use
its reasonable best efforts to discharge all of its known liabilities, so far as
may be possible, from the cash and bank deposits described above. Following the
closing, the Trust shall not be responsible for the liabilities, costs and
expenses of the Analytic Short-Term Government Portfolio, and recourse for such
liabilities shall be limited to the cash or bank deposits retained to satisfy
such liabilities, costs and expenses, as provided for above in this Section
1.3(a).
(b) On the Closing Date, the Analytic Short-Term Government Portfolio
shall liquidate and distribute pro rata to its shareholders of record at the
close of business on the Valuation Date (the "Analytic Short-Term Government
Portfolio Shareholders") the PBHG Advisor Short-Term Government Fund Shares
received by the Analytic Short-Term Government Portfolio pursuant to Section
1.3(a) hereof. (The date of such liquidation and distribution is referred to as
the "Liquidation Date.") In addition, each Analytic Short-Term Government
Portfolio Shareholder shall have the right to receive any dividends or other
distributions that were declared prior to the Closing Date, but unpaid at that
time, with respect to the Analytic Short-Term Government Portfolio Shares that
are held by such Analytic Short-Term Government Portfolio Shareholders on the
Closing Date. Such liquidation and distribution shall be accomplished by DST
Systems, Inc., in its capacity as transfer agent for the PBHG Advisor Short-Term
Government Fund, by opening accounts on the share records of the PBHG Advisor
Short-Term Government Fund in the names of the Analytic Short-Term Government
Portfolio Shareholders and transferring to each such Analytic Short-Term
Government Portfolio Shareholder account the pro rata number of the PBHG Advisor
Short-Term Government Fund Shares due each such Analytic Short-Term Government
Portfolio Shareholder from the PBHG Advisor Short-Term Government Fund Shares
then credited to the account of the Analytic Short-Term Government Portfolio on
the PBHG Advisor Short-Term Government Fund's books and records. The PBHG
Advisor Short-Term Government Fund shall not issue certificates representing
PBHG Advisor Short-Term Government Fund Shares in connection with such
distribution.
1.4 Any transfer taxes payable upon issuance of Acquiring Funds Shares in
a name other than the registered holder of the Acquiring Funds Shares on the
books of the Acquired Funds as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Funds Shares
are to be issued and transferred.
1.5 As soon as practicable following the Liquidation Date, the Trust shall
take all steps necessary to terminate the existence of the Acquired Funds,
including (a) the payment or other satisfaction of the Acquired Funds' remaining
outstanding liabilities, costs and expenses, from
5
<PAGE>
the cash and bank deposits retained for that purpose pursuant to Section 1.1,
1.2 and 1.3 hereof, and (b) the termination of each of the Acquired Funds as a
series of the Trust in accordance with the Trust's Agreement and Declaration of
Trust, as heretofore amended (the "Declaration of Trust"). The Trust shall
thereafter terminate its existence under the Declaration of Trust and deregister
as an investment company under the Investment Company Act of 1940, as amended
(the "1940 Act").
2. VALUATION
2.1 The net asset value of the Acquiring Funds Shares and the value of the
Acquired Funds Net Assets shall in each case be determined as of the close of
regular trading on the New York Stock Exchange ("NYSE") on the business day
immediately preceding the Closing Date (the "Valuation Date") unless on such
date (a) the NYSE is not open for unrestricted trading, or (b) the reporting of
trading on the NYSE or elsewhere is disrupted or (c) any other extraordinary
financial event or market condition occurs which affects or may affect the
Acquired Funds or the Acquiring Funds (all such events described in (a), (b) and
(c) are each referred to as a "Market Disruption"). The net asset value per
share of the Acquiring Funds shall be computed in accordance with the policies
and procedures set forth in the then current Prospectus and Statement of
Additional Information of PBHG Funds. The net asset value per share of the
Acquiring Funds Shares shall be computed to not fewer than two (2) decimal
places. The value of the Acquired Funds Net Assets shall be computed in
accordance with the policies and procedures set forth in the then current
Prospectus and Statement of Additional Information of the Trust.
2.2 In the event of a Market Disruption on the proposed Valuation Date so
that accurate appraisal of the net asset value of the Acquiring Funds or the
value of the Acquired Funds Net Assets is impracticable, the Closing Date shall
be postponed until the first business day following the first business day
during which regular trading on the NYSE shall have been fully resumed and
reporting shall have been restored and other effects of the Market Disruption
are otherwise stabilized.
2.3 The number of Acquiring Funds Shares to be issued (including fractional
shares, if any) in exchange for the corresponding Acquired Funds Net Assets
shall be determined by dividing the value of the Acquired Funds Net Assets by
the corresponding Acquiring Funds' net asset value per share, both as determined
in accordance with Section 2.1 hereof.
2.4 All computations of value regarding the net asset value of the Acquiring
Funds Shares and the value of the Acquired Funds Net Assets shall be made by
agreement of the Trust and PBHG Funds. The parties agree to use commercially
reasonable efforts to resolve any material pricing differences between the
prices of portfolio securities determined in accordance with their respective
pricing policies and procedures.
6
<PAGE>
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be May __, 1998 or such earlier or later date
as the parties may agree. The Closing Time shall be at 8:00 A.M., Eastern time.
The Closing shall be held at the offices of Ballard Spahr Andrews & Ingersoll,
LLP located at 1735 Market Street, 51st Floor, Philadelphia, Pennsylvania,
19103-7599, or at such other time and/or place as the parties may agree. For
purposes of this Agreement, the term "Closing" shall mean the transfer of the
assets of the Acquired Funds against the delivery of the Acquiring Funds Shares
as described in Sections 1.1, 1.2 and 1.3.
3.2 At least five (5) business days prior to the Closing Date, each of the
Acquired Funds shall provide the corresponding Acquiring Fund with a list of its
assets, including all of its portfolio securities, and a list of its outstanding
liabilities, costs and expenses. No later than five (5) business days prior to
the Closing Date, the custodian of the Acquiring Funds shall be given access to
any portfolio securities of the Acquired Funds not held in book entry form for
the purpose of examination. Such portfolio securities (together with any cash or
other assets) shall be delivered by the Acquired Funds to such custodian for the
account of the corresponding Acquiring Fund on the Closing Date, in accordance
with applicable custody provisions under the Act, and duly endorsed in proper
form for transfer in such condition as to constitute good delivery thereof. Such
portfolio securities shall be accompanied by any necessary federal and state
stock transfer stamps or a check for the appropriate purchase price of such
stamps. The cash delivered shall be in any form as is reasonably directed by
PBHG Funds or its custodian. Portfolio securities held of record by each
Acquired Fund in book entry form shall be transferred to the corresponding
Acquiring Fund by an appropriate officer of the Trust instructing its custodian
to deliver such portfolio securities to the custodian of PBHG Funds for the
account of the Acquiring Fund and by the custodian of the Trust executing such
instructions through an appropriate clearing agency or as the parties may
otherwise agree.
3.3 If any of the Acquired Funds Net Assets, for any reason, are not
transferred on the Closing Date, the Acquired Fund holding such assets shall
cause them to be transferred to the corresponding Acquiring Fund in accordance
with this Agreement at the earliest practicable date thereafter.
3.4 UAM Fund Services, Inc. ("UAMFSI"), in its capacity as transfer agent
for the Acquired Funds, shall deliver, or shall cause Chase Global Funds
Services Company ("Chase Global"), in its capacity as sub-transfer agent of the
Acquired Funds, to deliver, to PBHG Funds prior to the Closing Time a list of
the names, addresses, federal taxpayer identification numbers and backup
withholding and nonresident alien withholding status of the Acquired Funds
Shareholders and the number and aggregate net asset value of outstanding shares
of the Acquired Funds owned by each such Acquired Funds Shareholder, all as of
the close of regular trading on the NYSE on the Valuation Date, certified by an
appropriate officer of UAMFSI or Chase Global, as the case may be (the
"Shareholder List"). PBHG Funds shall cause DST Systems,
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Inc., in its capacity as transfer agent for the Acquiring Funds, to issue and
deliver to the Acquired Funds a confirmation evidencing the Acquiring Funds
Shares to be credited to the Acquired Funds and to each of the Acquired Funds
Shareholders on the Liquidation Date, or provide evidence satisfactory to the
Acquired Funds that such Acquiring Funds Shares have been credited to the
Acquired Funds and to each of the Acquired Funds Shareholder's account on the
books of the Acquiring Funds.
3.5 At the Closing, each Fund shall deliver to the other Fund such bills
of sale, checks, assignments, certificates, receipts or other documents as the
other Fund or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES OF THE TRUST AND THE ACQUIRED FUNDS
The Trust, on behalf of each of the Acquired Funds, represents and warrants
to PBHG Funds and the Acquiring Funds, as follows:
4.1 The Trust is a business trust duly organized, validly existing, and in
"good standing" under the laws of the State of Delaware and has the power to own
all of its properties and assets and, subject to approval of the Acquired Funds
Shareholders, to perform its obligations under this Agreement and to consummate
the transactions contemplated herein. The Trust is not required to qualify to do
business in any jurisdiction in which it is not so qualified or where failure to
qualify would subject it to any material liability or disability. The Trust has
all necessary federal, state and local authorizations, consents, and approvals
required to own all of its properties and assets and to carry on its business as
now being conducted and to consummate the transactions contemplated herein.
4.2 The Trust is a registered investment company classified as a management
company of the open-end type and its registration with the Securities and
Exchange Commission ("SEC") as an investment company under the Investment
Company Act of 1940, as amended, (the "1940 Act") is in full force and effect.
The Acquired Funds are each a separate diversified series of the Trust. The
Acquired Funds Shares which have been or are being offered for sale have been
duly registered under the Securities Act of 1933, as amended (the "1933 Act")
and have been duly registered, qualified or are exempt from registration or
qualification under the securities laws of each state or other jurisdiction in
which such shares have been or are being offered for sale, and no action has
been taken by the Acquired Funds to revoke or rescind any such registration or
qualification. The Acquired Funds are each in compliance in all material
respects with all applicable laws, rules and regulations, including, without
limitation, the 1940 Act, the 1933 Act, the Securities Exchange Act of 1934 (the
"1934 Act") and all applicable state securities laws. The Acquired Funds are
each in compliance in all material respects with the applicable investment
policies and restrictions set forth in the Trust's registration statement
currently in effect. The value of the net assets of the Acquired Funds is
determined using portfolio valuation
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methods that comply in all material respects with the requirements of the 1940
Act and the policies of the Acquired Funds and all purchases and redemptions of
the Acquired Funds Shares have been effected at the net asset value per share
calculated in such manner.
4.3 The execution, delivery and performance of this Agreement have been duly
authorized by all necessary action on the part of the Trust's Board of Trustees
on behalf of each of the Acquired Funds, and this Agreement constitutes a valid
and binding obligation of the Trust, subject to the approval of the Acquired
Funds Shareholders, enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization, arrangement, moratorium,
and other similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
4.4 The execution and delivery of this Agreement by the Trust on behalf of
the Acquired Funds and performance by the Trust or by each of the Acquired Funds
of its obligations hereunder (a) does not and, on the Closing Date, will not
result in any violation of the declaration of trust or by-laws of the Acquired
Funds and (b) does not and, on the Closing Date will not, result in a breach of
any of the terms or provisions of, or constitute (with or without the giving of
notice or the lapse of time or both) a default under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation or imposition of any lien upon
any property or assets of the Acquired Funds (except for such breaches or
defaults or liens that would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect as hereinafter defined) under, any
indenture, mortgage or loan agreement or any other material agreement or
instrument to which any of the Acquired Funds is a party or by which it may be
bound or to which any of its properties may be subject or any existing
applicable law, rule, regulation, judgment, order or decree of any Governmental
Authority having jurisdiction over the Trust, the Acquired Funds or any of their
properties. For purposes of this Agreement, the term "Governmental Authority"
shall mean any foreign, United States or state government, government agency,
department, board, commission (including the SEC) or instrumentality, and any
court, tribunal or arbitrator of competent organization, agency or authority
(including the National Association of Securities Dealers, Inc., the Commodities
and Futures Trading Commission, the National Futures Association, the Investment
Management Regulatory Organization Limited and the Office of Fair Trading).
4.5 The Acquired Funds have each elected to be treated as a regulated
investment company under Subchapter M of the Code. Each of the Acquired Funds
has qualified as such for each taxable year since inception and that has ended
prior to the Closing Date and will have satisfied the requirements of Section
851(b) of the Code for the period beginning on the first day of its current
taxable year and ending on the Closing Date. In order to (a) insure continued
qualification of each of the Acquired Funds as a "regulated investment company"
under the Code and (b) eliminate any tax liability of the Acquired Funds arising
by reason of undistributed investment company taxable income or net taxable
gain, the Trust will declare to the Acquired
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Funds Shareholders of record on or prior to the Closing Date a dividend or
dividends that, together with all such previous dividends, shall have the effect
of distributing (i) all of the investment company taxable income (determined
without regard to any deductions for dividends paid) of the Acquired Funds for
the taxable year ended December 31, 1997 and for the short taxable year
beginning on January 1, 1998 and ending on the Closing Date and (ii) all of the
net capital gains of the Acquired Funds realized in their taxable year ended
December 31, 1997 and in such short taxable year (after reduction for any
capital loss carryover).
4.6 The financial statements of the Trust for the period from its inception
in December, 1992 to December 31, 1997 (which were audited by its independent
accountants), copies of which have been furnished to PBHG Funds, present fairly
the financial position of the Acquired Funds as of the dates indicated and the
results of its operations and changes in net assets for the respective stated
periods (in accordance with generally accepted accounting principles ("GAAP")
consistently applied).
4.7 The Prospectus of the Trust, dated October 20, 1997, and the
corresponding Statement of Additional Information, dated October 20, 1997, do
not contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
any amended, revised, or new Prospectus or Statement of Additional Information
of the Trust or any supplement thereto, that is hereafter filed with the SEC
(copies of which documents shall be provided to the PBHG Funds promptly after
such filing), shall not contain any untrue statement of a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
4.8 No material legal or administrative proceeding or investigation of or
before any court or governmental body is currently pending or, to its knowledge,
threatened as to the Trust or the Acquired Funds or any of their properties or
assets. The Trust and the Acquired Funds know of no facts which might form the
basis for the institution of such proceedings. Neither the Trust nor any of the
Acquired Funds are parties to or subject to the provisions of any order, decree,
or judgment of any court or governmental body which materially and adversely
affects its business or its ability to consummate the transactions herein
contemplated.
4.9 The Trust has furnished or made available to PBHG Funds and PBHG Fund
Services, the administrator for PBHG Funds, copies or descriptions of all
agreements or other arrangements to which the Trust is a party and under which
the assets of the Acquired Funds are bound or affected. The Acquired Funds have
no material contracts or other commitments (other than this Agreement or
agreements for the purchase of securities entered into in the ordinary course of
business and consistent with its obligations under this Agreement) which will
not be terminated by the Trust in accordance with their terms at or prior to the
Closing Date. Neither the Trust nor any of the Acquired Funds are in default
under any contract, agreement, commitment, arrangement, lease, insurance policy
or other instrument to which it is a party, by
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which its assets, business, or operations may be bound or affected, or under
which it or its assets, business or operations receives benefits, and which
default could reasonably be expected, individually or in the aggregate, to have
a Material Adverse Effect, and, to the knowledge of the Trust, there has not
occurred any event that, with the lapse of time or the giving of notice or both,
would constitute such a default. For purposes of this Agreement, "Material
Adverse Effect" means an effect that would cause a change in condition
(financial or otherwise), properties, assets or prospects of an entity having an
adverse monetary effect in an amount equal to or greater than $50,000.
4.10 The Acquired Funds do not know of any liabilities, costs or expenses of
a material amount, contingent or otherwise, other than those reflected in the
financial statements referred to in Section 4.6 hereof and those incurred in the
ordinary course of their business as a investment company since the dates of
those financial statements. None of the Acquired Funds have incurred any
liability out of the ordinary course of their business to fund distributions
made to its shareholders in anticipation of the Reorganizations. On the Closing
Date, the Trust shall advise the PBHG Funds and PBHG Fund Services in writing of
all of the Acquired Funds' known liabilities, contingent or otherwise, whether
or not incurred in the ordinary course of business, existing or accrued at such
time.
4.11 Since December 31, 1997, there has not been any material adverse change
in the Acquired Funds' financial condition, assets, liabilities, or business
other than changes occurring in the ordinary course of their business.
4.12 At the date hereof and by the Closing Date, all federal, state, and
other tax returns and reports, including information returns and payee
statements, of the Acquired Funds required by law to have been filed or
furnished by such dates shall have been filed or furnished, or extensions
concerning such tax returns and reports shall have been obtained, and all
federal, state, and other taxes, interest, and penalties shall have been paid so
far as due, or adequate provision shall have been made on the Acquired Funds'
books for the payment thereof, and to the best of the Trust's knowledge no such
tax return is currently under audit and no tax deficiency or liability has been
asserted with respect to such tax returns or reports by the Internal Revenue
Service or any state or local tax authority.
4.13 At the Closing Date, the Acquired Funds will have good and marketable
title to the Acquired Funds Net Assets, and subject to approval by the Acquired
Funds Shareholders, full right, power and authority to sell, assign, transfer,
and deliver such assets hereunder, and upon delivery and in payment for such
assets, the Acquiring Funds will acquire good and marketable title thereto
subject to no liens or encumbrances of any nature whatsoever or restrictions on
the ownership or transfer thereof, except (a) such imperfections of title or
encumbrances as do not materially detract from the value or use of the assets
subject thereto, or materially affect title thereto; or (b) such restrictions as
might arise under federal or state securities laws or the rules and regulations
thereunder.
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4.14 No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired Funds or
the Trust of the transactions contemplated by this Agreement, except such as may
be required under the federal or state securities laws or the rules and
regulations thereunder.
4.15 The Combined Proxy Statement/Prospectus of the Funds referred to in
Section 6.7 hereof ("Proxy Statement/Prospectus) and any Prospectus or Statement
of Additional Information of the Trust contained in or incorporated by reference
into the Form N-14 Registration Statement referred to in Section 6.7 hereof, and
any supplement or amendment to such documents, on the effective and clearance
dates of the Form N-14 Registration Statement, on the date of the Special
Meeting of Acquired Funds Shareholders to consider the Reorganization (the
"Special Meeting"), and on the Closing Date, and only insofar as such Proxy
Statement/Prospectus and the Prospectus and Statement of Additional Information
relate to the Trust, the Acquired Funds or to the transactions contemplated by
this Agreement and contain information furnished by the Trust or the Acquired
Funds for inclusion therein: (a) will comply in all material respects with the
provisions of the 1933 Act, the 1934 Act, the 1940 Act, the rules and
regulations thereunder, and all applicable state and federal securities laws and
rules and regulations thereunder; and (b) will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
4.16 The Acquired Funds are authorized to issue one class of shares. All of
the issued and outstanding shares of the Acquired Funds are, and at the Closing
Date will be, duly and validly issued and outstanding, fully paid and
nonassessable. All of the issued and outstanding shares of the Acquired Funds
will, at the time of Closing, be held of record by the persons and in the
amounts set forth in the Shareholder List.
4.17 (a) To the knowledge of the Trust's management, no Acquired Funds
Shareholder has any present plan or intention of selling, exchanging, redeeming
or otherwise disposing of a number of the Acquiring Funds Shares received by
them in connection with the Reorganization that would reduce the Acquired Funds
Shareholders' ownership of Acquiring Funds Shares to a number of shares having a
value, as of the Closing Date, of less than fifty percent (50%) of the value of
all of the formerly outstanding Acquired Funds Shares as of the same date. For
purposes of this Section 4.17, the Acquired Funds Shares exchanged for cash or
other property or exchanged for cash in lieu of fractional shares of the
Portfolio will be treated as outstanding Acquired Funds Shares on the date of
the Reorganization. Moreover, the Acquired Funds Shares held by the Acquired
Funds Shareholders and otherwise sold, redeemed or disposed of prior or
subsequent to the Reorganization will be considered in making this
representation, except for the Acquired Funds Shares or Acquiring Funds Shares
which have been, or will be, redeemed by the Acquired Funds or the Acquiring
Funds in the ordinary course of its business as an open-end, diversified
management investment company (or a series thereof) under the Investment Company
Act.
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(b) At the time of the Reorganization, the Acquired Funds will not have
outstanding any warrants, options, convertible securities or any other type of
right pursuant to which any Person could acquire the Acquired Funds Shares,
except for the right of investors to acquire the Acquired Funds Shares at net
asset value in the normal course of the Trust's business as an open-end
management investment company operating under the Investment Company Act.
(c) Throughout the five-year period ending on the Closing Date, the
Acquired Funds will have conducted their historic business within the meaning of
Section 1.368-1(d) of the Income Tax Regulations under the Code in a
substantially unchanged manner. In anticipation of the Reorganization, the
Acquired Funds will not have disposed of assets that, in the aggregate, will
result in less than fifty percent (50%) of its historic business assets being
transferred to the Acquiring Funds.
(d) The Acquired Funds do not have, and have not had during the six (6)
months prior to the date of this Agreement, any employees, and shall not hire
any employees from and after the date of this Agreement through the Closing
Date.
(e) The Trust and the Acquired Funds are not under the jurisdiction of a
Court in Title 11 or similar case within the meaning of Section 368(a)(3)(A) of
the Code.
(f) There is no intercorporate indebtedness existing between the
Acquired Funds and the Acquiring Funds that was issued, acquired, or will be
settled at a discount.
(g) The Acquired Funds do not have any unamortized or unpaid
organizational fees or expenses.
4.18 The affirmative votes of a majority of the outstanding Acquired Funds
Shares, as defined in the 1940 Act, as of the record date for the Special
Meeting (the "Required Acquired Funds Shareholder Vote") are the only votes of
any class or series of the Acquired Funds' shares of beneficial interest
necessary to approve this Agreement and the transactions contemplated by this
Agreement. The Acquired Funds Shareholders may not exercise dissenter's rights.
4.19 The books and records of the Acquired Funds reflecting, among other
things, the purchase and sale of the Acquired Funds Shares by the Acquired Funds
Shareholders, the number of issued and outstanding shares owned by each Acquired
Funds Shareholder and the state or other jurisdiction in which such shares were
offered and sold, are complete and accurate in all material respects.
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5. REPRESENTATIONS AND WARRANTIES OF THE PBHG FUNDS AND THE ACQUIRING FUNDS
PBHG Funds, on behalf of the Acquiring Funds, represents and warrants to the
Trust, on behalf of the Acquired Funds, as follows:
5.1 PBHG Funds is a corporation duly organized, validly existing, and in
"good standing" under the laws of the State of Maryland and has the power to own
all of its properties and assets, to perform its obligations under this
Agreement and to consummate the transactions contemplated herein. PBHG Funds is
not required to qualify to do business in any jurisdiction in which it is not so
qualified or where failure to qualify would subject it to any material liability
or disability. On the Closing Date PBHG Funds will have all necessary federal,
state, and local authorizations, consents, and approvals required to own all of
its properties and assets and to carry on its business as now contemplated and
to consummate the transactions contemplated herein.
5.2 PBHG Funds is an investment company classified as a management company
of the open-end type and its registration with the SEC as an investment company
under the 1940 Act is in full force and effect. Each of the Acquiring Funds is a
separate diversified series of PBHG Funds. The shares of each of the Acquiring
Funds that will be offered for sale at the Closing and after the Closing Date
shall, on the Closing Date, be duly registered under the 1933 Act and will be
duly registered, qualified or be exempt from registration or qualification under
the securities laws of each state or other jurisdiction in which such shares
will be offered for sale. The Acquiring Funds are in compliance in all material
respects with all applicable laws, rules and regulations, including, without
limitation, the 1940 Act, the 1933 Act, the 1934 Act and all applicable
securities laws. The Acquiring Funds will each comply in all material respects
with the investment policies and restrictions set forth in the PBHG Funds'
registration statement then in effect. The value of the net assets of the
Acquiring Funds will be determined using portfolio valuation methods that comply
in all material respects with the requirements of the 1940 Act and the policies
of the Acquiring Funds, and all purchases and redemptions of the Acquiring Funds
Shares will be effected at the net asset value per share calculated in such
manner.
5.3 The execution, delivery, and performance of this Agreement have been
duly authored by all necessary action on the part of PBHG Funds' Board of
Directors on behalf of the Acquiring Funds, and this Agreement constitutes a
valid and binding obligation of PBHG Funds, enforceable in accordance with its
terms, subject as to enforcement to bankruptcy, insolvency, reorganization,
arrangement, moratorium, and other similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
5.4 The execution and delivery of this Agreement by PBHG Funds on behalf of
the Acquiring Funds and performance by PBHG Funds or by each of the Acquiring
Funds of its obligations hereunder (a) does not and, on the Closing Date, will
not result in any violation of
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the articles of incorporation or by-laws of the Acquiring Funds and (b) does not
and, on the Closing Date will not, result in a breach of any of the terms or
provisions of, or constitute (with or without the giving of notice or the lapse
of time or both) a default under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to the loss of a material
benefit under, or result in the creation or imposition of any lien upon any
property or assets of the Acquiring Funds (except for such breaches or defaults
or liens that would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect as hereinafter defined) under, any
indenture, mortgage or loan agreement or any other material agreement or
instrument to which any of the Acquiring Funds is a party or by which it may be
bound or to which any of its properties may be subject or any existing
applicable law, rule, regulation, judgment, order or decree of any Governmental
Authority having jurisdiction over the Acquiring Funds or any of its properties.
5.5 On or before the Closing Date, each of the Acquiring Funds will have
elected to be treated as a regulated investment company for federal income tax
purposes under Subchapter M of the Code, and will qualify as a RIC as of the
Closing Date.
5.6 The Prospectus of the Acquiring Funds, which is expected to become
effective on or about April 30, 1998, and its Statement of Additional
Information, also expected to become effective on or about April 30, 1998, do
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
any amended, revised, or new Prospectus or Statement of Additional Information
of PBHG Funds or any supplement thereto, that is hereafter filed with the SEC
prior to the Closing Date (copies of which documents shall be provided to the
Trust promptly after such filing), shall not contain any untrue statement of a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
5.7 No material legal or administrative proceeding, or investigation of or
before any court or governmental body is currently pending or, to its knowledge,
threatened as to PBHG Funds or the Acquiring Funds or any of their properties or
assets. PBHG Funds and the Acquiring Funds know of no facts which might form the
basis for the institution of such proceedings. Neither the PBHG Funds nor any of
the Acquiring Funds is a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated.
5.8 PBHG Funds has furnished or made available to the Trust copies or
descriptions of all agreements or other arrangements to which PBHG Funds is a
party and under which the assets of the Acquiring Funds are bound or affected.
Neither PBHG Funds nor any of the Acquiring Funds are in default under any
contract, agreement, commitment, arrangement, lease, insurance policy or other
instrument to which it is a party, by which its assets, business, or
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operations may be bound or affected, or under which it or its assets, business
or operations receives benefits, and which default could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, and, to the
knowledge of PBHG Funds, there has not occurred any event that, with the lapse
of time or the giving of notice or both, would constitute such a default.
5.9 The Acquiring Funds do not know of liabilities, costs or expenses of a
material amount, contingent or otherwise, other than those incurred in the
ordinary course of business.
5.10 No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring Funds
or PBHG Funds of the transactions contemplated by this Agreement, except for the
registration of the Acquiring Funds Shares under the 1933 Act, the 1940 Act, or
as may otherwise be required under the federal and state securities laws or the
rules and regulations thereunder.
5.11 The Combined Proxy Statement/Prospectus referred to in Section 6.7
hereof and any Prospectus or Statement of Additional Information of PBHG Funds
contained in or incorporated therein by reference, and any supplement or
amendment to such documents, on the effective and clearance dates of the Form
N-14 Registration Statement, on the date of the Special Meeting, and on the
Closing Date, and only insofar as such Proxy Statement/Prospectus and the
Prospectus and Statement of Additional Information relate to the PBHG Funds, the
Acquiring Funds or to the transactions contemplated by this Agreement and
contain information furnished by the PBHG Funds or the Acquiring Funds for
inclusion therein: (a) shall comply in all material respects with the provisions
of the 1933 Act, 1934 Act, the 1940 Act, the rules and regulations thereunder,
and all applicable federal and state securities laws and rules and regulations
thereunder; and (b) shall not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which the
statements were made, not misleading.
5.12 The shares of common stock of the Acquiring Funds will be offered for
sale after the Closing Date and will be sold in conformity, in all material
respects, with all applicable federal and state securities laws, including the
registration or exemption from registration of such shares.
5.13 The Acquiring Funds Shares to be issued and delivered to the Trust
pursuant to the terms of this Agreement, when so issued and delivered, will be
duly and validly issued Class A shares of common stock of the Acquiring Funds,
will be fully paid and nonassessable by PBHG Funds, and will be duly registered
in conformity with all applicable federal securities laws, and no shareholder of
the Acquiring Funds shall have any option, warrant, or preemptive right of
subscription or purchase with respect thereto.
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5.14 PBHG Funds and the Acquiring Funds are not under the jurisdiction of a
Court in a Title 11 or a similar case within the meaning of Section 368(a)(3)(A)
of the Code.
5.15 All information to be furnished by PBHG Funds to the Trust for use in
preparing any prospectus, proxy materials, and other documents which may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto.
5.16 There is no intercorporate indebtedness existing between the Acquired
Funds and the Acquiring Funds that was issued, acquired, or will be settled at a
discount.
5.17 The Acquiring Funds do not own, directly or indirectly, nor have any of
them owned during the past five (5) years, directly or indirectly, any shares of
the Acquired Funds.
6. COVENANTS OF THE ACQUIRING FUNDS AND THE ACQUIRED FUNDS
6.1 Except as expressly contemplated herein to the contrary, each of the
Acquired Funds and the Acquiring Funds shall operate its business in the
ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include sales,
redemptions, customary dividends and distributions and any other distribution
necessary or desirable to avoid federal income or excise taxes.
6.2 After the effective date of the Form N-14 Registration Statement
referred to in Section 6.7 hereof, and before the Closing Date and as a
condition thereto, the Board of Trustees of the Trust shall call, and the Trust
shall use its best efforts to hold, a Special Meeting of the Acquired Funds
Shareholders to consider and vote upon this Agreement and the transactions
contemplated hereby and the Trust shall use its best efforts to obtain approval
of the transactions contemplated herein.
6.3 The Trust and the Acquired Funds covenant that they shall not sell or
otherwise dispose of any of the Acquiring Funds Shares to be received in the
transactions contemplated herein, except in distribution to the Acquired Funds
Shareholders as contemplated in Section 1.1(b), 1.2(b) and 1.3(b) hereof.
6.4 The Trust shall provide such information within its possession or
reasonably obtainable as PBHG Funds or PBHG Fund Services may reasonably request
concerning the beneficial ownership of the Acquired Funds Shares.
6.5 Subject to the provisions of this Agreement, PBHG Funds and the Trust
each shall take, or cause to be taken, all action, and do or cause to be done,
all things reasonably necessary, proper, or advisable to consummate the
transactions contemplated by this Agreement.
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6.6 The Trust shall furnish to PBHG Funds on the Closing Date the Statement
of the Assets and Liabilities of the Acquired Funds as of the Closing Date,
which statement shall be prepared in accordance with GAAP consistently applied
and shall be certified by the Trust's Treasurer or Assistant Treasurer. As
promptly as practicable, but in any case within forty-five (45) days after the
Closing Date, the Trust shall furnish to PBHG Funds, in such form as is
reasonably satisfactory to PBHG Funds, a statement of the earnings and profits
of the Acquired Funds for federal income tax purposes, and of any capital loss
carryovers and other items that will be carried over to the Acquiring Funds as a
result of Section 381 of the Code, which statement shall be certified by the
Trust's Treasurer or Assistant Treasurer. The Trust covenants that the Acquired
Funds have no earnings and profits that were accumulated by it or any acquired
entity during a taxable year when it or such entity did not qualify as a
regulated investment company under Subchapter M the Code or, if it has such
earnings and profits, shall distribute them to its shareholders prior to the
Closing Date.
6.7 PBHG Funds, with the cooperation of the Trust and its counsel, shall
prepare and file with the SEC a Registration Statement on Form N-14 (the "Form
N-14 Registration Statement") which shall include the Proxy
Statement/Prospectus, as promptly as practicable in connection with the issuance
of the Acquiring Funds Shares and the holding of the Special Meeting of the
Acquired Funds Shareholders to consider approval of this Agreement as
contemplated herein and transactions contemplated hereunder. PBHG Funds shall
prepare any pro forma financial statement that may be required under applicable
law to be included in the Form N-14 Registration Statement. The Trust shall
provide PBHG Funds with all information about the Acquired Funds that is
necessary to prepare the pro forma financial statements. PBHG Funds and the
Trust shall each cooperate with the other and shall furnish the other with any
information relating to itself or its related series that is required by the
1933 Act, the 1934 Act, and the 1940 Act, the rules and regulations thereunder,
and applicable state securities laws, to be included in the Form N-14
Registration Statement and the Proxy Statement/Prospectus.
6.8 The Trust shall deliver to PBHG Funds at the Closing Date confirmation
or other adequate evidence as to the tax costs and holding periods of the assets
and property of the Acquired Funds transferred to the Acquiring Funds in
accordance with the terms of this Agreement.
6.9 The Trust shall timely file all federal, state and local tax returns of
the Analytic Portfolios, the due dates of which are subsequent to the Closing
Date. For purposes of Section 1.381(b)-1 of the Treasury Regulations, the Trust
shall treat the Closing Date as the "date of distribution or transfer."
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7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST AND THE ACQUIRED FUNDS
The obligations of the Trust and the Acquired Funds hereunder shall be
subject to the following conditions precedent:
7.1 This Agreement and the transactions contemplated by this Agreement shall
have been approved by the Board of Directors of PBHG Funds in the manner
required by PBHG Funds' Articles of Incorporation and applicable law, and this
Agreement and the transactions contemplated by this Agreement shall have been
approved by the Acquired Funds Shareholders in the manner required by the
Trust's Declaration of Trust and By-Laws and applicable law.
7.2 As of the Closing Date, there shall have been no material adverse change
in the financial position, assets, or liabilities of the Acquiring Funds since
the date of this Agreement.
7.3 All representations and warranties of PBHG Funds and the Acquiring Funds
made in this Agreement, except as they may be affected by the transactions
contemplated by this Agreement, shall be true and correct in all material
respects as if made at and as of the Closing Date.
7.4 PBHG Funds and the Acquiring Funds each shall have performed and
complied in all material respects with each of its obligations, agreements, and
covenants required by this Agreement to be performed or complied with by each of
them prior to or at the Closing Date.
7.5 PBHG Funds shall have furnished the Trust at the Closing Date with a
certificate or certificates of its President or any Vice President and/or
Treasurer or Assistant Treasurer as of the Closing Date to the effect that the
conditions precedent set forth in the Sections 7.2, 7.3, 7.4, 7.10 and 7.14
hereof have been fulfilled.
7.6 The Trust shall have received an opinion of Ballard Spahr Andrews &
Ingersoll, in form and substance reasonably satisfactory to the Trust or its
counsel and dated as of the Closing Date, to the effect that: (a) PBHG Funds is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Maryland; (b) the Acquiring Funds Shares to be delivered to
the Trust, as provided for by this Agreement, are duly authorized and upon
delivery pursuant to the terms of this Agreement will be validly issued, fully
paid and non-assessable by PBHG Funds; (c) this Agreement has been duly
authorized, executed, and delivered by PBHG Funds and represents a valid and
binding contract of PBHG Funds, enforceable in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto and to the exercise of
judicial discretion in accordance with general principles of equity, whether in
a proceeding at law or in equity; provided, however, that no opinion need be
expressed with respect to provisions of this
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Agreement relating to indemnification; (d) the execution and delivery of this
Agreement did not, and the consummation of the transactions contemplated by this
Agreement will not, violate the Articles of Incorporation or By-Laws of PBHG
Funds; (e) to the knowledge of such counsel, no consent, approval,
authorization, or order of any court or governmental authority is required for
the consummation by the PBHG Funds of the transactions contemplated by this
Agreement, except such as have been obtained under the 1933 Act, the 1934 Act,
the 1940 Act, the rules and regulations under those statutes, and such as may be
required by state securities laws, rules and regulations; and (f) PBHG Funds is
registered as a investment company under the 1940 Act and each of the Acquiring
Funds is a separate series thereof and such registration with the SEC under the
1940 Act is in full force and effect. Such opinion shall state that it is solely
for the benefit of the Trust and its Board of Trustees and officers.
7.7 The Trust shall have received an opinion of its counsel in form
reasonably satisfactory to them and dated as of the Closing Date to the effect
that (i) the Reorganization will be treated for United States federal income tax
purposes as a "reorganization" within the meaning of Section 368(a) of the Code,
(ii) no gain or loss will be required to be recognized by an Acquired Funds
Shareholder to the extent such Acquired Funds Shareholder receives Acquiring
Funds Shares in exchange for corresponding Acquired Funds Shares, (iii) an
Acquired Funds shareholder's basis for Acquiring Funds shares issued to such
Acquired Funds shareholder pursuant to Section 1 of this Agreement will be the
same as his basis for his Acquired Funds Shares, and (iv) an Acquiring Funds
shareholder's holding period for Acquiring Funds Shares will be determined by
including said Acquired Funds shareholder's holding period for Acquired Funds
shares exchanged therefor.
7.8 The Form N-14 Registration Statement shall have become effective under
the 1933 Act, no stop order suspending the effectiveness shall have been
instituted, or to the knowledge of the Funds, contemplated by the SEC, and the
SEC shall not have issued any unfavorable advisory report under Section 25(b) of
the 1940 Act nor instituted any proceeding seeking to enjoin consummation of the
transactions contemplated by this Agreement under Section 25(c) of the 1940 Act.
7.9 The parties shall have received a memorandum, in form reasonably
satisfactory to each of them, prepared by a person approved by the parties,
containing assurance reasonably satisfactory to them that all authorizations
necessary under state securities laws to consummate the transactions
contemplated herein have been obtained.
7.10 No action, suit, or other proceeding shall be threatened or pending
before any court or governmental agency in which is sought to restrain or
prohibit, or obtain damages or other relief in connection with, this Agreement
or the transactions contemplated herein.
7.11 The Trust shall have received from PBHG Funds all such documents which
the Trust or its counsel may reasonably request.
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7.12 PBHG Funds shall have furnished the Trust on the Closing Date with a
certificate or certificates of its President (or any Vice President) and/or
Treasurer or Assistant Treasurer dated as of said date to the effect that: (a)
the Acquiring Funds have no plan or intention to reacquire any of the Acquiring
Funds Shares to be issued in the Reorganization, except to the extent that the
Acquiring Funds are required by the 1940 Act to redeem any of their shares
presented for redemption; (b) the Acquiring Funds have no plan or intention to
sell or otherwise dispose of any of the assets of the Acquired Funds acquired in
the Reorganization, except for dispositions made in the ordinary course of
business or dispositions necessary to maintain their status as "regulated
investment companies" under the Code; and (c) following the Closing, the
Acquiring Funds will continue the historic business of the Acquired Funds or use
a significant portion of the Acquired Funds' assets in a business.
7.13 DST Systems, Inc., in its capacity as transfer agent for the Acquiring
Funds, shall have issued and delivered to the Trust a confirmation statement
evidencing the Acquiring Funds Shares to be credited at the Closing Date and
shall have provided evidence satisfactory to the Trust that the Acquiring Funds
Shares have thereafter been credited to the accounts of each of the Acquired
Funds Shareholders on the books of the Acquiring Funds.
7.14 At the Closing Date, the registration of PBHG Funds with the SEC with
respect to the Acquiring Funds shall be in full force and effect.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PBHG FUNDS AND THE ACQUIRING
FUNDS
The obligations of PBHG Funds and the Acquiring Funds hereunder shall be
subject to the following conditions precedent:
8.1 This Agreement and the transactions contemplated by this Agreement shall
have been approved by the Board of Trustees of the Trust and the Acquired Funds
Shareholders, and the termination of each of the Acquired Funds as a series of
the Trust and the termination of the Trust shall have been approved by the Board
of Trustees of the Trust, in the manner required by the Trust's Declaration of
Trust and By-Laws and applicable law.
8.2 The Trust shall have furnished PBHG Funds with the Statement of Assets
and Liabilities of the Acquired Funds, with values determined as provided in
Section 2 hereof, with their respective dates of acquisition and tax costs, all
as of the Valuation Date, certified on the Trust's behalf by its Treasurer or
Assistant Treasurer. The Statement of Assets and Liabilities shall list all of
the securities owned by the Acquired Funds as of the Closing Date and a final
statement of assets and liabilities of the Acquired Funds prepared in accordance
with GAAP consistently applied.
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8.3 As of the Closing Date, there shall have been no material adverse change
in the financial position, assets, or liabilities of the Acquired Funds since
the dates of the financial statements referred to in Section 4.6 hereof. For
purposes of this Section 8.3, share redemptions or a decline in the value of the
Acquired Funds Net Assets due to the effect of normal market conditions on
liquid securities shall not constitute a material adverse change.
8.4 All representations and warranties of the Trust and the Acquired Funds
made in this Agreement, except as they may be affected by the transactions
contemplated by this Agreement, shall be true and correct in all material
respects as if made at and as of the Closing Date.
8.5 The Trust and the Acquired Funds each shall have performed and complied
in all material respects with each of its obligations, agreements, and covenants
required by this Agreement to be performed or complied with by each of them
prior to or at the Closing Date.
8.6 The Trust shall have furnished PBHG Funds at the Closing Date with a
certificate or certificates of its President or Vice-President and/or Treasurer
or Assistant Treasurer, dated as of the Closing Date, to the effect that the
conditions precedent set forth in Sections 8.1, 8.3, 8.4, 8.5, 8.12 and 8.14
hereof have been fulfilled.
8.7 The Trust shall have duly executed and delivered to PBHG Funds (a) bills
of sale, assignments, certificates and other instruments of transfer ("Transfer
Documents") as PBHG Funds may deem necessary or desirable to transfer all of the
Acquired Funds' right, title, and interest in and to the Acquired Funds Net
Assets; and (b) all such other documents, including but not limited to, checks,
and receipts, which PBHG Funds may reasonably request. Such assets of the
Acquired Funds shall be accompanied by all necessary state stock transfer stamps
or cash for the appropriate purchase price therefor.
8.8 PBHG Funds shall have received an opinion of Paul, Hastings, Janofsky
and Walker LLP, counsel to the Trust, in form reasonably satisfactory to PBHG
Funds and its counsel, and dated as of the Closing Date, to the effect that: (a)
the Trust is a business trust duly organized, validly existing and in good
standing under the laws of the State of Delaware; (b) the shares of the Acquired
Funds issued and outstanding at the Closing Date are duly authorized, validly
issued, fully paid and non-assessable by the Trust; (c) this Agreement and the
Transfer Documents have been duly authorized, executed, and delivered by the
Trust and the Agreement represents a valid and binding contracts of the Trust,
enforceable in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto and to the exercise of judicial discretion in accordance with
general principles of equity, whether in a proceeding at law or in equity;
provided, however, that no opinion need be expressed with respect to provisions
of this Agreement relating to indemnification; (d) the execution and delivery of
this Agreement did not, and the consummation
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of the transactions contemplated by this Agreement will not, violate the
Declaration of Trust or By-laws of the Trust; (e) to the knowledge of such
counsel, no consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Trust or the
Acquired Funds of the transactions contemplated by this Agreement, except such
as have been obtained under the 1933 Act, the 1934 Act, the 1940 Act, the rules
and regulations under those statutes, and such as may be required under state
securities laws, rules, and regulations; and (f) the Trust is registered as an
investment company under the 1940 Act and each of the Acquired Funds is a
separate series thereof and such registration with the SEC is in full force and
effect. Such opinion shall state that such opinion is solely for the benefit of
the PBHG Funds and its Board of Directors and officers.
8.9 The Form N-14 Registration Statement shall have become effective under
the 1933 Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of the Funds, contemplated by the SEC, and the
SEC shall not have issued any unfavorable advisory report under Section 25(b) of
the 1940 Act nor instituted any proceeding seeking to enjoin consummation of the
transactions contemplated by this Agreement under Section 25(c) of the 1940 Act.
8.10 The parties shall have received a memorandum, in form reasonably
satisfactory to each of them, prepared by a person approved by the parties,
containing assurance reasonably satisfactory to them that all authorizations
necessary under state securities laws to consummate the transactions
contemplated by this Agreement have been obtained.
8.11 No action, suit, or other proceeding shall be threatened or pending
before any court or governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection with, this Agreement
or the transactions contemplated herein.
8.12 Prior to the Closing Date, each of the Acquired Funds shall have
declared a dividend or dividends which, together with all previous dividends,
shall have the effect of distributing to its shareholders all of its net
investment company income, if any, for each taxable period or year ending prior
to the Closing Date and for the periods from the end of each such taxable period
or year to and including the Closing Date (computed without regard to any
deduction for dividends paid), and all of its net capital gain, if any, realized
in each taxable period or year ending prior to the Closing Date and in the
periods from the end of each such taxable period or year to and including the
Closing Date.
8.13 The Trust shall have furnished PBHG Funds at the Closing Date with a
certificate or certificates of its President and/or Treasurer dated as of said
date to the effect that: (a) the Acquired Funds will tender for acquisition by
the Acquiring Funds their assets consisting of at least ninety percent (90%) of
the fair market value of each of the Acquired Funds' net assets and at least
seventy percent (70%) of the fair market value of each of the Acquired Funds'
gross assets immediately prior to the Closing Date (for purposes of this
certification, all of the
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following shall be considered as assets of the Acquired Funds held immediately
prior to the Closing Date: (i) amounts used by the Acquired Funds to pay their
expenses in connection with the transactions contemplated hereby; and (ii) all
amounts used to make redemptions of or distributions on the Acquired Funds
Shares (except for regular, normal redemptions pursuant to the 1940 Act and in
the ordinary course of their business and regular, normal dividends in the
ordinary course of their business and not in excess of the distribution
requirements of Section 852 of the Code); and (b) the Trust will distribute to
Acquired Funds Shareholders in complete liquidation of the Acquired Funds the
Acquiring Funds Shares that it will receive in the transactions contemplated
hereby and other properties (if any) of the Acquired Funds on or as promptly as
practicable after the Closing Date and in pursuance of the plan contemplated by
this Agreement and having made such distributions will take all necessary steps
to liquidate and terminate each of the Acquired Funds as a series of the Trust;
and (c) to the best of the Trust's knowledge there is no current plan or
intention any of Acquired Funds Shareholders to sell, exchange, or otherwise
dispose of a number of shares of the Acquiring Funds received in the
Reorganization that would reduce the ownership of the Acquired Funds
Shareholders of Acquiring Funds Shares to a number of shares having a value, as
of the Closing Date, of less than fifty percent (50%) of the value of all of the
formerly outstanding Acquired Funds Shares as of the Closing Date; and (d) the
Trust will provide such other tax representations as may reasonably be requested
by PBHG Funds. For purposes of this certification, Acquired Funds Shares and the
Acquiring Funds Shares held by Acquired Funds Shareholders and otherwise sold,
redeemed, or disposed of (including for this purpose Acquired Fund Shares with
respect to which an "extraordinary distribution" (within the meaning of Treas.
Reg. ss.1.368-1T(e)(1)(ii)(A)) has been made) in anticipation of the
Reorganization, or subsequent to the Closing Date pursuant to a current plan or
intention that existed as of the Closing Date, also will be taken into account.
8.14 UAMFSI, in its capacity as transfer agent for the Acquired Funds, shall
have furnished, or shall have caused Chase Global, in its capacity as
sub-transfer agent, to have furnished, to PBHG Funds immediately prior to the
Closing Date a list of the names and addresses of the Acquired Funds
Shareholders and the number and percentage ownership of outstanding Acquired
Funds Shares owned by each such shareholder as of the close of regular trading
on the NYSE on the Closing Date, certified on behalf of the Acquired Funds by
the Trust's President or Vice President.
8.15 At the Closing Date, the registration of the Trust with the SEC with
respect to the Acquired Funds shall be in full force and effect.
9. FINDER'S FEES AND OTHER EXPENSES
9.1 Each Fund represents and warrants to the other that there is no person
or entity entitled to receive any finder's fees or other similar fees or
commission payments in connection with the transactions provided for herein.
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9.2 Pilgrim Baxter & Associates, Ltd. and AnalyticTSA Global Asset
Management, Inc. ("Analytic") shall be liable for all reasonable expenses
incurred by the Funds in connection with entering into and carrying out the
transactions contemplated by this Agreement, whether or not the transactions
contemplated hereby are consummated.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 Neither the Trust nor PBHG Fund have made any representation, warranty,
or covenant not set forth herein and this Agreement constitutes the entire
agreement between the parties and supersedes any and all prior agreements,
arrangements, and undertakings relating to the matters provided for herein.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder for a
period of three (3) years following the Closing Date. In the event of a breach
by the Trust of any such representation, warranty, or covenant, with respect to
or by any Acquired Fund, such Acquired Fund (but no other Acquired Fund), until
the time of its liquidation and termination as a series of the Trust, and
thereafter AnalyticTSA shall be liable to PBHG Funds and the Acquiring Funds
for any such breach.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the Trust
and PBHG Funds. In addition, either party may at its option terminate this
Agreement at or prior to the Closing Date because of:
(a) a material breach by the other party of any representation,
warranty, or agreement contained herein to be performed at or prior to
the Closing Date; or
(b) a condition precedent to the obligations of either party which has
not been met and which reasonably appears will not or cannot be met.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of either Fund, the Trust, or PBHG Funds, or their
respective Boards of Directors/Trustees or officers, but all expenses incidental
to the preparation and carrying out of this Agreement shall be paid as provided
in Section 9.2 hereof.
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12. INDEMNIFICATION
12.1 PBHG Funds and the Acquiring Funds shall indemnify, defend, and hold
harmless the Acquired Funds, the Trust, and its Board of Trustees, officers,
employees, and agents (collectively "Acquired Funds Indemnified Parties")
against all losses, claims, demands, liabilities, and expenses, including
reasonable legal and other expenses incurred in defending third party claims,
actions, suits, or proceedings, whether or not resulting in any liability to
such Acquired Funds Indemnified Parties and including amounts paid by any one or
more of the Acquired Funds Indemnified Parties in a compromise or settlement of
any such claim, action, suit, or proceeding, or threatened third party claim,
suit, action, or proceeding, made with the consent of the PBHG Funds and the
Acquiring Funds, arising (a) from any inaccuracy in or breach of any
representation or warranty of PBHG Funds or the Acquiring Funds contained in
this Agreement, (b) from any breach of any covenant or agreement of PBHG Funds
or the Acquiring Funds contained in this Agreement, (c) from any untrue
statement or alleged untrue statement of a material fact contained in the Form
N-14 Registration Statement, as filed and in effect with the SEC, or any
application prepared by PBHG Funds and the Acquiring Funds with any state
regulatory agency in connection with the transactions contemplated by this
Agreement under the securities laws thereof ("Application"), or (d) from or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that with respect to clauses (c) and
(d) PBHG Funds and the Acquiring Funds shall only be liable in such case to the
extent that any such loss, claim, demand, liability, or expense arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission about PBHG Funds and/or the Acquiring Funds or the transactions
contemplated by this Agreement made in the Form N-14 Registration Statement or
any Application.
12.2 The Trust and each of the Acquired Funds, until the time of its
liquidation, and Analytic on a joint and several basis shall indemnify, defend,
and hold harmless the Acquiring Funds, the PBHG Funds, and its Board of
Directors, officers, employees and agents ("Acquiring Funds Indemnified
Parties") against all losses, claims, demands, liabilities, and expenses,
including reasonable legal and other expenses incurred in defending third party
claims, actions, suits, or proceedings, whether or not resulting in any
liability to such Acquiring Funds Indemnified Parties and including amounts paid
by any one or more of the Acquiring Funds Indemnified Parties in a compromise or
settlement of any such claim, suit, action, or proceeding, made with the consent
of the Trust and the Acquired Funds (if they still exist) or Analytic, arising
(a) from any inaccuracy in or breach of any representation or warranty of the
Trust or the Acquired Funds contained in this Agreement (b) from any breach of
any covenant or agreement of the Trust or the Acquired Funds contained in this
Agreement, (c) from any untrue statement or alleged untrue statement of a
material fact contained in the Form N-14 Registration Statement, as filed and in
effect with the SEC or any Application, or (d) from or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein and necessary to make the statements therein not
misleading; provided, however, that with respect
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to clauses (c) and (d) the Trust and the Acquired Funds and Analytic shall only
be liable in such case to the extent that any such loss, claim, demand,
liability, or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission about the Trust and/or
the Acquired Funds or about the transactions contemplated by this Agreement made
in the Form N-14 Registration Statement or any Application.
12.3 A party seeking indemnification hereunder is hereinafter called the
"indemnified party" and the party from whom the indemnified party is seeking
indemnification hereunder is hereinafter called the "indemnifying party." Each
indemnified party shall notify the indemnifying party in writing within ten (10)
days of the receipt by such indemnified party of any notice of legal process of
any suit brought against or claim made against such indemnified party as to any
matters covered by this Section 12, but the failure to notify the indemnifying
party shall not relieve the indemnifying party from any liability which it may
have to any indemnified party otherwise than under this Section 12. The
indemnifying party shall be entitled to participate at its own expense in the
defense of any claim, action, suit, or proceeding covered by this Section 12,
or, if it so elects, to assume at its own expense the defense thereof with
counsel satisfactory to the indemnified parties; provided, however, if the
defendants in any such action include both the indemnifying party and any
indemnified party and the indemnified party shall have reasonably concluded that
there may be legal defenses available to it which are different from or
additional to those available to the indemnifying party, the indemnified party
shall have the right to select separate counsel to assume such legal defense and
to otherwise participate in the defense of such action on behalf of such
indemnified party.
Upon receipt of notice from the indemnifying party to the indemnified
parties of the election by the indemnifying party to assume the defense of such
action, the indemnifying party shall not be liable to such indemnified parties
under this Section 12 for any legal or other expenses subsequently incurred by
such indemnified parties in connection with the defense thereof unless (i) the
indemnified parties shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the provision of the immediately
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel); (ii)
the indemnifying party does not employ counsel reasonably satisfactory to the
indemnified parties to represent the indemnified parties within a reasonable
time after notice of commencement of the action; or (iii) the indemnifying party
has authorized the employment of counsel for the indemnified parties at its
expenses.
12.4 This Section 12 shall survive the termination of this Agreement and for
a period of three (3) years following the Closing Date.
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13. LIABILITY OF PBHG FUNDS AND THE TRUST
13.1 Each party acknowledges and agrees that all obligations of the PBHG
Funds under this Agreement are binding only with respect to the Acquiring Funds;
that any liability of PBHG Funds under this Agreement with respect to any of the
Acquiring Funds, or in connection with the transactions contemplated herein with
respect to any such Acquiring Fund, shall be discharged only out of the assets
of that Acquiring Fund; and that no other series of PBHG Funds shall be liable
with respect to this Agreement or in connection with the transactions
contemplated herein.
13.2 Each party acknowledges and agrees that all obligations of the Trust
under this Agreement are binding only with respect to the Acquired Funds; that
any liability of the Trust under this Agreement with respect to any of the
Acquired Funds, or in connection with the transactions contemplated herein with
respect to any such Acquired Fund, shall be discharged only out of the assets of
that Acquired Fund; and that no other series of the Trust shall be liable with
respect to this Agreement or in connection with the transactions contemplated
herein.
14. AMENDMENTS
This Agreement may be amended, modified, or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of PBHG Funds
and the Trust; provided, however, that following the Special Meeting of Acquired
Funds Shareholders called by the Board of Trustees of the Trust pursuant to
Section 6.2 hereof, no such amendment may have the effect of changing the
provisions for determining the number of Acquiring Funds Shares to be issued to
Acquired Funds Shareholders under this Agreement to the detriment of such
shareholders without their further approval, and provided further, that nothing
contained in this Section 14 shall be construed to prohibit the parties from
amending this Agreement to change the Closing Date or any other provision of
this Agreement (to the fullest extent permitted by law).
15. NOTICES
Any notice, report, statement, or demand required or permitted by any
provision of this Agreement shall be in writing and shall be deemed to be
properly given when delivered personally or by telecopier to the party entitled
to receive the notice or when sent by certified or registered mail, postage
prepaid, or delivered to a recognized overnight courier service, in each case
properly addressed to the party entitled to receive such notice or communication
at the following address or such other address as may hereafter be furnished in
writing by notice similarly given by one party to the other.
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If to the Acquired Funds:
Analytic Series Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208
with copies to:
Michael Glazer
Paul, Hastings, Janofsky &
Walker LLP
555 South Flower Street
Los Angeles, CA 90071
If to the Acquiring Funds:
The PBHG Funds, Inc.
c/o Pilgrim Baxter & Associates, Ltd.
825 Duportail Road
Wayne, PA 19087
Attention: John M. Zerr, Esq.
with copies to:
William H. Rheiner
Ballard Spahr Andrews & Ingersoll
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
16. FAILURE TO ENFORCE
The failure of any party hereto to enforce at any time any of the provisions
of this Agreement shall in no way be construed to be a waiver of any such
provision, nor in any way to affect the validity of this Agreement or any part
hereof as the right of any party thereafter to enforce each and every such
provision. No waiver of any breach of this Agreement shall be held to be a
waiver of any other or subsequent breach.
17. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
17.1 The Article and Section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
29
<PAGE>
17.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed a original.
17.3 This Agreement shall be governed by and construed in accordance with
the laws of the State of Maryland.
17.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm, or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
17.5 It is expressly understood and agreed that the obligations of the Trust
and PBHG Funds under this Agreement, including but not limited to any liability
as a result of the breach of any of their respective representations and
warranties, are not binding on their respective Boards of Directors/Trustees,
shareholders, nominees, officers, agents, or employees individually, but bind
only the respective assets of the Acquiring Funds and the Acquired Funds.
30
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President and its seal to be affixed thereto and attested by
its Secretary.
Attest: THE ANALYTIC SERIES FUNDS, on behalf
of Analytic Enhanced Equity Portfolio
/s/ Charles L. Dobson /s/ Harindra de Silva
- ---------------------------- ----------------------------
Charles L. Dobson, Secretary Harindra de Silva, President
Attest: THE PBHG ADVISOR FUNDS, INC., on
behalf of PBHG Advisor Enhanced
Equity Fund
/s/ John M. Zerr /s/ Harold J. Baxter
- ----------------------- -----------------------
John M. Zerr, Secretary Harold J. Baxter
Chief Executive Officer
Analytic TSA Global Asset Management, Inc. hereby joins in this Agreement
with respect to and agrees to the matters described in Sections 10.2 and 12.
Attest: ANALYTIC TSA GLOBAL ASSET
MANAGEMENT, INC.
By: /s/ Charles L. Dobson By: /s/ Harindra de Silva
- --------------------------- ---------------------------
Name: Charles L. Dobson Name: Harindra de Silva
Title: Portfolio Manager Title: Managing Director
31
<PAGE>
THE ANALYTIC SERIES FUND
Enhanced Equity Portfolio
Master Fixed Income Portfolio
Short-Term Government Portfolio
AGREEMENT AND PLAN OF REORGANIZATION
March 23, 1998
<PAGE>
TABLE OF CONTENTS
Page
1. TRANSFER OF ASSETS OF THE ACQUIRED FUNDS IN EXCHANGE FOR ACQUIRING
FUNDS SHARES AND LIQUIDATION OF THE ACQUIRED FUNDS. . . . . . . . . . . . .1
2. VALUATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. CLOSING AND CLOSING DATE . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. REPRESENTATIONS AND WARRANTIES OF THE TRUST AND THE ACQUIRED FUNDS . . . . 8
5. REPRESENTATIONS AND WARRANTIES OF THE PBHG FUNDS AND THE ACQUIRING
FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
6. COVENANTS OF THE ACQUIRING FUNDS AND THE ACQUIRED FUNDS. . . . . . . . . .17
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST AND THE ACQUIRED
FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PBHG FUNDS AND THE
ACQUIRING FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
9. FINDER'S FEES AND OTHER EXPENSES . . . . . . . . . . . . . . . . . . . . .24
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES . . . . . . . . . . . . . . . . .25
11. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
12. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 26
13. LIABILITY OF PBHG FUNDS AND THE TRUST. . . . . . . . . . . . . . . . . . .28
14. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
15. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
16. FAILURE TO ENFORCE . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
17. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT. . . . . . . . . . . . .29
i
<PAGE>
EXHIBIT B
PBHG ADVISOR FUNDS, INC.
PROSPECTUS DATED APRIL 20, 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 PBHG ADVISOR GROWTH FUNDS
o PBHG ADVISOR CORE VALUE FUND o PBHG ADVISOR BLUE CHIP GROWTH
FUND
o PBHG ADVISOR ENHANCED EQUITY FUND
PBHG ADVISOR AGGRESSIVE PBHG ADVISOR FIXED INCOME
GROWTH FUNDS FUNDS
o PBHG ADVISOR LARGE CAP o PBHG ADVISOR MASTER FIXED INCOME
CONCENTRATED FUND FUND
o PBHG ADVISOR NEW OPPORTUNITIES o PBHG ADVISOR SHORT-TERM
FUND GOVERNMENT FUND
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 April 20,
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.
<PAGE>
Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares 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.
2
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY ................................................................ 3
THE COMPANY AND THE FUNDS................................................ 13
INVESTMENT OBJECTIVES AND POLICIES....................................... 13
GENERAL INVESTMENT POLICIES AND STRATEGIES............................... 21
RISK FACTORS............................................................. 25
INVESTMENT LIMITATIONS................................................... 32
HOW TO PURCHASE FUND SHARES.............................................. 34
SHAREHOLDER SERVICES..................................................... 43
HOW TO REDEEM FUND SHARES................................................ 47
DETERMINATION OF NET ASSET VALUE......................................... 54
PERFORMANCE ADVERTISING.................................................. 55
RELATED PERFORMANCE...................................................... 56
TAXES ................................................................ 59
GENERAL INFORMATION...................................................... 61
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 8 separate series currently
offered by the Company: PBHG Advisor Core Value Fund, PBHG Advisor Blue Chip
Growth Fund, PBHG Advisor Enhanced Equity Fund, PBHG Advisor Large Cap
Concentrated Fund, PBHG Advisor New Opportunities Fund, PBHG Advisor Master
Fixed Income Fund, PBHG Advisor Short-Term Government Fund, and 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") 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. AnalyticoTSA Global Asset Management, Inc. ("Analytic") serves
as sub-adviser to the PBHG Advisor Enhanced Equity Fund, PBHG Advisor Master
Fixed Income Fund, and PBHG Advisor Short-Term Government
3
<PAGE>
Fund. See "The Adviser," "Value Investors," "Analytic," 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 PBHG Advisor
Funds if the PBHG Advisor Funds receive 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.
Class A Shares. If you purchase Class A shares you will pay a sales
charge at the time of purchase (except that Class A shares of the PBHG Advisor
Cash Reserves Fund are sold without an initial sales charge). As a result, Class
A shares are not subject to any charges when they are redeemed (except for sales
at net asset value in excess of $1 million which are not subject to a sales
charge at the time of purchase but are subject to a contingent deferred sales
charge). Certain purchases of Class A shares qualify for a sales charge waiver
or reduction. Class A shares bear a 12b-1 distribution plan fee at the annual
rate of 0.25% of each PBHG Advisor Fund's average net assets attributable to
Class A shares. Class A shares of the PBHG
4
<PAGE>
Advisor Cash Reserves Fund are sold without an initial sales charge and are not
subject to a contingent deferred sales charge. A contingent deferred sales
charge may be imposed on redemptions of Class A shares for certain large
purchases. 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 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 bear a 12b-1 distribution plan fee at the
annual rate of 1.00% of each PBHG Advisor Fund's average net assets attributable
to Class B shares. The Class B 12b-1 distribution plan fee is greater than the
Class A 12b-1 distribution plan fee. 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 provide the benefit of putting all invested funds to
work from the time the investment is made, but (until conversion) have a higher
expense ratio and pay lower dividends than Class A shares due to the higher
12b-1 distribution plan fee. Class B shares of the PBHG Advisor Cash Reserves
Fund can be purchased only in an exchange and are not available for direct
purchase. See "Class B Shares" under the caption "How to Purchase Fund Shares."
Which Arrangement is Best for You? The decision as to which class of
shares provides a more suitable investment for you depends on a number of
factors, including the amount and intended length of the investment. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge 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 dealer. Sales personnel 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 have a minimum initial investment of $2,500 for regular accounts
and $2,000 for traditional and Roth IRAs. Class A and Class B shares of each
Fund, however, have a minimum initial investment of only $500 for both regular
accounts and IRAs provided a Systematic Investment Plan is established by the
investor with a minimum investment of $25 per
5
<PAGE>
month at the same time that the initial investment is made. The minimum initial
investment for Education IRAs is $500. 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."
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 5.75% None None None None
Value Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Blue 5.75% None None None None
Chip Growth Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor 5.75% None None None None
Enhanced Equity Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Large 5.75% None None None None
Cap Concentrated Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor New 5.75% None None None None
Opportunities Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Master 4.75% None None None None
Fixed Income Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Short- 1.50% None None None None
Term Government Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Cash None None None None None
Reserves Fund
===================================================================================================================================
</TABLE>
6
<PAGE>
(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 Blue Chip Growth 0.00% 0.25% 1.16% 1.41%
Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Enhanced Equity 0.00% 0.25% 1.16% 1.41%
Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Large Cap 0.40% 0.25% 1.01% 1.66%
Concentrated Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor New Opportunities 0.10% 0.25% 1.21% 1.56%
Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Master Fixed 0.00% 0.25% 1.01% 1.26%
Income Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Short-Term 0.00% 0.25% 0.86% 1.11%
Government Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Cash Reserves 0.00% 0.25% 0.86% 1.11%
Fund
================================================================================================================================
</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:
7
<PAGE>
<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 Blue Chip Growth Fund 0.60% 0.25% 1.27% 2.12%
PBHG Advisor Enhanced Equity 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>
(2) As a result of the 12b-1 fees, long-term shareholders of Class A shares
may pay more than the economic equivalent of the maximum front-end
sales charge permitted by the National Association of Securities
Dealers, Inc. The Company estimates that the maximum permissible
front-end sales charge would not be exceeded for a substantial number
of years.
(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, PBHG Advisor Blue Chip Growth Fund,
and PBHG Advisor Enhanced Equity 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 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.
================================================================================
1 Year 3 Years
- --------------------------------------------------------------------------------
PBHG Advisor Core Value Fund $71 $100
- --------------------------------------------------------------------------------
PBHG Advisor Blue Chip Growth Fund $71 $100
- --------------------------------------------------------------------------------
PBHG Advisor Enhanced Equity Fund $71 $100
- --------------------------------------------------------------------------------
PBHG Advisor Large Cap Concentrated Fund $73 $107
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
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
================================================================================
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."
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 None None 5.00% None None
Value Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Blue None None 5.00% None None
Chip Growth Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor None None 5.00% None None
Enhanced Equity Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Large None None 5.00% None None
Cap Concentrated Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor New None None 5.00% None None
Opportunities Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Master None None 5.00% None None
Fixed Income Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Short- None None 5.00% None None
Term Government Fund
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Cash None None 5.00% None None
Reserves Fund
===================================================================================================================================
</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 Blue Chip Growth 0.00% 1.00% 1.16% 2.16%
Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Enhanced Equity 0.00% 1.00% 1.16% 2.16%
Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Large Cap 0.40% 1.00% 1.01% 2.41%
Concentrated Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor New Opportunities 0.10% 1.00% 1.21% 2.31%
Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Master Fixed 0.00% 1.00% 1.01% 2.01%
Income Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Short-Term 0.00% 1.00% 0.86% 1.86%
Government Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Cash Reserves 0.00% 1.00% 0.86% 1.86%
Fund
================================================================================================================================
</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:
10
<PAGE>
<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 Blue Chip Growth Fund 0.60% 1.00% 1.27% 2.87%
PBHG Advisor Enhanced Equity 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>
(2) As a result of the 12b-1 fees, long-term shareholders of Class B shares
may pay more than the economic equivalent of the maximum front-end
sales charge permitted by the National Association of Securities
Dealers, Inc. The Company estimates that the maximum permissible
front-end sales charge would not be exceeded for a substantial number
of years.
(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, PBHG Advisor Blue Chip Growth Fund,
and PBHG Advisor Enhanced Equity 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 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 Blue Chip Growth Fund $73 $100
- -------------------------------------------------------------------------------------------------
PBHG Advisor Enhanced Equity Fund $73 $100
- -------------------------------------------------------------------------------------------------
PBHG Advisor Large Cap Concentrated Fund $76 $108
- -------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
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 Blue Chip Growth Fund $22 $68
- -------------------------------------------------------------------------------------------------
PBHG Advisor Enhanced Equity 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."
12
<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 8 separate series:
PBHG ADVISOR VALUE FUNDS PBHG ADVISOR GROWTH FUNDS
o PBHG ADVISOR CORE VALUE FUND o PBHG ADVISOR BLUE CHIP GROWTH
FUND
o PBHG ADVISOR ENHANCED EQUITY FUND
PBHG ADVISOR AGGRESSIVE PBHG ADVISOR FIXED INCOME
GROWTH FUNDS FUNDS
o PBHG ADVISOR LARGE CAP o PBHG ADVISOR MASTER FIXED INCOME
CONCENTRATED FUND FUND
o PBHG ADVISOR NEW OPPORTUNITIES o PBHG ADVISOR SHORT-TERM
FUND GOVERNMENT FUND
o PBHG ADVISOR CASH RESERVES FUND
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 OBJECTIVES AND POLICIES
The following sections describe the investment objectives and primary investment
policies of each of the eight 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 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
13
<PAGE>
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 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. The
Equity Securities in which the Fund normally invests will be traded in the
United States or Canada on a registered securities exchange or established
over-the-counter market.
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 $5 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.
14
<PAGE>
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 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
15
<PAGE>
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 AGGRESSIVE GROWTH FUNDS
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 value of
the Fund's total assets, and (ii) not more than 25% of the value
16
<PAGE>
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 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;
17
<PAGE>
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 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.
18
<PAGE>
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 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
19
<PAGE>
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
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 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 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
20
<PAGE>
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.
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 Aggressive Growth Funds, 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 PBHG Advisor Aggressive Growth Fund 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 the
PBHG Advisor Aggressive Growth 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 Growth Funds, the Adviser employs an investment
process which is both quantitative and fundamental but which differs from that
employed for the PBHG Advisor Aggressive Growth Funds. 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
21
<PAGE>
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 each of the PBHG Advisor
Growth Funds 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 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
Since 1996, Analytic 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 model, Analytic 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 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").
22
<PAGE>
Analytic believes that this approach, which has been discussed in leading
academic journals, has significant ability to identify portfolios of attractive
stocks. Analytic 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
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's periodic rebalancing of the portfolio
does not significantly impact the price of the security.
23
<PAGE>
Analytic 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 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 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. Expected returns are updated
monthly and are used to reoptimize the portfolio. Analytic 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: PBHG Advisor Core Value Fund, 200%; PBHG Advisor Blue Chip
Growth Fund, 50%; PBHG Advisor Enhanced Equity Fund, 150%; PBHG Advisor Large
Cap Concentrated Fund, 300%; PBHG Advisor New Opportunities Fund, 150%; PBHG
Master Fixed Income Fund, 50%; and 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
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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, PBHG Advisor Short-Term Government Fund,
and 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."
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 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
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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, PBHG
Advisor Short-Term Government Fund, and 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 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.
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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 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
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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 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
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(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 Master Fixed Income Fund and the PBHG Advisor Enhanced Equity
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.
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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 Master Fixed Income Fund and the PBHG Advisor Enhanced Equity
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
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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.
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;
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(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.
INVESTMENT LIMITATIONS
The investment objectives of each PBHG Advisor Fund and the investment
limitations set forth herein and certain investment limitations contained in the
Statement of Additional Information 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.
Except for the PBHG Advisor Cash Reserves Fund, each PBHG Advisor Fund, as a
fundamental policy, may not:
1. Except for the PBHG Advisor Large Cap Concentrated Fund, purchase securities
of any issuer (except securities issued or guaranteed by the United States, its
agencies or instrumentalities and repurchase agreements involving such
securities) if, as a result, more than 5% of the total assets of such Fund would
be invested in the securities of such issuer, or such
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Fund would own more than 10% of the outstanding voting securities of such
issuer. This restriction applies to 75% of each Fund's total assets.
2. Purchase any securities which would cause 25% or more of the total assets of
the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities. With respect to the PBHG Advisor Enhanced Equity
Fund, PBHG Advisor Master Fixed Income Fund, and PBHG Advisor Short-Term
Government Fund, in applying this limitation: (i) utility companies will be
divided according to their services (for example, gas, gas transmission,
electric, electric and gas, and telephone will each be considered a separate
industry); and (ii) financial service companies will be classified according to
the end users of their services (for example, automobile finance, bank finance,
and diversified finance will be considered as separate industries).
3. Except for the PBHG Advisor Enhanced Equity Fund, PBHG Advisor Master Fixed
Income Fund, and PBHG Advisor Short-Term Government Fund, borrow money, other
than through reverse repurchase agreements and securities lending activities,
except for temporary or emergency purposes and then only in an amount not
exceeding one-third of the value of the Fund's total assets (or 10% of the value
of the PBHG Advisor Large Cap Concentrated Fund's total assets), net of
liabilities other than senior securities, as provided in the 1940 Act. This
borrowing provision is included to facilitate the settlement of securities
transactions, and the orderly sale of portfolio securities to accommodate
substantial redemption requests if they should occur, and is not for investment
purposes. All borrowings in excess of 5% of a Fund's total assets will be repaid
before making additional investments.
Each of the PBHG Advisor Enhanced Equity Fund, PBHG Advisor Master Fixed Income
Fund, and PBHG Advisor Short-Term Government Fund, as a fundamental policy, may
not borrow money, except as a temporary measure for extraordinary or emergency
purposes or for the clearance of transactions, and then only in amounts not
exceeding 15% of its total assets valued at market (for this purpose, delayed
delivery transactions covered by segregated accounts are not considered to be
borrowings).
The percentages stated in items 1 and 2 above apply at the time of the purchase
of a security.
The PBHG Advisor Cash Reserves Fund, as a fundamental policy, may not:
1. Purchase securities of any issuer if, as a result, more than 5% of the total
assets of such Fund would be invested in the securities of such issuer, except
(a) U.S. Government securities, including securities issued by its agencies and
instrumentalities, (b) to the extent permitted by Rule 2a-7 under the 1940 Act,
as amended, and (c) that the Fund may purchase securities of other investment
companies to the extent permitted by applicable law or exemptive order.
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2. Purchase any securities which would cause 25% or more of the total assets of
the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. government or its agencies and instrumentalities, repurchase agreements
involving such securities, and obligations of domestic banks.
3. Borrow money, other than through reverse repurchase agreements and securities
lending activities, except for temporary or emergency purposes and then only in
an amount not exceeding one-third of the value of the Fund's total assets. This
borrowing provision is included to facilitate the settlement of securities
transactions, and the orderly sale of portfolio securities to accommodate
substantial redemption requests if they should occur, and is not for investment
purposes. All borrowings in excess of 5% of the Fund's total assets will be
repaid before making additional investments.
The percentages stated in items 1 and 2 above apply at the time of the purchase
of a security.
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. The
Distributor may waive the minimum initial investment amount at its discretion.
No minimum applies to subsequent purchases effected by dividend reinvestment. As
described below, subsequent purchases through the Fund's Systematic Investment
Plan must be at least $25. The minimum initial investment for Education IRAs is
$500.
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 receives payment
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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
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the PBHG Advisor Cash Reserve 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, PBHG Advisor Blue Chip Growth Fund, PBHG Advisor
Enhanced Equity Fund, PBHG Advisor Large Cap Concentrated Fund, and PBHG Advisor
New Opportunities Fund.
<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
Amount of Investment in Offering Amount Offering
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
Amount of Investment in Offering Amount Offering
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.
36
<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
Amount of Investment in Offering Amount Offering
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 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.
37
<PAGE>
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 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:
(Diamond) 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);
(Diamond) 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
38
<PAGE>
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;
(Diamond) 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;
(Diamond) 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;
(Diamond) 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
39
<PAGE>
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 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,
40
<PAGE>
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 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
41
<PAGE>
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
Portfolio (the "Analytic Portfolios") who obtained their initial shares of any
PBHG Advisor Fund in a reorganization of any such Analytic 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
42
<PAGE>
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."
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. Your systematic investment in the PBHG Advisor Funds designated by you
will be processed on a regular basis at your option beginning on or about either
the first or fifteenth day of the month or quarter you select. This Systematic
Investment Plan must be established on your account at least 15 days prior to
the intended date of your first systematic investment.
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
43
<PAGE>
automatically transferred from your account(s) in the Funds to your designated
checking or savings account on a monthly, quarterly, or semi-annual basis. The
Systematic Withdrawal Plan also provides the option of having a check mailed to
the address of record for your account. In order to start this Plan, you must
have a minimum balance of $5,000 in any account using this feature. Your
systematic withdrawals will be processed on a regular basis beginning on or
about either the first or fifteenth day of the month, quarter or semi-annual
period you select.
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, PBHG Advisor Blue Chip Growth Fund, PBHG Advisor
Enhanced Equity Fund, PBHG Advisor Large Cap Concentrated Fund, and 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, PBHG Advisor
Short-Term Government Fund, and 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 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."
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
44
<PAGE>
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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<PAGE>
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 to traditional
IRA investors. 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.
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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.
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.
Payment of net 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
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<PAGE>
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 and the account 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 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
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<PAGE>
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
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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.
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
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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.
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Year Contingent Deferred
Since Sales Charge as
Purchase % of Dollar Amount
Made Subject to Charge
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh 0%
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;
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(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 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
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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 the same class of 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.
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
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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
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<PAGE>
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 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
The PBHG Advisor Funds had not commenced operations as of the date of this
Prospectus. Consequently, the Funds have not yet established their own
performance records. However, the investment objectives, 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 Large Cap Concentrated Fund
The investment objectives, 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 for the Large Cap 20
Fund for the one-year period ended March 31, 1998 was 72.76%. The average annual
return for the Large Cap 20 Fund since commencement of operations (December 2,
1996) through March 31, 1998 was 42.21%.
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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 May 29, 1998. The
Enhanced Equity Portfolio is managed by Analytic, which manages the PBHG Advisor
Enhanced Equity Fund as its sub-adviser. The investment objectives, policies and
strategies of the Fund are substantially similar to those of the Enhanced Equity
Portfolio. For the one year period ended March 31, 1998, the total return of the
Enhanced Equity Portfolio was 49.55%. The average annual total return for the
Enhanced Equity Portfolio for the three year period ended March 31, 1998 was
32.25%. The average annual total return of the Enhanced Equity Portfolio from
July 1, 1993 (commencement of public offering) through March 31, 1998 was
22.42%.
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 May
29, 1998. The Master Fixed Income Portfolio is managed by Analytic, which
manages the PBHG Advisor Master Fixed Income Fund as its sub-adviser. The
investment objectives, policies and strategies of the Fund are substantially
similar to those of the Master Fixed Income Portfolio. For the one year period
ended March 31, 1998, the total return of the Master Fixed Income Portfolio was
13.21%. The average annual return for the Master Fixed Income Portfolio for the
three year period ended March 31, 1998 was 9.96%. The average annual total
return of the Master Fixed Income Portfolio from July 1, 1993 (commencement of
public offering) through March 31, 1998 was 7.69%.
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
May 29, 1998. The Short-Term Government Portfolio is managed by Analytic, which
manages the PBHG Advisor Short-Term Government Fund as its sub-adviser. The
investment objectives, policies and strategies of the Fund are substantially
similar to those of the Short-Term Government Portfolio. For the one year period
ended March 31, 1998, the total return of the Short-Term Government Portfolio
was 6.48%. The average annual return for the Short-Term Government Portfolio for
the three year period ended March 31, 1998 was 6.43%. The average annual total
return of the Short-Term Government Portfolio from July 1, 1993 (commencement of
public offering) through March 31, 1998 was 5.20%.
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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, 1997. The investment objectives, 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 37.93% 27.34%
Shares)
- ----------------------------------------------------------------------------------------------------
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
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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.
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
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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 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.
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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
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 $16 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 Blue Chip Growth Fund; 0.60% for the PBHG
Advisor Enhanced Equity 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
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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, PBHG Advisor
Blue Chip Growth Fund, and PBHG Advisor Enhanced Equity 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 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 since 1990 and is also a Director of the Adviser.
James D. McCall, CFA and Ellen A. McGee, CFA co-manage 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. Ms. McGee joined the Adviser in March 1997
and is a portfolio manager/analyst. Prior to joining the Adviser, Ms. McGee was
Vice President and Senior Portfolio Manager with First Union Capital Management
from August 1995 until March 1997, Vice President and Portfolio Manager with
NationsBank Private Client Group from May 1994 until August 1995, and Vice
President and Senior Institutional Portfolio Manager with First National Bank of
Maryland from April 1991 until May 1994.
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 products. Previously, Mr.
Urquhart was Chief Financial Officer for Cole Financial Group where he had
portfolio management
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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
Analytic o TSA Global Asset Management, Inc., 700 South Flower Street, Suite
2400, Los Angeles, CA 90017 is a wholly owned subsidiary of UAM, the parent
company of the Adviser.
Analytic 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
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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 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 Enhanced Equity Fund, PBHG Advisor Master
Fixed Income Fund, and PBHG Advisor Short-Term Government Fund, Analytic,
subject to the control and direction of the Adviser and the Board of Directors
of the Company, manages the Funds in accordance with each Fund's stated
investment objective and policies and makes investment decisions for the Funds.
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 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 and has been with the firm since October of
1976 as a portfolio manager. Mr. Bannon is a managing director of Analytic
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's investment management committee.
Dennis M. Bein and Harindra de Silva are the portfolio managers for the PBHG
Advisor Enhanced Equity Fund. Mr. Bein has been a member of the portfolio
management and research team for Analytic 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 managing director of Analytic, 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's 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 an annual fee based on the average daily
net assets of each Fund as follows:
PBHG Advisor Master Fixed Income Fund 0.25%
PBHG Advisor Enhanced Equity Fund 0.40%
PBHG Advisor Short-Term Government Fund 0.10%
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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.
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.
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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,
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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.
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 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
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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 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.
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, PBHG
Advisor Short-Term Government Fund, and 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, PBHG Advisor Short-Term
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Government Fund, and 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
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101, 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
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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 Objectives 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 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
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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
A-3
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at a specified price during a specified future month. When a futures contract is
sold, the Fund incurs a contractual 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,
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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.
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.
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<PAGE>
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 addition, even though the Bankruptcy Code provides
protection for most repurchase agreements, if the seller should be involved in
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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
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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 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).
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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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LOGO
PBHG ADVISOR FUNDS, INC.
PROSPECTUS
APRIL 20, 1998
<PAGE>
PBHG Advisor Funds, Inc.
Investment Adviser:
Pilgrim Baxter & Associates, Ltd.
Distributor:
PBHG Funds Distributor
LOGO
The Power of Discipline.
The rewards of time.(Servicemark)
To open an account, receive information,
make inquiries or request literature:
1-888-800-2685
<PAGE>
EXHIBIT C
Prospectus of The Analytic Series Fund
27
<PAGE>
THE ANALYTIC SERIES FUND
(800) 374-2633
PROSPECTUS DATED OCTOBER 20, 1997
A No-Load, Open-End Fund With No Sales Charge or Redemption Fee
TABLE OF CONTENTS
Page
----
Highlights................................................................ 3
Fund Expenses............................................................. 6
Financial Highlights...................................................... 7
Investment Objectives and Policies........................................ 10
Investment Risks.......................................................... 13
Who Should Invest......................................................... 15
Implementation of Policies................................................ 16
Management of the Fund.................................................... 31
Investment Adviser........................................................ 31
The Share Price of Each Portfolio......................................... 35
Dividends, Capital Gains and Taxes........................................ 36
General Information....................................................... 38
Yield, Total Return, and Other Calculations............................... 39
Shareholder Guide......................................................... 41
Opening an Account........................................................ 41
Purchasing Shares......................................................... 41
Redeeming Shares.......................................................... 43
Exchanging Shares......................................................... 47
Withdrawal Plan........................................................... 48
ABOUT THIS PROSPECTUS
This Prospectus sets forth concisely the information you should know about
the Fund before you invest. It should be retained for future reference. A
Statement of Additional Information containing additional information about the
Fund has been filed with the Securities and Exchange Commission. The Statement
of Additional Information is incorporated by reference into this Prospectus and
a copy may be obtained without charge by telephoning the Fund at (800) 374-2633.
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.
The date of this Prospectus and the related Statement of Additional
Information is October 20, 1997
THE ANALYTIC SERIES FUND
(800) 374-2633
<PAGE>
INVESTMENT OBJECTIVES The Analytic Series Fund, a Delaware business
AND POLICIES trust (the "Fund"), is a no-load, open-end
diversified investment company or "mutual fund"
presently consisting of 3 separate Portfolios,
each with a distinct investment objective. The
Portfolios are: the Analytic Short-Term
Government Portfolio ("Short-Term Government
Portfolio"), the Analytic Master Fixed Income
Portfolio ("Master Fixed Income Portfolio"), and
the Analytic Enhanced Equity Portfolio
("Enhanced Equity Portfolio").
The investment objective of the Short-Term
Government Portfolio is to provide a high level
of income consistent with both low fluctuations
in market value and low credit risk. At least
80% of the total assets of the Portfolio will be
invested in U.S. Government securities and up to
20% may be invested in securities of foreign
issuers. The investment objective of the Master
Fixed Income Portfolio is to provide
above-average total returns from a diversified
bond portfolio consisting primarily of domestic
government, corporate, and mortgage-related
fixed income securities. Up to 20% of the total
assets of the Portfolio may be invested in
securities of foreign issuers. The investment
objective of the Enhanced Equity Portfolio is to
provide above-average total returns from a
diversified equity portfolio which consists
primarily of domestic common stocks and related
investments such as options and futures. Up to
20% of the total assets of the Portfolio may be
invested in securities of foreign issuers.
OPENING AN ACCOUNT Please complete and return the Account
Registration. If you need assistance in
completing this form, please call the Fund's
sub-transfer agent at (800) 374-2633. There is
no minimum investment for tax deferred
retirement accounts; otherwise, the minimum
initial investment is $5,000 invested in any
proportion among the Portfolios. Shares may be
purchased at net asset value per share, without
a sales charge, next determined after receipt of
a purchase order in good form.
<PAGE>
HIGHLIGHTS
THREE SEPARATE PORTFOLIOS Investors may choose from any of the three
Portfolios of the Fund. The investment
characteristics of each Portfolio are
summarized in the chart below.
PORTFOLIO SUMMARY
<TABLE>
<CAPTION>
May Use May Use
Options Foreign
Portfolio Primary Investments and Futures Securities
- --------- ------------------- ----------- ----------
<S> <C> <C> <C>
Short-Term Government Shorter term U.S. Treasury & U.S. Government agency fixed income Yes Yes
securities, with an average duration of 1 to 3 years
Master Fixed Income Intermediate and longer term U.S. Government and high grade Yes Yes
corporate and mortgage-related fixed income securities
Enhanced Equity Publicly traded common stocks with average capitalization Yes Yes
typical of medium to large companies
</TABLE>
RISK CHARACTERISTICS The securities in the Portfolios are subject to
various risks, including interest rate risk,
credit risk, currency risk and equity risk. The
following chart summarizes the Adviser's opinion
of the exposure of each Portfolio to these risks
and the expected price fluctuations due to these
and other risks, based on the historical
financial characteristics of the various
securities.
RISK SUMMARY
<TABLE>
<CAPTION>
Interest Rate and Equity Risk Currency Expected Portfolio
Portfolio Credit Risk Equity Risk Risk Price Fluctuations
- --------- ----------------- ----------- -------- ------------------
<S> <C> <C> <C> <C>
Short-Term Government Low None Low Low to Moderate
Master Fixed Income High Low to Moderate Low Moderate to High
Enhanced Equity Low High Low High to Very High
</TABLE>
<PAGE>
INVESTMENT ADVISER Analytic TSA Global Asset Management,
Inc. (the "Adviser"), 700 South Flower Street,
Suite 2400, Los Angeles, CA 90017, is the
investment adviser of the Fund. The Adviser is a
wholly owned subsidiary of United Asset
Management Corporation, a holding company
described under "Management of the Fund" in the
Statement of Additional Information.
DIVIDEND POLICY The Short-Term Government and Master Fixed
Income Portfolios declare a dividend each
business day based on their respective net
investment incomes. These dividends are paid on
the first business day of each month. The
Enhanced Equity Portfolio declares and pays its
net investment income on the last business day
of the calendar quarter. All Portfolios
distribute net realized capital gains, if any,
annually.
TAXES Dividends and capital gains distributions paid
by the Fund's Portfolios are generally subject
to federal, state and local income taxes.
However, depending on provisions of your state's
tax law, the portion of a Portfolio's income
derived from "full faith and credit" U.S.
Treasury obligations may be exempt from state
and local taxes. A sale of shares, whether by
outright redemption or exchange, is a taxable
event and may result in a capital gain or loss.
PURCHASING SHARES Shares may be purchased by wire, mail, or
exchange from another Portfolio in the Fund, at
net asset value per share, without a sales
charge, next determined after receipt of a
purchase order in good form. There is no minimum
initial or subsequent purchase of Portfolio
shares by tax deferred retirement plans
(including IRA, SEP-IRA and profit sharing and
money purchase plans) or Uniform Gifts to Minors
Act accounts. For other investors the minimum is
$5,000 for an initial purchase, in any
proportion among the Portfolios, and there is no
minimum for subsequent purchases.
REDEEMING SHARES Shares are redeemed without charge and
redemptions may be made by telephone, mail, or
exchange to another Portfolio in the Fund.
ADMINISTRATIVE SERVICES UAM Fund Services, Inc., a wholly-owned
subsidiary of United Asset Management
Corporation, is responsible for performing and
overseeing all administrative, fund accounting,
dividend disbursing and transfer agent services
for the Fund. UAM Fund Services has
subcontracted certain of these services to Chase
Global Funds Services Company, an affiliate of
The Chase Manhattan Bank. Chase Global Funds
Services Company will act as the Fund's
sub-dividend disbursing agent, sub-transfer
agent and sub-shareholder servicing agent.
Shareholder inquiries should be addressed to the
Fund's sub-shareholder servicing agent at:
Analytic Funds, P.O. Box 2798, Boston, MA 02208;
telephone (800) 374-2633.
<PAGE>
FUND EXPENSES The following table illustrates the expenses and
fees that a shareholder of the Fund will incur.
However, transaction fees may be charged if a
broker-dealer or other financial intermediary
deals with the Fund on your behalf (See
"Shareholder Guide -- Purchasing Shares"). The
"other" expenses set forth below are estimates
for the fiscal year ending December 31, 1997 and
are annualized based on each Portfolio's
operations during the semi-annual period ended
June 30, 1997, except that they have been
restated where applicable to reflect the current
expense caps.
<TABLE>
<CAPTION>
Short-Term Master Enhanced
Government Fixed Income Equity
Shareholder Transaction Expenses Portfolio Portfolio Portfolio
- -------------------------------- ---------- ------------ ---------
<S> <C> <C> <C>
Sales Load Imposed on Purchases.................................... None None None
Sales Load Imposed on Reinvested Dividends......................... None None None
Redemption Fees.................................................... None None None
Exchange Fees...................................................... None None None
</TABLE>
<TABLE>
<CAPTION>
Short-Term Master Enhanced
Government Fixed Income Equity
Annual Fund Operating Expenses Portfolio Portfolio Portfolio
- ------------------------------ ---------- ------------ ---------
<S> <C> <C> <C>
Management Fees (after expense reimbursement)*.................... 0.00% 0.45% 0.00%
12b-1 Fees........................................................ None None None
Other Expenses (after expense reimbursement)*..................... 0.60 0.45 1.00
--------- --------- ---------
Total Fund Operating Expenses (after expense reimbursement)*...... 0.60% 0.90% 1.00%
</TABLE>
* After reimbursement of expenses. The Adviser has voluntarily agreed to
reimburse expenses of the Fund, including advisory fees (but excluding
interest, taxes, and extraordinary expenses) that exceed 0.60%, 0.90%
and 1.00% of average daily net assets for the Short-Term Government,
Master Fixed Income and Enhanced Equity Portfolios, respectively, for
the year ending December 31, 1997. Without such reimbursement, it is
estimated based on the operations of each Portfolio during the
semi-annual period ended June 30, 1997, adjusted in the case of the
Master Fixed Income Portfolio for a decrease in assets since June 30,
1997, that annual expenses for each Portfolio for the year ending
December 31, 1997 would be as follows:
<TABLE>
<CAPTION>
Short-Term Master Enhanced
Government Fixed Income Equity
Portfolio Portfolio Portfolio
---------- ------------ ---------
<S> <C> <C> <C>
Management Fees................................................... 0.30% 0.45% 0.60%
Other Expenses.................................................... 4.24% 2.66% 1.07%
---- ---- ----
Total Fund Operating Expenses..................................... 4.54% 3.11% 1.67%
</TABLE>
EXAMPLE The following example illustrates the expenses you would pay on a
$1,000 investment, assuming (1) a 5% annual rate of return and
(2) redemption at the end of each period.
<TABLE>
<CAPTION>
Portfolio 1 year 3 years 5 years 10 years
- --------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Short-Term Government............................................. $6 $19 $33 $ 75
Master Fixed Income............................................... 9 29 50 111
Enhanced Equity................................................... 10 32 55 122
</TABLE>
The purpose of the above information is to help an investor in the Fund to
understand the various fees and expenses an investor will bear directly or
indirectly. The example is not a representation of past or future expenses and
actual expenses may be greater or less than those shown.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial statements in the tables below for each of the four years in
the period ended December 31, 1996, and the one month ended December 31, 1992,
have been audited by Deloitte & Touche LLP, independent auditors. Such financial
statements and the report of Deloitte & Touche LLP thereon are incorporated by
reference in the Statement of Additional Information. Also presented in the
tables below are unaudited semi-annual financial statements for the six-month
period ended June 30, 1997. Copies of the Fund's 1996 Annual Report to
Shareholders and 1997 Semi-Annual Report to Shareholders may be obtained, at no
charge, by telephoning the Fund at the telephone number appearing on the cover
page of this Prospectus.
SHORT-TERM GOVERNMENT PORTFOLIO
<TABLE>
<CAPTION>
Six Months
Ended One Month
June 30, Year Ended December 31, Ended
1997 ----------------------------------------- December 31,
(Unaudited) 1996 1995 1994 1993 1992
----------- ------ ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $ 9.83 $ 9.98 $ 9.55 $ 10.03 $ 10.03 $10.00
------ ------ ------- ------- ------- ------
Income from investment operations
Net investment income..................... 0.27 0.62 0.56 0.48 0.53 0.05
Net realized and unrealized gains (losses)
on investments......................... (0.06) (0.10) 0.43 (0.48) 0.00 0.03
------ ------ ------- ------- ------- ------
Total from investment operations....... 0.21 0.52 0.99 0.00 0.53 0.08
------ ------ ------- ------- ------- ------
Less distributions:
From net investment income................ 0.27 0.66 0.56 0.48 0.53 0.05
Return of capital......................... 0.00 0.01 0.00 0.00 0.00 0.00
------ ------ ------- ------- ------- ------
Total distributions.................... 0.27 0.67 0.56 0.48 0.53 0.05
------ ------ ------- ------- ------- ------
Net asset value, end of period............... $ 9.77 $ 9.83 $ 9.98 $ 9.55 $ 10.03 $10.03
------ ------ ------- ------- ------- ------
Total return................................. 2.20% 5.28% 10.65% 0.00% 5.37% 9.38%
------ ------ ------- ------- ------- ------
Ratios/supplemental data
Net assets, end of period ($000)............. $1,049 $1,008 $27,880 $24,481 $26,097 $7,619
Ratio of expenses to average net assets...... 4.54%+ 0.76% 0.82% 0.85% 0.75% 0.77%+
Ratio of net investment income to average net
assets.................................... 5.56%+ 5.99% 5.76% 5.37% 4.91% 5.45%+
Portfolio turnover rate...................... 0.00% 31.48% 10.15% 3.21% 85.69% 0.00%
</TABLE>
Gross of Adviser reimbursed expenses. With expense reduction, such
ratios would have been 0.60%+, 0.56%, 0.50%, 0.45%, 0.45%, and 0.45%+
for the six months ended June 30, 1997, for each of the years in the
periods ended December 31, 1996, and for the month ended December 31,
1992, respectively.
+ Annualized
<PAGE>
MASTER FIXED INCOME PORTFOLIO
<TABLE>
<CAPTION>
Six Months
Ended One Month
June 30, Year Ended December 31, Ended
1997 ---------------------------------------- December 31,
(Unaudited) 1996 1995 1994 1993 1992
----------- ------- ------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $ 10.27 $ 10.41 $ 9.50 $10.26 $10.06 $10.00
------- ------- ------- ------ ------ ------
Income from investment operations
Net investment income..................... 0.28 0.58 0.61 0.64 0.67 0.04
Net realized and unrealized gains (losses)
on investment and option transactions.. 0.04 (0.01) 0.91 (0.75) 0.41 0.06
------- ------- ------- ------ ------ ------
Total from investment operations....... 0.32 0.57 1.52 (0.11) 1.08 0.10
------- ------- ------- ------ ------ ------
Less distributions:
From net investment income................ 0.28 0.58 0.61 0.64 0.67 0.04
From net realized gains................... 0.00 0.12 0.00 0.01 0.21 0.00
In excess of net realized gains........... 0.00 0.01 0.00 0.00 0.00 0.00
------- ------- ------- ------ ------ ------
Total distributions....................... 0.28 0.71 0.61 0.65 0.88 0.04
------- ------- ------- ------ ------ ------
Net asset value, end of period............... $ 10.31 $ 10.27 $ 10.41 $ 9.50 $10.26 $10.06
------- ------- ------- ------ ------ ------
Total return................................. 3.19% 5.69% 16.43% (1.04)% 10.94% 13.09%
------- ------- ------- ------ ------ ------
Ratios/supplemental data
Net assets, end of period ($000)............. $31,038 $28,926 $24,868 $6,155 $ 8,066 $9,219
Ratio of expenses to average net assets...... 0.90%+ 0.97% 1.03% 1.17% 1.04% 1.05%+
Ratio of net investment income to average net
assets.................................... 5.61%+ 5.66% 5.99% 7.16% 6.39% 5.63%+
Portfolio turnover rate...................... 10.56% 21.95% 31.82% 44.30% 105.39% 0.00%
Average commission rate...................... $0.0220 $0.0418 $0.0277
</TABLE>
Gross of Adviser reimbursed expenses and expenses indirectly paid through
broker arrangements. With both expense reductions, such ratios would have
been 0.90%+, 0.72%, 0.69%, 0.60%, 0.60% and 0.60%+ for the six months ended
June 30, 1997, for each of the years in the periods ended December 31,
1996, and for the month ended December 31, 1992, respectively.
The formula for calculating the average commission rate is total commission
paid divided by the total shares purchased and sold. Each option contract
is 100 shares.
+ Annualized
<PAGE>
ENHANCED EQUITY PORTFOLIO
<TABLE>
<CAPTION>
Six Months
Ended One Month
June 30, Year Ended December 31, Ended
1997 ----------------------------------------- December 31,
(Unaudited) 1996 1995 1994 1993 1992
----------- ------- ------- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period..... $ 12.09 $ 12.94 $ 9.83 $10.15 $10.02 $ 10.00
------- ------- ------- ------ ------ -------
Income from investment operations
Net investment income................. 0.07 0.21 0.23 0.28 0.40 0.01
Net realized and unrealized gains
(losses) on investments
and options ....................... 1.94 2.74 3.22 (0.32) 0.62 0.02
------- ------- ------- ------ ------ -------
Total from investment
operations .................... 2.01 2.95 3.45 (0.04) 1.02 0.03
------- ------- ------- ------ ------ -------
Less distributions:
From net investment income............ 0.06 0.21 0.23 0.28 0.40 0.01
From net realized gains............... 0.00 3.58 0.11 0.00 0.37 0.00
In excess of net realized gains....... 0.00 0.01 0.00 0.00 0.00 0.00
Return of capital..................... 0.00 0.00 0.00 0.00 0.12 0.00
------- ------- ------- ------ ------ -------
Total distributions................... 0.06 3.80 0.34 0.28 0.89 0.01
------- ------- ------- ------ ------ -------
Net asset value, end of period........... $ 14.04 $ 12.09 $ 12.94 $ 9.83 $10.15 $ 10.02
------- ------- ------- ------ ------ -------
Total return............................. 16.65% 22.95% 35.36% (0.37)% 10.07% 4.08%
------- ------- ------- ------ ------ -------
Ratios/supplemental data
Net assets, end of period ($000)......... $ 4,838 $ 3,519 $ 2,318 $1,511 $ 903 $12,823
Ratio of expenses to average net assets.. 1.67%+ 1.51% 1.33% 1.35% 1.35% 1.07%+
Ratio of net investment income to average
net assets............................ 1.31%+ 1.53% 2.02% 3.24% 2.16% 1.66%+
Portfolio turnover rate.................. 113.80% 179.47% 10.15% 24.75% 76.34% 25.20%
Average commission rate.................. $0.0272 $0.0658 $0.0431
</TABLE>
Gross of Adviser reimbursed expenses and expenses paid indirectly through
broker arrangements.With both expense reductions, such ratios would have
been 1.00%+, 0.91%, 0.50%, 0.24%, 0.57%, and 0.70%+ for the six months
ended June 30, 1997, for each of the years in the periods ended December
31, 1996, and for the month ended December 31, 1992, respectively.
The formula for calculating the average commission rate is total commission
paid divided by the total shares purchased and sold. Each option contract
is 100 shares.
+ Annualized
<PAGE>
INVESTMENT OBJECTIVES The investment objectives and policies of each
AND POLICIES Portfolio are listed below. The objectives are
fundamental and may not be changed without
shareholder approval. However, the investment
policies, practices, and strategies employed in
pursuit of each Portfolio's objective are not
fundamental and may be changed without
shareholder approval. Because there are risks
inherent in all securities investments, there is
no assurance that these objectives will be
achieved.
Short-Term Government Investment Objective:
Portfolio
The investment objective of the Short-Term
Government Portfolio is to provide a high level
of income consistent with both low fluctuations
in market value and low credit risk.
Investment Policies:
The Short-Term Government Portfolio 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
Portfolio is expected, under normal market
conditions, to maintain a dollar weighted
average maturity and weighted average duration
between 1 and 3 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 Short-Term
Government Portfolio will invest at least 80% of
its total assets in U.S. Government securities.
Subject to certain additional limitations, the
remainder of the Portfolio's assets may be
invested in other high grade debt securities,
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 1 year original
maturity and rated at the time of purchase a
minimum of A by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation
("Standard & Poor's"), (ii) under 1 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 at the time
of purchase to be equivalent to these ratings.
See the discussion of ratings under
"Implementation of Policies" below.
The Portfolio may also invest in repurchase
agreements collateralized by U.S. Government
securities. For temporary defensive purposes,
the Portfolio may reduce the average duration to
less than 1 year. See "Implementation of
Policies" for a description of these investment
practices of the Portfolio and the additional
limitations that may apply to some of the
investments described above.
<PAGE>
Master Fixed Income Portfolio Investment Objective:
The investment objective of the Master Fixed
Income Portfolio is to provide above-average
total returns from 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.
Investment Policies:
The Master Fixed Income Portfolio 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 Portfolio's fixed income
investments is generally expected, under normal
market conditions, to range between 3 and 10
years.
Under normal market conditions, the Master Fixed
Income Portfolio 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 1 year
original maturity and rated at the time of
purchase a minimum of A by Moody's or Standard &
Poor's, (ii) under 1 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 at the time of purchase to be equivalent
to these ratings. See the discussion of ratings
under "Implementation of Policies" below.
Subject to certain additional limitations, under
normal market conditions, the remainder of the
Portfolio'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 Portfolio may also invest in interest and
currency rate-related derivative securities. For
temporary defensive purposes, the Portfolio may
retain all or part of its assets in high grade,
U.S. dollar denominated debt securities or cash
and cash equivalents. See "Implementation of
Policies" for a description of these investment
practices of the Portfolio and the additional
limitations that may apply to some of the
investments described above.
<PAGE>
Enhanced Equity Portfolio Investment Objective:
The investment objective of the Enhanced Equity
Portfolio is to provide above-average total
returns from a diversified equity portfolio
which consists primarily of common stocks and
related investments such as options and futures.
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.
Investment Policies:
The Enhanced Equity Portfolio seeks to achieve
its objective by investing primarily in the
publicly traded common stocks of U.S. domiciled
corporations and options and futures that relate
to such stocks. While the Portfolio may invest
in stocks of any market capitalization, it is
anticipated that the average capitalization of
the Portfolio's stocks will be typical of medium
to large companies (typically $15 billion or
higher). A company's market capitalization is
the total stock market value of its outstanding
shares.
Under normal market conditions, the Enhanced
Equity Portfolio will invest at least 65% of its
total assets in common stocks of U.S. domiciled
corporations and equity-type investments that
relate to U.S. domiciled corporations. Equity-
type investments include preferred stock,
warrants, and convertible securities. See
"Implementation of Policies" for a description
of certain additional limitations on the
percentage of the Portfolio that may be invested
in some of the equity-type investments.
Subject to certain additional limitations, the
remainder of the Portfolio's assets may be
invested in foreign equity and equity-type
securities, equity related options and futures
contracts, debt securities of investment grade
or below, the shares of other investment
companies, and cash or cash equivalents awaiting
investment.
For temporary defensive purposes, the Portfolio
may retain all or part of its assets in high
grade, U.S. dollar denominated debt securities
or cash and cash equivalents. See
"Implementation of Policies" for a description
of these and other investment practices of the
Portfolio and the additional limitations that
may apply to some of the investments described
above.
To manage the Portfolio, the Adviser is
currently using a proprietary model for
investment in domestic common stocks, based on
work pioneered by Professor Robert A. Haugen. As
a result, the Adviser currently intends to
invest primarily in such stocks. See the
Statement of Additional Information for further
information regarding the application of this
model.
<PAGE>
INVESTMENT RISKS All of the Portfolios are expected to have
fluctuations in their net asset values. However,
the Short-Term Government Portfolio is expected
to have the lowest volatility of the three
Portfolios and the Enhanced Equity Portfolio is
expected to have the highest.
Certain Investment Risks These fluctuations in value are associated with
various risks to which the securities in the
Portfolios are subject. These risks include, but
are not limited to, interest rate risk, credit
risk, currency risk, and equity risk. These
risks are described below. In addition, the
trading practices of the Portfolios (such as
their use of mortgage-related securities,
foreign securities and options and futures
strategies) will expose them to additional
risks, discussed below under "Implementation of
Policies" and in the Statement of Additional
Information.
Each Portfolio that holds fixed income
securities is subject to varying degrees of
interest rate risk. Interest rate risk is the
potential for a decline in bond prices due to
rising interest rates. In general, bond prices
vary inversely with interest rates. When
interest rates rise, bond prices generally fall.
Conversely, when interest rates fall, bond
prices generally rise. The change in price
depends on several factors, including the bond's
maturity date. In general, bonds with longer
maturities are more sensitive to interest rates
than bonds with shorter maturities.
Each Portfolio that holds fixed income
securities is also subject to varying degrees of
credit risk. Credit risk is the possibility that
a bond issuer will fail to make timely payments
of interest or principal. The credit risk to
which a Portfolio is subject depends on the
quality of its investments. Reflecting their
higher risks, lower-quality bonds generally
offer higher yields than higher-quality bonds.
Each Portfolio that holds foreign securities is
subject to currency risk. Currency risk is the
potential for changes in value because of
changes in the exchange rate between the
currency in which principal and interest on the
security are payable and the U.S. dollar.
Currency fluctuations will affect the value of
the Portfolios' shares irrespective of the
performance of its underlying investments.
A Portfolio that holds common stocks and
equity-type investments is subject to equity
risk. Equity risk is the potential for price
declines. The magnitude of this risk associated
with any particular investment can vary widely
depending on the business and financial
condition of the issuer, market conditions in
general, the type of investment, and the extent
to which the position may be hedged.
<PAGE>
Short-Term Government The Short-Term Government Portfolio should be
subject to relatively low interest rate and
credit risk, but should have no equity risk.
Because of the short-term average duration of
this Portfolio, it is expected to exhibit low to
moderate price fluctuations as interest rates
change. The Portfolio's average duration and
maturity should also exhibit low to moderate
fluctuations. With respect to the Portfolio's
primary investments, credit risk should be
negligible for its U.S. Treasury securities, and
only slightly higher for its U.S. Government
agency obligations (some of which are not
explicitly guaranteed by the U.S. Government).
Risks associated with the Portfolio's other
investments, in securities of foreign
governments, mortgage-related securities,
options and futures contracts, and repurchase
agreements, are discussed under "Implementation
of Policies" below.
Master Fixed Income The Master Fixed Income Portfolio will have a
Portfolio higher degree of both interest rate risk and
credit risk than the Short-Term Government
Portfolio. With respect to its primary
investments, the Portfolio is expected to
exhibit moderate to high fluctuations as
interest rates change, because it will generally
have significant holdings of both
intermediate-term and longer-term bonds. The
Portfolio will also have various credit risks as
a result of holding obligations of high grade
securities of non-governmental issuers. It will
also have low to moderate equity risk as a
result of its investment in convertible and
synthetic convertible security positions and
covered call and cash secured put investments.
Risks associated with the Portfolio's other
investments, including convertible and synthetic
convertible positions, covered call and cash
secured put investments, non-investment grade
fixed income securities, foreign securities and
interest and currency-related derivative
securities, are discussed under "Implementation
of Policies" below. Reflecting these increased
risks, the Portfolio will generally offer higher
yields than the Short-Term Government Portfolio.
Enhanced Equity The Enhanced Equity Portfolio is expected to be
Portfolio subject primarily to equity risk, and to exhibit
high to very high price fluctuations, as is
characteristic of common stocks and equity funds
in general. The price fluctuations of this
Portfolio can generally be expected to be
greater than either of the other Portfolios. The
Portfolio's use of options, futures contracts,
foreign and non-investment grade debt securities
will also expose it to certain additional risks,
discussed under "Implementation of Policies"
below.
<PAGE>
WHO SHOULD INVEST Because of potential fluctuations in the share
price of all of the Portfolios in the Fund, any
of the Portfolios may be inappropriate for
short-term investors who require maximum
stability of principal. For example, money
market funds attempt to maintain a stable net
asset value and will provide more stability of
principal and less risk than the Portfolios. You
should base your selection of a Portfolio (or
Portfolios) on your own objectives, risk
preferences, and time horizon. Both the
Short-Term Government Portfolio and the Master
Fixed Income Portfolio are suitable for
investors with common stock holdings who are
seeking a complementary fixed income investment
to create a more diversified and balanced
investment mix. The Enhanced Equity Portfolio is
suitable for long-term investors seeking the
generally higher average total returns that
diversified stock portfolios have provided
historically, and who can tolerate substantial
price fluctuations and possible significant loss
in value of their investment.
The Short-Term Government Portfolio is designed
for investors who are seeking yields that are
more durable and usually higher than those
available from money market funds, and who can
tolerate modest fluctuations in the value of
their investment.
The Master Fixed Income Portfolio is designed
for investors seeking total returns from a
broadly diversified bond market investment with
high grade credit quality, and who can tolerate
relatively larger fluctuations in price. The
yields from this Portfolio are generally
expected to be higher and the income steadier
than from a shorter maturity fund. However,
these higher yields and steadier income levels
come with greater fluctuations in total return.
Because of these risks, the Master Fixed Income
Portfolio is intended to be a long term
investment vehicle and is not designed to
provide investors with a means of speculating on
short-term interest rate movements.
The Enhanced Equity Portfolio is designed for
investors seeking the higher average total
returns that diversified equity portfolios have
provided over long term time horizons. The share
price of the Portfolio is expected to be
volatile, and investors should be able to
tolerate sudden, sometimes substantial
fluctuations in the value of their investments.
Because of the risks inherent in equity
investing and the general wisdom of
diversification, investors should carefully
consider what portion of their investment assets
should be prudently allocated to equities.
Because of these risks, the Enhanced Equity
Portfolio is intended to be a long term
investment vehicle and is not designed to
provide investors with a means of speculating on
short-term stock market movements.
<PAGE>
IMPLEMENTATION OF POLICIES In addition to the investment policies described
above (and subject to certain restrictions
described herein), the Portfolios may invest in
some or all of the following securities and
employ some or all of the following investment
techniques, some of which may present special
risks as described below. A more complete
discussion of these securities and investment
techniques and their associated risks is
contained in the Fund's Statement of Additional
Information.
Short-Term Investments Each Portfolio may invest in short-term
investments in connection with its options and
futures strategies (discussed below) and during
periods when, in the opinion of the Adviser,
attractive equity or longer maturity fixed
income investments are temporarily unavailable
or other circumstances or market conditions
warrant such investments. Under normal market
conditions, and excluding such short-term
investments that are made in connection with
options and futures contracts, no more than 20%
of the Master Fixed Income Portfolio's and 20%
of the Enhanced Equity Portfolio's total assets,
will be retained in cash and cash equivalents.
As a result of the collateral requirements
associated with options and futures contracts,
the percentage of each such Portfolio's total
assets invested in cash and cash equivalents may
be as high as 35%. Such investments may include
U.S. Treasury Bills and other U.S. Government
and Government agency obligations with remaining
maturities less than one year; certificates of
deposit; banker's acceptances; commercial paper
rated at the time of purchase A-1 by Standard &
Poor's or P-1 by Moody's; shares of money market
mutual funds; and corporate, foreign and U.S.
Government, and supranational organization debt
obligations with remaining maturities less than
one year and with debt ratings by Standard &
Poor's, Moody's or other recognized rating
agencies that are determined by the Adviser at
the time of purchase to be equivalent to a cash
equivalent rating of A-1/P-1. Such investments
may include securities which offer a variable or
floating rate of interest. In addition, and
subject to a 5% limitation, the Master Fixed
Income Portfolio and the Enhanced Equity
Portfolio may also invest in short-term debt
securities rated at the time of purchase A-2/P-2
or equivalent.
Government Securities Each Portfolio may purchase U.S. Government
Securities. U.S. Government Securities include
(1) U.S. Treasury bills (maturity of one year or
less), U.S. Treasury notes (maturities of one to
ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years); and (2)
obligations issued or guaranteed by U.S.
Government agencies and instrumentalities which
are supported by the full faith and credit of
the U.S. Treasury (such as Government National
Mortgage Association ("GNMA") Certificates), the
right of the issuer to borrow an amount limited
to a specific line of credit from the U.S.
Treasury, discretionary authority of the U.S.
Government to purchase certain obligations of
the agency or instrumentality, or the credit of
the instrumentality. Agencies and
instrumentalities include: Federal Land Banks,
Farmers Home Administration, Federal Farm Credit
Banks, Federal Home Loan Banks, Federal National
Mortgage Association ("FNMA"), GNMA, Federal
Home Loan Mortgage Corporation ("FHLMC"),
Student Loan Marketing Association, Financing
Corporation, Tennessee Valley Authority,
Resolution Funding Corporation, Farm Credit
Financial Assistance Corporation, Private Export
Funding Corporation, and others.
<PAGE>
Floating Rate and Other Each Portfolio may invest in securities which
Debt Securities offer a variable or floating rate of interest.
Variable rate securities provide for automatic
establishment of a new interest rate at fixed
intervals (e.g., daily, monthly or
semi-annually). Floating rate securities provide
for automatic adjustment of the interest rate
whenever some specified interest rate index
changes. The interest rate on variable or
floating-rate securities is ordinarily
determined by reference to or is a percentage of
a bank's prime rate, the 90-day U.S. Treasury
bill rate, or some other objective measure. Such
obligations are often secured by letters of
credit or other credit support arrangements
provided by banks. Such obligations frequently
are not rated by credit rating agencies and, if
not so rated, the Fund may invest in them only
if the Adviser determines that, at the time of
the investment, the obligations are of
comparable quality to the other obligations in
which a particular Portfolio may invest. The
Adviser will consider on an ongoing basis the
creditworthiness of the issuers of such
instruments in the Fund's Portfolios.
Each Portfolio may also from time to time invest
in zero-coupon, step-coupon and pay-in-kind
securities. These securities are debt securities
that do not make regular interest payments.
Zero-coupon and step-coupon securities are sold
at a deep discount to their face value.
Pay-in-kind securities pay interest through the
issuance of additional securities. A Portfolio
will not purchase any security in one of these
categories if, as a result of such purchase,
more than 5% of its net assets would be invested
in such category of securities.
Repurchase Agreements Each Portfolio may invest in repurchase
agreements for the purpose of managing its
short-term cash. In a repurchase agreement, the
seller (a U.S. commercial bank or recognized
U.S. securities dealer) sells securities to the
Portfolio and agrees to repurchase the
securities at the Portfolio's cost plus interest
within a specified period (normally one to seven
days). In these transactions, which are the
economic equivalents of loans by the Portfolio,
the securities purchased by the Portfolio will
at all times have a total value equal to or in
excess of the value of the repurchase
obligation.
While repurchase agreements involve certain
risks not associated with direct investments in
U.S. Government securities, the Portfolio will
follow procedures designed to minimize such
risks. These procedures include effecting
repurchase transactions only with large,
well-capitalized banks and certain reputable
broker-dealers. In addition, the Portfolio's
repurchase agreements will provide that the
value of the collateral underlying the
repurchase agreement will always be at least
equal to the repurchase price, including any
accrued interest earned on the repurchase
agreement. In the event of a default or
bankruptcy by a seller, the Portfolio will seek
to liquidate such collateral. However, to
liquidate such collateral could involve certain
costs or delays and, to the extent that proceeds
from any sale upon a default of the obligation
to repurchase were less than the repurchase
price, the Portfolio could suffer a loss.
<PAGE>
Mortgage-Related Securities Each Portfolio may invest in mortgage-related
securities. Mortgage-related securities are
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 Short-Term
Government Portfolio. 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 Portfolio 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,
limited in the aggregate to 5% of each
Portfolio's net assets.
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 of
decline in value during periods of rising
interest rates. See "Investment Objectives and
Policies" in the Statement of Additional
Information.
<PAGE>
Foreign Securities Each Portfolio may invest its assets directly in
the securities of foreign issuers and
supranational organizations ("foreign
securities"), or options and futures related to
foreign securities, subject to the following
additional limitations. Foreign securities may
be denominated in U.S. dollars or in a foreign
currency.
The Short-Term Government Portfolio will limit
its foreign securities to (i) 20% of Portfolio
total assets, and (ii) high grade debt
obligations issued or guaranteed by foreign
governments, agencies, instrumentalities, or
their political subdivisions, or supranational
agencies, and judged by the Adviser to have a
credit risk at the time of purchase comparable
to a domestic A or better credit rating.
The Master Fixed Income Portfolio and the
Enhanced Equity Portfolio will limit their
non-U.S. dollar denominated foreign security
investments to 20% of Portfolio total assets,
but have no percentage limitation on the amount
invested in foreign securities which are U.S.
dollar denominated, including investments in
foreign securities in domestic markets through
depository receipts. Foreign debt securities
that these two Portfolios purchase will
generally be high grade as the Master Fixed
Income Portfolio and the Enhanced Equity
Portfolio have adopted a 5% limitation on
non-investment grade securities (See
"Non-Investment Grade Securities").
Foreign debt securities that these two
portfolios purchase will generally be high grade
as the Master Fixed Income Portfolio and the
Enhanced Equity Portfolio have adopted a 5%
limitation on below high grade fixed income
securities and a 5% limitation on below high
grade convertible securities (See "Below High
Grade Securities"). Foreign investments involve
risks which are in addition to the risks
inherent in domestic investments. In many
countries, there is less publicly available
information about issuers, including
governments, than is available in the reports
and ratings published about issuers in the
United States. In addition, foreign companies
are not subject to uniform accounting, auditing,
and financial reporting standards. The value of
foreign investments may rise or fall because of
changes in currency exchange rates, and a
Portfolio may incur certain costs in converting
securities denominated in foreign currencies to
U.S. dollars. Dividends and interest on foreign
securities may be subject to foreign withholding
taxes, which would reduce a Portfolio's income
without providing a tax credit for Portfolio
shareholders. Obtaining judgments, when
necessary, in foreign countries may be more
difficult and more expensive than in the United
States. Although each Portfolio intends to
invest in securities of foreign governments or
issuers located in developed nations which the
Adviser considers as having stable and friendly
governments, there is the possibility of
expropriation, confiscatory taxation,
nationalization, currency blockage, or political
or social instability which could affect
investments in those nations. These factors are
considered when making foreign security
investments and the Adviser would make such
investments when they are expected to provide
higher income or higher total returns to
compensate for such increased risks beyond those
of domestic investments.
<PAGE>
Options and Futures Each Portfolio may utilize various call option,
Strategies 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. The Short-Term Government
Portfolio will limit its use of derivative
securities to those which are primarily interest
rate or currency exchange rate related.
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 the 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 a 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.
<PAGE>
Options may be traded on an exchange
(exchange-traded options) or may be customized
agreements between the Portfolio 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 Portfolio, 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 Portfolio 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 transaction, this may produce
a realized gain or loss to the Portfolio. Open
positions are valued whenever a Portfolio's
assets are valued and the Portfolio 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 Portfolios 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 the Portfolio 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) a call option on the same
security or index with the same or lesser
exercise price, or (3) 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 (4) liquid
high-grade segregated debt securities equal to
the fluctuating market value of the optioned
securities which is marked-to-the-market daily,
or (5) in the case of an index, a portfolio of
securities which correlates with the index.
Writing a covered put option on securities or
indexes means that the Portfolio 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 Portfolio will
write put options if as a result more than 25%
of the Portfolio's assets would be represented
by debt securities segregated for such put
options.
<PAGE>
The Master Fixed Income Portfolio 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 Portfolio 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 Portfolio 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 Portfolio may purchase put and call
options on securities or indexes in pursuit of
its objective. The Portfolio may, at the same
time, have a long orcovered short position in
the underlying security or index, and may have
written covered options on the same security or
index. Hence, the Portfolio'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 Master Fixed Income Portfolio and the
Enhanced Equity Portfolio 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 the Portfolio 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 a Portfolio's
total assets will be invested in convertible
securities rated at the time of purchase lower
than A or equivalent. See "Investment Objective
and Policies" in the Statement of Additional
Information and "Securities Ratings" below.
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
increase in value when interest rates decline
and 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 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 the
Portfolio's entire investment therein).
<PAGE>
The Master Fixed Income Portfolio and the
Enhanced Equity Portfolio 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 Portfolio 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
Portfolios 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 Portfolios have met the requirements that
65% of their total assets be invested in fixed
income and equity securities (see "Investment
Objectives and Policies" above).
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 Portfolio will create synthetic
convertible positions only out of high grade
fixed income securities, the credit rating
associated with a Portfolio'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 takes
such differences into account when evaluating
such positions. When a synthetic convertible
position "matures" because of the expiration of
the associated option, the Portfolio 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 Portfolio does not
so extend the maturity of a position, it may
continue to hold the associated fixed income
security.
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 believes they provide greater returns
than investment in such bonds.
<PAGE>
Purchase and Sale of Financial Futures, and
Options on Financial Futures.
Each Portfolio 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 transactions costs, and/or to seek
higher investment returns when a futures or
option contract is attractively priced relative
to a typical Portfolio investment in the
underlying security or index or securities
highly correlated to the underlying index. As
with all of the investment strategies that a
Portfolio may employ, there can be no assurance
that any such strategy will achieve its
objective.
A Portfolio's futures and related options
transactions will be conducted within the
following limitations:
(i) When a Portfolio sells a futures contract,
the value of that contract will not exceed the
total market value of the portfolio securities
being hedged;
(ii) A Portfolio will write only covered call
and put options on futures;
(iii) When a Portfolio 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 Portfolio 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 Portfolio'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 Portfolio utilizes futures or
options to hedge the price fluctuations of
securities it may own or want to purchase, the
Portfolio 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 will
attempt to minimize this risk by investing only
in those contracts whose behavior is expected to
resemble the Portfolio securities being hedged.
However, if the Adviser's judgment about the
general direction of interest rates, market
value, volatility, and other economic factors is
incorrect, the Portfolio 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 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.
<PAGE>
Covered Short Sales To hedge against market risks, each Portfolio
may make covered short sales of securities in
pursuit of its objective. A covered short sale
is a sale of borrowed securities in which the
Portfolio will (1) own at the time of selling
the securities, the underlying security (or
securities convertible into the underlying
security without additional consideration), or
(2) own a call option on the same security with
the difference between the exercise price and
any margin required to be deposited in
connection with the short sale at the broker
maintained as liquid high-grade segregated debt
securities. Total segregated collateral for
short sales will not exceed 10% of a Portfolio's
net assets at any one time. Until the fiscal
year beginning January 1, 1998, in order to
qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, a
Portfolio must derive less than 30% of its gross
income from the sale of securities it has held
for less than three months (the "three month
gain rule"). The three month gain rule may limit
a Portfolio's ability to sell a portfolio
security short, or to terminate its short
position, at a time when the Adviser believes it
would be advantageous to do so. A Portfolio will
not enter into a short sale or purchase and
deliver new securities to terminate its short
position if such action would result in the
taxation of Portfolio income at the Portfolio
level.
Below High Grade Securities The Short-Term Government Portfolio may not
purchase securities rated below A ("high grade"
securities) and will sell securities whose
ratings are downgraded to below high grade. The
Master Fixed Income Portfolio and the Enhanced
Equity Portfolio may each invest up to 5% of net
assets in fixed income securities and up to 5%
of net assets in convertible securities rated
lower than the high grade investment standard
employed by the Fund (i.e., rated BBB or lower).
The Master Fixed Income Portfolio and the
Enhanced Equity Portfolio will not necessarily
sell particular securities whose ratings are
downgraded to below A, but will sell sufficient
amounts from the two classes of (i) below high
grade fixed income securities or (ii) below high
grade convertible securities to bring the total
percentage of such securities to 5% or less in
each class. Ratings of securities by rating
agencies such as Standard & Poor's and Moody's
evaluate the safety of principal and interest
payments, not the market value risk associated
with changes in interest rates. Credit rating
agencies may fail to timely change such ratings
to reflect subsequent events. A debt security
may be assigned a lower rating or cease to be
rated after its purchase by the Fund. For
additional descriptions of the risks of these
investments and the various rating grades, see
the Statement of Additional Information
"Appendix -- Description of Bond Ratings".
<PAGE>
Investments in Securities Each of the Portfolios may purchase the
of Other Investment securities of other investment companies. The
Companies Short-Term Government Portfolio may invest up to
20% of its total assets in such securities and
the Master Fixed Income Portfolio and Enhanced
Equity Portfolio may each invest up to 35% of
their respective total assets in such
securities. However, no Portfolio may own voting
stock of any one such investment company in an
amount which, when aggregated with such stock
owned by all affiliated persons of the Fund (as
defined in the 1940 Act) exceeds 3% of the total
outstanding voting stock of such investment
company. Such transactions may in some cases
raise a Portfolio's transaction costs relative
to a direct investment in the same securities,
but in some cases a Portfolio may benefit from
being able to acquire a diversified investment
in one purchase that could not be made
economically in a direct fashion. As other
investment companies pay management fees to
their investment advisers, shareholders of a
Portfolio which purchases such securities will
bear the proportionate share of such fees as
well as the management fees paid by the
Portfolio. In addition, the 1940 Act provides
that no investment company in which the Fund
invests is obligated to redeem shares of such
company owned by the Fund in an amount exceeding
1% of such company's outstanding shares during
any period of less than thirty days.
Investments in the securities of other
investment companies by each Portfolio are
intended to (i) provide an investment vehicle
for each Portfolio's cash reserves that the
Portfolio does not want to commit to riskier
investments, (ii) facilitate each Portfolio's
investment strategies in which high-grade
collateral is required, or (iii) facilitate each
Portfolio's investment strategies by acquiring
investments in portfolios of securities more
diversified or with specialized characteristics
that could not be efficiently acquired directly.
The Short-Term Government Portfolio will limit
its purchases of the securities of other
investment companies to those that invest
primarily in the same securities that the
Short-Term Government Portfolio may invest in
directly.
Lending of Securities Each Portfolio may lend its investment
securities to qualified institutional investors
for the purpose of realizing income. Loans of
securities by the Portfolio will be
collateralized by cash, letters of credit, or
securities issued or guaranteed by the U.S.
Government or its agencies. The collateral will
equal at least 100% of the current market value
of the loaned securities at all times during
which the securities are loaned by marking to
market daily, and such loans will not exceed
one-third of the total value of the Portfolio's
securities. Such loans involve risks of delay in
receiving additional collateral or in recovering
the securities loaned or even loss of rights in
the collateral should the borrower of the
securities fail financially. However, such
securities lending will be made only when, in
the Adviser's judgment, the income to be earned
from the loans justifies the attendant risks.
Loans are subject to termination at the option
of the Fund or the borrower.
<PAGE>
Delayed Delivery The Fund may purchase securities on a
Transactions when-issued or delayed delivery basis and sell
securities on a delayed delivery basis. These
transactions involve a commitment by the Fund to
purchase or sell securities for a predetermined
price or yield, with payment and delivery taking
place more than seven days in the future, or
after a period longer than the customary
settlement period for that type of security.
When delayed delivery purchases are outstanding,
the Fund will set aside and maintain until the
settlement date cash, U.S. Government securities
or liquid high grade debt obligations in an
amount sufficient to meet the purchase price.
When purchasing a security on a delayed delivery
basis, the Fund assumes the rights and risks of
ownership of the security, including the risk of
price and yield fluctuations, and takes such
fluctuations into account when determining its
net asset value, but does not accrue income on
the security until delivery. When the Fund sells
a security on a delayed delivery basis, it does
not participate in future gains or losses with
respect to the security. If the other party to a
delayed delivery transaction fails to deliver or
pay for the security, the Fund could miss a
favorable price or yield opportunity or could
suffer a loss. A Portfolio will not invest more
than 25% of its total assets in when-issued and
delayed delivery transactions.
Portfolio Turnover A Portfolio will not attempt to achieve, nor
will it be limited to, a predetermined rate of
portfolio turnover. Turnover rate is the lesser
of purchases or sales of portfolio securities
for a year, excluding all securities with
maturities of one year or less, divided by the
monthly average value of such securities. The
turnover rates of the Enhanced Equity Portfolio
and the Master Fixed Income Portfolio are not
expected to exceed 150%. The turnover of the
Short-Term Government Portfolio may be higher
due to the short-term maturities of the
securities purchased, but is not expected to
exceed 300%. For the years ended December 31,
1996 and 1995, the portfolio turnover rates were
31.48% and 10.15% for the Short-Term Government
Portfolio, 21.95% and 31.82% for the Master
Fixed Income Portfolio, and 179.47% and 10.15%
for the Enhanced Equity Portfolio. While higher
portfolio turnover (100% or more) can involve
correspondingly greater brokerage commissions
and other transaction costs than lower turnover,
and such commissions and costs must be borne by
the Portfolio and its shareholders, the
brokerage commissions associated with the
Short-Term Government Portfolio are expected to
be substantially less than the other Portfolios
as a percentage of assets, as short-term fixed
income securities generally trade on a net basis
or with a relatively small commission as a
percentage of the value of the security. High
portfolio turnover may also result in the
realization of substantial net short-term
capital gains, and any distributions resulting
from such gains will be ordinary income for
federal income tax purposes. It is the Adviser's
opinion that such turnover is not expected to
affect the Short-Term Government Portfolio's
status as a regulated investment company for
federal tax purposes. See "Dividends,
Distributions and Taxes".
<PAGE>
Borrowing Each Portfolio may borrow money from banks up to
a limit of 15% of the market value of its
assets, but only for temporary or emergency
purposes. The Portfolio would borrow money only
to meet redemption requests prior to the
settlement of securities already sold or in the
process of being sold by the Portfolio. To the
extent that a Portfolio borrows money prior to
selling securities, the Portfolio may be
leveraged; at such times, the Portfolio may
appreciate or depreciate in value more rapidly
than if it did not borrow. A Portfolio will
repay any money borrowed in excess of 5% of the
market value of its total assets prior to
purchasing securities.
Investment Limitations Each of the Portfolios has adopted certain
additional limitations designed to reduce its
exposure to specific situations. These
limitations are fundamental policies that cannot
be changed without the approval of the holders
of a majority of the Portfolio's outstanding
shares, as defined in the Investment Company Act
of 1940. See "Investment Limitations" in the
Statement of Additional Information.
MANAGEMENT OF THE FUND The Officers of the Fund manage its day to day
operations and are responsible to the Fund's
Board of Trustees.
INVESTMENT ADVISER Analytic o TSA Global Asset Management, Inc.,
700 South Flower Street, Suite 2400, Los
Angeles, CA 90017, is the Adviser of the Fund.
The Adviser is a wholly owned subsidiary of
United Asset Management Corporation, a holding
company described under "Management of the Fund"
in the Statement of Additional Information.
The Adviser 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, the Adviser
acquired and merged with TSA Capital Management
which emphasizes U.S. and global tactical asset
allocation, currency management, quantitative
equity and fixed income management, as well as
option yield curve strategies. The Adviser
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 $1,000,000,000. It has also managed
another registered investment company since
1978.
Pursuant to an Investment Advisory Agreement
with the Fund, the Adviser, subject to the
control and direction of the Fund's Officers and
Board of Trustees, manages the Portfolios of the
Fund in accordance with each Portfolio's stated
investment objective and policies and makes
investment decisions for the Fund.
<PAGE>
Short-Term Government and Master Fixed Income
Portfolios
Scott Barker, Greg McMurran and Bob Bannon have
been the portfolio managers for the Short-Term
Government and Master Fixed Income Portfolios
since November 1996. Mr. Barker has been a
member of the portfolio management and research
team for the Adviser since August 1995. He
concurrently serves as a research analyst with
Analysis Group, Inc. with which he has been
associated since October 1993. Previously, he
was with Xontech, Inc. for six years as a
scientific analyst. Mr. McMurran is the Chief
Investment Officer of the Adviser and has been
with the firm since October of 1976 as a
portfolio manager. Mr. Bannon is a managing
director of the Adviser specializing in the
fixed income area. He initially joined the firm
in January 1996 when TSA Capital Management
merged with the Adviser. He was formerly a
managing director with TSA since April 1995.
Previously, he served as a senior bond
strategist with IDEA for four years. They are
subject to the supervision of the Adviser's
investment management committee.
Enhanced Equity Portfolio
Dennis M. Bein, Harindra de Silva and
Charles L. Dobson have been the portfolio
managers for the Enhanced Equity Portfolio since
November 1996. Mr. Bein has been a member of the
portfolio management and research team for the
Adviser since August 1995. He concurrently
serves as a senior associate for Analysis Group,
Inc. with which he has been associated with
since August 1990. Dr. de Silva is the President
of the Fund and of the Analytic Optioned Equity
Fund and serves as a managing director of the
Adviser, which he joined in May of 1995. He
concurrently serves as a principal of Analysis
Group, Inc, which he joined in March 1986. Mr.
Dobson is the Executive Vice President of the
Fund and Analytic Optioned Equity Fund and has
been a portfolio manager of the Adviser since
1978. They are subject to the supervision of the
Adviser's investment management committee.
<PAGE>
Management Fees As compensation for furnishing investment
advisory, management, and other services, and
costs and expenses assumed, pursuant to the
Investment Management Agreement each Portfolio
of the Fund pays the Adviser an annual fee based
on the average daily net assets of that
Portfolio. These annual fee schedules are:
Short-Term Government 0.30%
Master Fixed Income 0.45%
Enhanced Equity 0.60%
Distributor UAM Fund Distributors, Inc., a wholly-owned
subsidiary of United Asset Management
Corporation, is the distributor of the Fund's
shares. Its principal office is located at 211
Congress Street, Boston, Massachusetts 02110.
Under a Distribution Agreement with the Fund
(the "Distribution Agreement"), the Distributor,
as agent of the Fund, has agreed to use its best
efforts as sole distributor of Fund shares. The
Distributor does not receive any fee or other
compensation under the Distribution Agreement.
The Distribution Agreement provides that the
Fund will bear costs of registration of its
shares with the Securities and Exchange
Commission ("SEC") and various states as well as
the printing of its prospectuses, its Statement
of Additional Information and its reports to
shareholders.
Administrative Services UAM Fund Services, Inc., a wholly-owned
subsidiary of United Asset Management
Corporation, performs and oversees all
administrative, fund accounting, dividend
disbursing and transfer agent services to the
Fund pursuant to a Fund Administration Agreement
with the Fund (the "Administration Agreement").
For its services UAM Fund Services receives a
fee based on net assets. UAM Fund Services'
principal office is located at 211 Congress
Street, Boston, Massachusetts 02110. UAM Fund
Services has subcontracted some of these
services to Chase Global Funds Services Company,
an affiliate of The Chase Manhattan Bank. Chase
Global Funds Services Company is located at
73 Tremont Street, Boston, Massachusetts 02108.
Chase Global Funds Services Company is the
Fund's sub-dividend disbursing agent,
sub-transfer agent and sub-shareholder servicing
agent. The shareholder servicing phone number is
(800) 374-2633. All other administrative and
accounting functions are performed by UAM Fund
Services.
<PAGE>
Expenses In addition to management and service fees, each
Portfolio pays all costs and expenses of its
operations, including fees of Trustees not
affiliated with the Adviser, membership dues of
trade associations, custodian, legal and
accounting fees, interest charges, brokerage
commissions, federal and state taxes,
prospectuses and shareholder reports, expenses
of shareholder meetings, and costs of
registration and qualification of the shares of
the Portfolio under various federal and state
laws and maintaining and updating such
registrations and qualifications on a current
basis. Any shared expense of the Portfolios is
generally apportioned to each Portfolio based on
its relative total assets within the Fund unless
some other expense allocation method is
determined by the Board of Trustees to be more
appropriate.
The Adviser has voluntarily agreed to reimburse
annual Portfolio expenses including advisory
fees (but excluding interest, taxes, and
extraordinary expenses) that exceed 0.60%, 0.90%
and 1.00% of average daily net assets for the
Short-Term Government, Master Fixed Income and
Enhanced Equity Portfolios, respectively, for
the year ending December 31, 1997. During the
first six months of 1997, the ratios of
operating expenses to average net assets on an
annualized basis in the Short-Term Government
Portfolio, Master Fixed Income Portfolio, and
Enhanced Equity Portfolio, before expense
reimbursements, were 4.54%, 0.90% and 1.67%,
respectively. In calculating Portfolio expenses
for purposes of such reimbursement, any
commission reimbursement from broker-dealers
will not be applied. After December 31, 1997,
the Adviser may voluntarily waive all or a
portion of its management fee and/or absorb
certain expenses of a Portfolio. Any such waiver
or absorption will have the effect of lowering
the overall expense ratio for a Portfolio and
increasing the overall total return and yield to
investors at the time any such amounts were
waived and/or absorbed.
Brokerage Under the terms of the Investment Advisory
Agreement, the Adviser is authorized to employ
broker-dealers to execute orders for the
purchase and sale of portfolio securities and
for other portfolio transactions who in its best
judgment can provide "best execution". In
determining the abilities of the broker-dealer
to provide execution of a particular portfolio
transaction, the Adviser will consider all
relevant factors including the execution
capabilities required by the transaction or
transactions; the ability and willingness of the
broker-dealer to facilitate each transaction by
participation therein for its own account; the
familiarity with sources from or to whom
particular securities might be purchased or
sold; the quality and continuity of service
rendered by the broker-dealer with regard to a
Portfolio's other transactions; and any other
factors relevant to the selection of a
broker-dealer for a particular and related
transactions of a Portfolio. Provided that best
execution is obtained, the Adviser may consider
sales of the Portfolios' shares and the
provision of research services to the Adviser as
factors in the selection of broker-dealers to
execute portfolio transactions.
Fixed income securities are traded primarily in
the over-the-counter market. They are generally
traded on a net basis and do not normally
involve either brokerage commission or transfer
taxes. The cost of executing such portfolio
transactions will primarily consist of dealer
spreads and underwriting commissions. The Fund
will always attempt to deal with dealers where
better prices and execution are available.
Securities may also be purchased directly from
the issuer.
<PAGE>
THE SHARE PRICE OF The share price or "net asset value" per share
EACH PORTFOLIO of each Portfolio is computed once daily at 4:30
P.M. Eastern Time, after the close of trading of
the New York Stock Exchange and the various
option exchanges, or such other time as is
determined by or under the direction of the
Board of Trustees, on each day in which there is
a sufficient degree of trading in the securities
that might materially affect the Portfolio's net
asset value. The Portfolios will not be priced
on days when the New York Stock Exchange is
closed. In addition, the Short-Term Government
and Master Fixed Income Portfolios will not be
priced on days when the bond market is closed,
such as certain bank holidays, even though the
New York Stock Exchange may be open. The share
price is calculated by dividing the total value
of the Portfolio's assets, less total
liabilities, by the total outstanding shares of
the Portfolio. Expenses and interest on
portfolio securities are accrued daily.
Portfolio securities are valued based on market
quotations or, if not readily available, at fair
market value as determined in good faith under
procedures established by the Board of Trustees.
Bonds and fixed income securities may be valued
on the basis of prices provided by a pricing
service when such prices are believed by the
Board to reflect fair market value. See
"Portfolio Valuation" in the Statement of
Additional Information.
<PAGE>
DIVIDENDS, CAPITAL GAINS
AND TAXES
Distributions Dividends consisting of net investment income
are declared and payable to shareholders of
record daily by both the Short-Term Government
and Master Fixed Income Portfolios. Such
dividends are paid on the first business day of
each month. Dividends consisting of net
investment income of the Enhanced Equity
Portfolio are declared and payable to
shareholders of record on the last business day
of each calendar quarter. For the purpose of
calculating such dividends, net investment
income consists of income accrued on portfolio
assets, less accrued expenses. In addition, net
realized capital gains of all Portfolios, if
any, are distributed annually.
The Fund's dividend and capital gains
distributions may be reinvested in additional
shares or received in cash. See "Selecting a
Distribution Option".
Tax Status of the Fund Each Portfolio of the Fund intends to qualify
for taxation as a "regulated investment company"
under the Internal Revenue Code (the "Code") so
that it will not be liable for federal income
taxes on amounts distributed to shareholders as
dividends and capital gains. However, the Code
contains a number of complex tests relating to
qualification which a Portfolio might not meet
in any particular year. If a Portfolio did not
so qualify, it would be treated for tax purposes
as an ordinary corporation and receive no tax
deduction for payments made to shareholders.
Taxation of Shareholders Distributions paid by each of the Portfolios
from net investment income are taxable to
shareholders as ordinary income, whether
received in cash or reinvested in additional
shares. Long-term capital gains distributions
are taxable to shareholders as long-term capital
gains, regardless of how long such shareholders
have held their shares.
Any capital gain distribution paid by the Fund
has the effect of reducing the net asset value
per share on the reinvestment date by the amount
of the distribution. Therefore, a capital gain
distribution paid shortly after a purchase of
shares by a shareholder would represent, in
substance, a partial return of capital to the
shareholder (to the extent it is paid on the
shares so purchased), even though it would be
subject to income taxes as discussed above.
Accordingly, prior to purchasing shares, a
shareholder should carefully consider the impact
of dividends or capital gains distributions
which are expected to be or have been announced.
For corporate investors, dividends paid by the
Short-Term Government Portfolio will generally
not qualify for the dividends received
deduction, a minimal amount of dividends paid by
the Master Fixed Income Portfolio will qualify
for the deduction, and some fraction of
dividends by the Enhanced Equity Portfolio will
qualify for such deduction. The Fund will notify
its shareholders annually of the tax status of
its dividends and capital gain distributions.
<PAGE>
The sale of shares of the Fund is a taxable
event and may result in a capital gain or loss.
A capital gain or loss may be realized from an
ordinary redemption of shares or an exchange of
shares between Portfolios of the Fund.
Dividend distributions, capital gains
distributions, and capital gains or losses from
redemptions and exchanges may be subject to
state and local taxes. However, depending on
provisions of your state's tax law, the portion
of a Portfolio's income derived from full faith
and credit U.S. Treasury and agency obligations
may be exempt from state and local taxes. The
Fund will indicate each year the portion of a
Portfolio's income, if any, that may qualify for
this exemption.
The Fund is required to withhold 31% of taxable
dividends, capital gains distributions, and
redemption proceeds paid to shareholders who
have not complied with IRS taxpayer
identification regulations. Such withholding
requirement may be avoided by certifying on the
Account Registration your proper Social Security
or Tax Identification Number and further
certifying that you are not subject to backup
withholding. Dividends, capital gains
distributions, and redemption proceeds paid to
foreign shareholders will generally be subject
to withholding at the rate of 30% (or lower
treaty rate). You should consult your own tax
adviser regarding specific questions about
federal, state, or local taxation.
<PAGE>
GENERAL INFORMATION The Fund is a Delaware business trust organized
on November 18, 1992. The Declaration of Trust
permits the Trustees to issue an unlimited
number of shares of beneficial interest. The
Board of Trustees has the power to designate one
or more classes ("Portfolios") of shares of
beneficial interest and to classify or
reclassify any unissued shares with respect to
such classes. Presently the Fund is offering
shares of the three Portfolios described above.
Shares of Beneficial The shares of each Portfolio, when
Interest issued, are fully paid and non-assessable, are
redeemable at the option of the holder, are
fully transferable and have no conversion or
pre-emptive rights. Shares are also redeemable
at the option of the Fund under certain
circumstances (see "Redeeming Shares"). Each
share of a Portfolio is equal as to earnings,
expenses and assets of the Portfolio and, in the
event of liquidation of the Portfolio, is
entitled to an equal portion of all of the
Portfolio's net assets. Shareholders of the Fund
are entitled to one vote for each full share
held and fractional votes for fractional shares
held, and will vote in the aggregate and not by
Portfolio except as otherwise required by law or
when the Board of Trustees determines that a
matter to be voted upon affects only the
interest of the shareholders of a particular
Portfolio. Voting rights are not cumulative, so
that the holders of more than 50% of the shares
voting in any election of Trustees can, if they
so choose, elect all of the Trustees. While the
Fund is not required, and does not intend, to
hold annual meetings of shareholders, such
meetings may be called by the Trustees at their
discretion, or upon demand by the holders of 10%
or more of the outstanding shares of any
Portfolio for the purpose of electing or
removing Trustees. As of September 30, 1997,
Prison Law Office held of record more than 25%
of the outstanding shares of the Enhanced Equity
and Short-Term Government Portfolios and may be
considered a controlling person of these
Portfolios under the 1940 Act.
Share Certificates All shares (including reinvested dividends and
capital gain distributions) are issued or
redeemed in full and fractional shares rounded
to the third decimal place. No share
certificates will be issued. Instead, an account
will be established for each shareholder and all
shares purchased will be held in book-entry form
by the Fund.
Shareholder Services Shareholder inquiries should be addressed to the
Fund's sub-shareholder servicing agent at:
Analytic Funds, P.O. Box 2798, Boston, MA 02208;
telephone (800) 374-2633.
<PAGE>
Confirmation and Statements Whenever a transaction takes place in an
account, a confirmation statement will be sent
to the shareholder of such transaction. This
confirmation statement will include complete
details of all transactions for the calendar
year to date. For purposes of confirming
dividend and/or capital gain distributions,
shareholders of the Short-Term Government and
Master Fixed Income Portfolios may expect
statements at least monthly, and shareholders of
the Enhanced Equity Portfolio may expect
statements at least quarterly.
Financial Statements The Fund will send to shareholders of each of
the Portfolios an unaudited semi-annual
financial statement. The annual financial
statements of the Fund will be audited by
Deloitte & Touche LLP, independent public
accountants.
Custodian Additional The Fund's custodian is The Chase Manhattan
Information Bank. This Prospectus, including the Statement
of Additional Information which has been
incorporated by reference herein, does not
contain all the information set forth in the
Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies
of the Registration Statement may be obtained at
a reasonable charge from the SEC or may be
examined, without charge, at the office of the
SEC in Washington, D.C.
<PAGE>
YIELD, TOTAL RETURN, AND From time to time the Fund may advertise the
OTHER CALCULATIONS "yield", "total return", and "average annual
total return" of one or more of the Portfolios.
Yield and return calculations are based on
historical results, do not take into account any
federal or state income taxes which may be
payable, and are not intended to indicate future
performance.
The "30-day yield" of a Portfolio is calculated
by dividing net investment income per share
earned during a thirty-day period by the net
asset value per share on the last day of the
period. Net investment income includes interest
and dividend income earned on the Portfolio's
securities after subtracting all expenses that
have been applied to all shareholder accounts.
The yield calculation assumes that net
investment income earned over thirty days is
compounded monthly for six months and then
annualized. Methods used to calculate advertised
yields are standardized for all stock and bond
mutual funds.
"Total return" and "average annual total return"
are more comprehensive measures of the
Portfolio's historical performance than the
"30-day yield". Total return measures both net
investment income and the effect of realized and
unrealized appreciation or depreciation of the
Portfolio on a hypothetical shareholder,
assuming reinvestment of all distributions into
new Portfolio shares. Specifically, the total
return for a stated period is calculated by
assuming a hypothetical investment in a
Portfolio at the beginning of a period; then,
assuming reinvestment of all distributions into
new Portfolio shares, the total return is
calculated as the percentage change in the total
dollar value of the investment over the period
in question. Average annual total return
expresses this same total return as an
annualized rate which, if compounded annually
over the same period, would result in the same
total return.
These standardized performance measures present
historical returns. In addition, the Fund may
present non-standardized measures which relate
to the returns and risk or variability of the
returns of a Portfolio, including "standard
deviation of returns", "beta", "alpha", and
"duration". These measures are not standardized,
as they involve choices regarding the length of
historical measurement periods, the frequency of
such measurements, the choice of market
benchmarks, and other factors which are beyond
the scope of current SEC performance standards.
Hence, these measures may not be directly
comparable among different funds or different
measurers of the same funds. These risk
measurements are also based on historical
results and are not intended to be an indication
of future performance.
The Fund may also include comparative
performance information in advertising or
marketing shares.
<PAGE>
SHAREHOLDER GUIDE
OPENING AN ACCOUNT To open a new account, either by mail or by
wire, complete and return a signed Account
Registration. Please indicate the Portfolio(s)
you have chosen and the respective amount(s) to
be invested.
Minimum Investments There is no minimum initial or subsequent
purchase of Portfolio shares by tax deferred
retirement plans (including IRA, SEP-IRA and
profit sharing and money purchase plans) or
Uniform Gifts to Minors Act accounts. For other
investors the initial minimum purchase is $5,000
invested in any proportion among the Portfolios
and there is no minimum for subsequent
purchases.
PURCHASING SHARES Shares of the Portfolios are purchased directly
from the Fund with no sales charge or commission
at the net asset value per share next computed
after an order and payment are received by the
Fund. Any order received after 1:00 P.M. Pacific
Time will be processed at the next day's closing
net asset value. Shares of a Portfolio may be
purchased by customers of broker-dealers or
other financial intermediaries ("Service
Agents") which have established a shareholder
servicing relationship with the Fund on behalf
of their customers. Service Agents may impose
additional or different conditions on purchases
or redemptions of Portfolio shares and may
charge transaction or other account fees. Each
Service Agent is responsible for transmitting to
its customers a schedule of any such fees and
information regarding additional or different
purchase or redemption conditions. Shareholders
who are customers of Service Agents should
consult their Service Agent for information
regarding these fees and conditions. Amounts
paid to Service Agents may include transaction
fees and/or service fees paid by the Fund from
the subject Portfolio's assets attributable to
the Service Agent, which would not be imposed if
shares of the Portfolio were purchased directly
from the Fund or its distributor. Service Agents
may provide shareholder services to their
customers that are not available to a
shareholder dealing directly with the Fund.
Service Agents may enter confirmed purchase
orders on behalf of their customers. If shares
of a Portfolio are purchased in this manner, the
Service Agent must receive your investment order
before the close of trading on the New York
Stock Exchange, and transmit it to the Fund's
Sub-Transfer Agent, Chase Global Funds Services
Company, prior to the close of their business
day to receive that day's share price. Proper
payment for the order must be received by the
Sub-Transfer Agent no later than the time when
the Portfolio is priced on the following
business day. Service Agents are responsible to
their customers and the Fund for timely
transmission of all subscription and redemption
requests, investment information, documentation
and money.
The Fund reserves the right to reject any
purchase order or to suspend or modify the
continuous offering of its shares.
<PAGE>
By Mail Initial purchases of Fund shares may be made by
For initial investments, mailing a signed Account complete and signed
completed and sign an Account Registration Form together with a check
Account Registration Form. made payable to The Analytic Series Fund
(reference Portfolio name), to: The Analytic
For subsequent investments, Series Fund Street Address (overnight mail)
complete a Mail Remittance P.O. Box 2798 73 Tremont Street Boston,
Form. MA 02208 Boston, MA 02108
(800) 374-2633
For subsequent purchases, complete the Mail
Remittance Form (located on a statement) and
return it to the above address with a check made
payable to The Analytic Series Fund (reference
Portfolio name).
By Wire Before wiring funds, you must telephone the
sub-transfer agent at Fund's sub-transfer agent at (800) 374-2633 with
Telephone (800) 374-2633 the sending bank's name, date and amount being
before wiring funds. wired to insure proper investment. There is no
charge by the Fund for wire purchases. Federal
funds wiring instructions are:
The Chase Manhattan Bank
ABA #021000021
The Analytic Series Fund -- (Name of Portfolio)
credit DDA 9102791614
Account Registration: (your name)
Account #: (your account number)
Please be sure your bank includes the name of
the Portfolio and your account's registration
name and, in the case of subsequent investments,
the account number assigned by the Fund.
Note: Federal funds wire purchase orders will be
accepted only when the Fund and Custodian Bank
are open for business. FOR INITIAL PURCHASES
ONLY: No purchases will be processed until a
completed and signed Account Registration Form
has been received.
By Exchange You may open an account for a new Portfolio or
purchase additional shares in any Portfolio by
making an exchange from an existing Portfolio
account or from an existing account in the
Analytic Optioned Equity Fund. You may not open
an account by exchange unless you have completed
an account application. If you open an account
by exchange, the new account will have identical
registration and special instructions (such as
Distribution Option, Telephone Redemption
Instructions, Telephone Exchange Privileges, and
duplicate confirmation/statements) as the
existing account.
For further information concerning exchanges,
see "EXCHANGING SHARES".
Selecting a Distribution You must select one of the three distribution
Option options by indicating so on the Account
Registration:
Automatic Reinvestment Option -- Both dividends
and capital gains distributions will be
reinvested in additional Portfolio shares. This
option will be selected for you automatically
unless you specify one of the other options.
Cash Dividend Option -- Your dividends will be
paid in cash and your capital gains
distributions will be reinvested in additional
Portfolio shares.
All Cash Option -- Dividends and capital gains
distributions will be paid in cash.
To change your option, written instructions with
signature(s) guaranteed must be received by the
Fund's sub-transfer agent 5 business days prior
to the effective date of the change. For further
information concerning signature guarantees, see
"SIGNATURE GUARANTEES".
<PAGE>
REDEEMING SHARES Shares are redeemed without charge at the net
asset value per share next computed after
instructions and required documents are received
in proper form. Any instructions received after
4:00 P.M. Eastern Time will be processed at the
next day's net asset value. See the discussions
below, under "By Telephone", "By Mail" and "By
Exchange" for information regarding the required
documents. To be in "proper form" the documents
must be complete and executed by all required
parties.
Any redemption may be more or less than your
cost, depending on the market value of the
securities held by the Portfolio. Payment will
be made as promptly as possible but in no event
later than 3 business days from the day the
redemption request is received. See "Redemption
of Shares" in the Statement of Additional
Information for certain restrictions that may
apply.
By Telephone Provided that Telephone Redemption Privileges
have been established (by completing the
"Telephone Redemption Privileges" portion of the
Account Registration or by subsequent written
instructions with signature(s) guaranteed), a
shareholder may redeem all or part of his shares
by calling the Fund's sub-transfer agent at
(800) 374-2633.
No request for telephone redemption will be
accepted except where redemption proceeds are to
be remitted to a bank account that has been
predesignated in writing. The redemption
proceeds will be wired by the Fund without
charge to the bank designated in the
instructions. Any changes to the telephone
redemption instructions must be in writing with
signature(s) guaranteed.
The Fund's sub-transfer agent will employ
procedures designed to provide reasonable
assurance that instructions communicated by
telephone are genuine and, if it does not do so,
it may be liable for any losses due to
unauthorized or fraudulent instructions. The
procedures employed by the sub-transfer agent
include requiring the following information at
the time of the telephone call:
Account number;
Registration of account; and
Social Security Number or Tax I.D.
NOTE: Neither the Fund nor the sub-transfer
agent is responsible for unauthorized telephone
redemptions by a person reasonably believed to
be a shareholder unless the sub-transfer agent
has received written notice canceling the
telephone redemption authorization. The Fund may
change or discontinue the telephone redemption
privilege without notice. For your protection,
the Fund and its agents reserve the right to
record all calls.
The Fund reserves the right to refuse a
telephone redemption if it believes it is
advisable to do so. Telephone redemptions may be
difficult to implement during periods of drastic
economic or market changes, which may result in
an unusually high volume of telephone calls. If
a shareholder is unable to reach the Fund's
sub-transfer agent by telephone, shares may be
redeemed in writing as described below.
<PAGE>
By Mail A shareholder may redeem all or part of his
shares by written request to the Fund's
sub-transfer agent at the address set forth
under "Purchasing Shares -- By Mail" above. The
written request must be endorsed by the
registered owner(s) exactly as the account is
registered, including any special capacity of
the registered owner(s). Where the owner(s) have
not arranged with the Fund for redemption
proceeds to be remitted to a predesignated bank
account, the Fund requires that the signature(s)
be guaranteed. Fiduciaries, corporations, and
other entities may also be required to furnish
supporting documents.
By Exchange Shares may be redeemed by making an exchange
into another Analytic Series Fund Portfolio or
for shares of the Analytic Optioned Equity Fund.
For more information, see "EXCHANGING SHARES".
Delayed Payment In the event that the Fund is requested to
redeem shares for which it has not received good
payment (e.g., cash or cashier's check on a U.S.
bank), it may delay the mailing of a redemption
check until such time as it is determined that
good payment has been collected for the purchase
of such shares. In addition, the Fund reserves
the right to delay the mailing of a redemption
check where the shares to be redeemed have been
purchased by check within 15 days prior to the
date the redemption request is received, unless
the Fund has been advised that the check used
for investment has been cleared for payment by
the shareholder's bank. However, such delay will
not be longer than 15 days after the purchase
date.
The Fund may suspend the redemption right or
postpone payment at times when the New York
Stock Exchange is closed or under certain other
circumstances permitted by the SEC.
Payment-in-Kind The Fund has made an election with the SEC to
pay in cash all redemptions requested by any
shareholder of record limited in amount during
any 90-day period to the lesser of $250,000 or
1% of the net assets of the Fund at the
beginning of such period. Such commitment is
irrevocable without the prior approval of the
SEC. Redemptions in excess of the above limits
may be paid in whole or in part in readily
marketable investment securities or in cash, as
the Trustees may deem advisable. However,
payment will be made wholly in cash unless the
Trustees believe that economic or market
conditions exist which would make such a
practice detrimental to the best interests of
the Fund. If redemptions are paid in investment
securities, such securities will be valued as
set forth under "The Share Price of Each
Portfolio" and a redeeming shareholder will
normally incur brokerage expenses if the
shareholder converts these securities to cash.
Backup Withholding The Fund is required to withhold 31%
of redemptions paid to shareholders who have not
complied with IRS taxpayer identification
regulations. You may avoid this withholding
requirement by certifying on the Account
Registration your proper Social Security or
Taxpayer Identification Number and by further
certifying that you are not subject to backup
withholding.
<PAGE>
Signature Guarantees To protect the shareholder's account and the
Fund from fraud, signature guarantees are
required for certain redemptions. The purpose of
signature guarantees is to verify the identity
of the party who has authorized the redemption.
A guarantor must be a commercial bank or trust
company; a broker or dealer, municipal
securities broker or dealer, or government
securities broker or dealer; a credit union; a
national securities exchange, registered
securities association or clearing agency; or a
savings association. Signature guarantees are
required for:
any redemption request for an account where the
owner(s) have not arranged with the Fund for
redemption proceeds to be remitted to a
predesignated bank account;
transfers or exchanges between accounts which
are not identically registered;
the addition of, or change in the address and
wiring instruction for, financial institutions
designated to receive redemptions sent directly
into a shareholder's account; and
redemptions involving disputed or deceased
shareholder accounts.
The Fund reserves the right to request
additional information from, and make reasonable
inquiries of, any eligible guarantor
institution.
Minimum Account Balance With the exception of qualified retirement plan
Requirement accounts, the Fund may liquidate any
shareholder's account whenever, due to
redemptions, the value of the account falls
below the minimum account balance of $1,000 and
the shareholder fails to purchase sufficient
shares to bring the value of the account to
$1,000 within 90 days after receiving written
notice sent by the Fund.
<PAGE>
EXCHANGING SHARES Should your investment goals change, you may
exchange your shares between the Portfolios in
the Fund or for shares of the Analytic Optioned
Equity Fund. Exchanges are processed at the net
asset value per share next computed after the
receipt of instructions in proper form. Any
instruction received after 4:00 P.M. Eastern
Time will be processed at the next day's net
asset value.
By Telephone Provided that Telephone Exchange Privileges have
been established (by completing the "Telephone
Exchange Privileges" portion of the Account
Registration or by subsequent written
instructions with signature(s) guaranteed), a
shareholder may exchange all or part of his
shares by calling the Fund's sub-transfer agent
at (800) 374-2633.
The Fund's sub-transfer agent will employ
procedures designed to provide reasonable
assurance that instructions communicated by
telephone are genuine and, if it does not do so,
it may be liable for any losses due to
unauthorized or fraudulent instructions. The
procedures employed by the sub-transfer agent
include requiring the following information at
the time of the telephone call:
Account number;
Registration of account; and Social Security
Number or Tax I.D.
NOTE: Neither the Fund nor the sub-transfer
agent is responsible for unauthorized telephone
exchanges by a person reasonably believed to be
a shareholder unless the sub-transfer agent has
received written notice canceling the telephone
exchange authorization. The Fund may change or
discontinue the telephone exchange privilege
without notice. For your protection, the Fund
and its agents reserve the right to record all
calls.
The Fund reserves the right to refuse a
telephone exchange if it believes it is
advisable to do so. Telephone exchanges may be
difficult to implement during periods of drastic
economic or market changes, which may result in
an unusually high volume of telephone calls. If
a shareholder is unable to reach the Fund's
sub-transfer agent by telephone, shares may be
exchanged in writing as described below.
By Mail A shareholder may exchange all or part of his
shares by written request to the Fund's
sub-transfer agent at the address set forth
under "Purchasing Shares -- By Mail" above. The
written request must be endorsed by the owner(s)
exactly as the account is registered, including
any special capacity of the registered owner(s).
The Fund requires that the signature(s) be
guaranteed.
<PAGE>
Important Exchange Before you make an exchange you should consider
Information the following:
Please read the prospectus of the Fund or of
Analytic Optioned Equity Fund before making an
exchange.
An exchange is treated as a redemption and a
purchase and any gain or loss on the transaction
is taxable.
Recently purchased shares may not be exchanged
until payment for the purchase has been
collected. The Fund reserves the right to defer
honoring exchange requests where shares to be
exchanged have been purchased by check within 15
days prior to the date of the exchange request,
unless the Fund has been advised that such check
has been cleared for payment by the
shareholder's bank.
Exchanges are accepted only if the registrations
of the accounts are identical.
The redemption and purchase price of shares
redeemed by exchange is the net asset value per
share of the respective Portfolios next computed
after the Fund receives instructions in proper
form.
No exchange can be made unless the shares to be
purchased have been registered in the state of
the purchaser.
Exchange Privilege The Fund's exchange privilege is not intended to
Limitations afford shareholders a way to speculate on
short-term market movements. Accordingly, in
order to prevent excessive use of the Exchange
Privilege that may potentially disrupt the
management of the Fund and increase transaction
costs, the Fund may establish a policy of
limiting excessive exchange activity.
WITHDRAWAL PLAN A shareholder may establish a Withdrawal Plan
under which the shareholder receives a check
monthly, quarterly, or annually in a
predetermined amount of not less than $100. All
income dividends and any realized gain
distributions attributable to the account will
be reinvested at net asset value on the payment
dates, as with other shareholder accounts, and
shares of the Portfolio(s) will be redeemed from
the account in order to make the required
withdrawal payment. If a date is not specified
by the shareholder, then monthly distributions
under the Withdrawal Plan will be processed on
the first business day of the month, quarterly
distributions will be processed on the last
business day of the calendar quarter, and annual
distributions will be processed on the last
business day of the calendar year. The
shareholder may change or terminate his
Withdrawal Plan instructions by notifying the
Fund in writing at the address set forth above
under "Purchasing Shares -- By Mail" at least 5
business days prior to the effective date of the
change.
Important Withdrawal Plan Withdrawal payments should not be considered
Information dividends, yield, or income on an investment,
since portions of each payment may consist of a
return of capital. Depending upon the size and
frequency of payments and fluctuations in value
of the Fund's shares redeemed, redemptions for
the purpose of making Withdrawal Plan
disbursements may reduce or even exhaust a
shareholder's account.
<PAGE>
Officers and Trustees
Chairman of the
Board of Trustees......................................... Michael F. Koehn
Trustee................................................... Michael D. Butler
Trustee................................................... Robertson Whittemore
President................................................. Harindra de Silva
Executive Vice President and Secretary.................... Charles L. Dobson
Treasurer................................................. Gregory M. McMurran
Senior Vice President..................................... Angelo A. Calvello
Senior Vice President..................................... Marie Nastasi Arlt
Investment Advisor
Analytic o TSA Global Asset Management, Inc.
700 South Flower Street, Suite 2400
Los Angeles, CA 90017
Transfer Agent, Dividend Disbursement Agent,
and Shareholder Relations Servicing Agent
UAM Fund Services, Inc.
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208
Custodian
The Chase Manhattan Bank
1211 Avenue of the Americas
New York, NY 10036
Counsel
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, CA 90071
Independent Accountants
Deloitte & Touche LLP
1000 Wilshire Blvd.
Los Angeles, CA 90017
The Analytic Series Fund
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208
Phone: (800) 374-2633
No dealer, salesman or any other person has been authorized to
give any information or to make any representation not
contained in this Prospectus and, if given or made, such
information or representation must not be relied upon as
having been authorized by the Fund or the Adviser. This
Prospectus does not constitute any offer to sell or a
solicitation of any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction.
<PAGE>
-----------------------
ANALYTIC FUNDS
The Analytic
Series Fund
-----------------------
Enhanced Equity
Master Fixed Income
Short-Term Government
Prospectus
October 20, 1997
ABCDEFGHIJKLMNOPQ
----------------------
<PAGE>
EXHIBIT D
Discussion of Performance of Analytic Portfolios
28
<PAGE>
EXHIBIT D
DISCUSSION OF PERFORMANCE OF ANALYTIC PORTFOLIOS
Reproduced below is a discussion of the performance of the Analytic
Portfolios for the year ended December 31, 1997 and was included in its Annual
Report dated December 31, 1997.
The U.S. stock markets continued to climb during the fourth quarter of
1997. Large capitalization ("Blue Chip") indices, such as the S&P 500 Index,
continued their strong showing in the U.S. equity markets. Despite its setback
of -3.34% in October, the S&P 500 Index returned 2.87% for the quarter and
returned 33.36% for the year ended December 31, 1997. The performance of small
capitalization stocks tailed off, with the S&P Small Cap 600 Index down - 3.10%
for the quarter, bringing the return for the year ended December 31, 1997 down
to 25.85%. All of the above returns are with dividends reinvested.
U.S. fixed income markets also continued their rise during the fourth
quarter of 1997. Steady economic growth fueled the bond market and all parts of
the yield curve benefited. Shorter-term (1-3 years) Treasury issues were up
1.68% for the quarter and 6.66% at year end while intermediate-term (5-10 years)
Treasury issues increased 3.51% for the quarter and 10.00% at year end.
Longer-term issues gained the most, with 15+ year Treasury issues up 6.69% for
the quarter and 15.38% at year end.
Enhanced Equity Portfolio
As of December 31, 1997, your Portfolio's net asset value increased
29.86% for the year, after a decline of -0.57% in the fourth quarter, while the
S&P 500 Index increased 33.36% and 2.87% for the same periods, both with
dividends reinvested. At quarter end, your Portfolio's share price was $13.72
after paying its 18th consecutive quarterly dividend from net investment income
of $0.05 per share and a capital gain of $1.81. With the addition of the fourth
quarter, your Portfolio has now increased 44.66% versus the S&P 500's 44.37%
since September 30, 1996, since the inception of the new stock selection model.
The Fund's success is evident in its Morningstar performance and
risk-adjustment performance (Sharpe ratio) -rankings-the Fund ranks in the top
quintile and top quartile, respectively, of all (1,651) domestic equity mutual
funds for the most recent three-year period ended December 31, 1997.
Master Fixed Income Portfolio
As of December 31, 1997, your Portfolio was up 2.17% for the quarter
and 10.04% at year end. The Lehman Brothers Government/Corporate Bond Index
(LBGC) was up 3.21% for the quarter and 9.75% at year end. At quarter end, the
Portfolio's share price was $8.84 after paying its 18th consecutive quarterly
dividend from net investment income. The total quarterly
<PAGE>
dividend paid through December 31 was $0.149 per share with a long term capital
gain of $1.84, and the SEC 30-day yield was 6.36%.
Morningstar ranks the Master Fixed Income Portfolio among the top 5% of
the over 250 funds in its category on both a three-year absolute performance
basis and a risk-adjusted performance basis (Sharpe ratio).
Short-Term Government Portfolio
As of December 31, 1997, your Portfolio's return was 1.22% for the
quarter and 5.49% at year end. The Merrill Lynch 1 to 3 Year Treasury Index
increased 1.68% and 6.66%, respectively, for the same periods. At quarter end,
the Portfolio's share price was $9.81 after paying its 18th consecutive
quarterly dividend from net investment income. The fourth quarter dividend paid
through December 31 was $0.140 per share, and the SEC 30-day yield was 5.47%.
Morningstar ranks the Short-Term Government Portfolio among the top 10%
of the nearly 400 funds in its category on a risk-adjusted performance basis
(Sharpe ratio).
These Portfolios are suited for investors with differing risk tolerance
levels, allowing investors to easily adjust their portfolio within the Analytic
Family of Funds. Should you have any questions regarding your Portfolios'
investment strategy or results, please do not hesitate to call us at
1-800-374-2633.
2
<PAGE>
PBHG ADVISOR FUNDS, INC.
PBHG Advisor Enhanced Equity Fund
PBHG Advisor Master Fixed Income Fund
PBHG Advisor Short-Term Government Fund
825 Duportail Road
Wayne, Pennsylvania 19087
Toll Free: (888) 800-2685
THE ANALYTIC SERIES FUND
Analytic Enhanced Equity Portfolio
Analytic Master Mixed Income Portfolio
Analytic Short-Term Government Portfolio
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, Massachusetts 02228-2798
Toll Free: (800) 374-2633
STATEMENT OF ADDITIONAL INFORMATION
(1998 Special Meeting of Shareholders of The Analytic Series Fund)
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Combined Proxy Statement and Prospectus dated April
27, 1998 for the Special Meeting of Shareholders of The Analytic Series Fund
(the "Fund") to be held on May 28, 1998. Copies of the Combined Proxy
Statement and Prospectus may be obtained at no charge by writing the Portfolios
at the address shown above or by calling 1-888-800-2685.
Unless otherwise indicated, capitalized terms used herein and not otherwise
defined have the same meanings as are given to them in the Combined Proxy
Statement and Prospectus.
The date of this Statement of Additional Information is April 27, 1998.
TABLE OF CONTENTS
THE COMPANY................................................................. 2
DESCRIPTION OF PERMITTED INVESTMENTS........................................ 2
DIRECTORS AND OFFICERS OF THE COMPANY....................................... 2
ADVISORY AND MANAGEMENT - RELATED SERVICES AGREEMENTS AND PLANS OF
DISTRIBUTION.......................................................... 2
PORTFOLIO TRANSACTIONS...................................................... 2
DESCRIPTION OF SHARES....................................................... 2
DETERMINATION OF NET ASSET VALUE............................................ 2
TAXES....................................................................... 2
PERFORMANCE DATA............................................................ 3
FINANCIAL INFORMATION....................................................... 3
Appendix I - PBHG Advisor Funds, Inc. Statement of Additional Information
Appendix II - Annual Report of The Analytic Series Fund
Appendix III - Statements of Assets and Liabilities of the PBHG Funds
<PAGE>
THE COMPANY
This Statement of Additional Information relates to PBHG Advisor Funds, Inc.
(the "Company") and each of the PBHG Advisor Funds listed on the first page of
this Statement of Additional Information. Each Fund is a separate series of the
Company, which was incorporated in Maryland on January 9, 1998 and is registered
as an open-end management investment company under the Investment Company Act of
1940, as amended (the "1940 Act"). No shares of PBHG Advisor Funds have been
issued as of the date of this Statement of Additional Information.
DESCRIPTION OF PERMITTED INVESTMENTS
For a discussion of the Company's fundamental and nonfundamental policies
adopted by its Board of Directors, see heading "Description of Permitted
Investments" in the Company's Statement of Additional Information attached
hereto as Appendix I.
DIRECTORS AND OFFICERS OF THE COMPANY
For a disclosure of the names and a brief occupational biography of each of the
Company's officers and directors identifying those who are interested persons of
the Company as well as stating their aggregate renumeration, see heading
"Directors and Officers of the Company" in the Company's Statement of Additional
Information attached hereto as Appendix I.
ADVISORY AND MANAGEMENT - RELATED SERVICES AGREEMENTS AND PLANS OF
DISTRIBUTION
For a discussion of the Company's advisory and management-related services
agreements and plans of distribution, see headings "The Advisor", "The
Sub-Advisor," "The Administrator and Sub-Administrator," "The Distribution
Plans," and "The Distributor" in the Company's Statement of Additional
Information attached hereto as Appendix I.
PORTFOLIO TRANSACTIONS
For a discussion of the Company's brokerage policy, see heading "Portfolio
Transactions" in the Company's Statement of Additional Information attached
hereto as Appendix I.
DESCRIPTION OF SHARES
For a discussion of the Company's authorized securities and the characteristics
of the Company's capital stock, see heading "Description of Shares" in the
Company's Statement of Additional Information attached hereto as Appendix I.
DETERMINATION OF NET ASSET VALUE
For a discussion of the Company's valuation and pricing procedures and a
description of its purchase and redemption procedures, see heading
"Determination of Net Asset Value" in the Company's Statement of Additional
Information attached hereto as Appendix I.
TAXES
For a discussion of any tax information relating to ownership of the Company's
shares, see heading "Taxes" in the Company's Statement of Additional information
attached hereto as Appendix I.
S-2
<PAGE>
PERFORMANCE DATA
For a description and quotation of certain performance data used by the Company,
see headings "Computation of Yield" and "Calculation of Total Return" in the
Company's Statement of Additional Information attached hereto as Appendix I.
FINANCIAL INFORMATION
The audited Financial Statements of the Analytic Series Fund and the report
thereon by Deloitte & Touche, LLP, are set forth in the Annual Report of the
Analytic Series Fund dated December 31, 1997, which is incorporated herein by
reference and attached hereto as Appendix II.
Statements of Assets and Liabilities of the Company at March 20, 1998, and the
report thereon by Coopers & Lybrand, LLP are incorporated herein by reference
and attached hereto as Appendix III.
Pro forma financial statements are not presented as the Analytic Portfolios are
being combined with a shell of the corresponding PBHG Advisor Fund. The only
significant change in pro forma total operating expenses is the addition of a
0.25% 126-1 fee for the PBHG Funds. These changes are presented in the expense
tables.
S-3
<PAGE>
PBHG Advisor Funds, Inc.
Investment Adviser:
Pilgrim Baxter & Associates, Ltd.
Distributor:
PBHG Funds Distributor
LOGO
The Power of Discipline.
The rewards of time.(Servicemark)
To open an account, receive information,
make inquiries or request literature:
1-888-800-2685
<PAGE>
Company:
PBHG ADVISOR FUNDS, INC.
Portfolios:
PBHG ADVISOR CORE VALUE FUND
PBHG ADVISOR VALUE OPPORTUNITIES FUND
PBHG ADVISOR NEW CONTRARIAN FUND
PBHG ADVISOR REIT FUND
PBHG ADVISOR BLUE CHIP GROWTH FUND
PBHG ADVISOR GROWTH OPPORTUNITIES FUND
PBHG ADVISOR ENHANCED EQUITY FUND
PBHG ADVISOR TREND FUND
PBHG ADVISOR LARGE CAP CONCENTRATED FUND
PBHG ADVISOR GROWTH II FUND
PBHG ADVISOR NEW OPPORTUNITIES FUND
PBHG ADVISOR GLOBAL TECHNOLOGY & COMMUNICATIONS FUND
PBHG ADVISOR MASTER FIXED INCOME FUND
PBHG ADVISOR HIGH YIELD FUND
PBHG ADVISOR SHORT-TERM GOVERNMENT FUND
PBHG ADVISOR CASH RESERVES FUND
(each, a "PBHG Advisor Fund" or "Fund," collectively,
the "PBHG Advisor Funds" or "Funds")
Adviser:
PILGRIM BAXTER & ASSOCIATES, LTD.
This Statement of Additional Information is not a prospectus and relates
only to each of the Funds listed above. It is intended to provide additional
information regarding the activities and operations of PBHG Advisor Funds, Inc.
and the Funds. The Statement of Additional Information should be read in
conjunction with the Prospectus for the Fund shares dated April 20, 1998. The
Prospectus for the Funds may be obtained by calling 1-888-800-2685.
TABLE OF CONTENTS
Page
----
THE COMPANY................................................................ S-2
DESCRIPTION OF PERMITTED INVESTMENTS....................................... S-2
INVESTMENT LIMITATIONS.....................................................S-11
THE ADVISER................................................................S-16
THE SUB-ADVISERS...........................................................S-17
THE ADMINISTRATOR AND SUB-ADMINISTRATOR....................................S-20
THE DISTRIBUTION PLANS.....................................................S-20
THE DISTRIBUTOR............................................................S-23
HOW TO PURCHASE AND REDEEM SHARES..........................................S-24
THE CUSTODIANS.............................................................S-25
DIRECTORS AND OFFICERS OF THE COMPANY......................................S-25
COMPUTATION OF YIELD.......................................................S-27
CALCULATION OF TOTAL RETURN................................................S-28
PURCHASE AND REDEMPTION OF SHARES..........................................S-28
DETERMINATION OF NET ASSET VALUE...........................................S-29
TAXES......................................................................S-31
PORTFOLIO TRANSACTIONS.....................................................S-36
DESCRIPTION OF SHARES......................................................S-37
5% AND 25% SHAREHOLDERS....................................................S-38
FINANCIAL STATEMENTS.......................................................S-38
April 20, 1998
<PAGE>
THE COMPANY
This Statement of Additional Information relates to PBHG Advisor Funds, Inc.
(the "Company") and each of the PBHG Advisor Funds listed on the first page of
this Statement of Additional Information. Each Fund is a separate series of the
Company, which was incorporated in Maryland on January 9, 1998 and is registered
as an open-end management investment company under the Investment Company Act of
1940, as amended (the "1940 Act"). The charter of the Company permits the
Company to offer separate classes of shares of each Fund. Shareholders may
purchase shares through separate classes, which provide for differences in
distribution costs, voting rights and dividends ("Classes"). Except for these
differences, each share of each Class of a Fund represents an equal
proportionate interest in that Fund. See "Description of Shares." This Statement
of Additional Information relates to all Classes of shares of the Company. No
investment in shares of a Fund should be made without first reading the Fund's
Prospectus. Capitalized terms not defined herein are defined in each Prospectus
offering shares of the PBHG Advisor Funds.
DESCRIPTION OF PERMITTED INVESTMENTS
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 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.
Investment Company Shares
Investment company shares that each PBHG Advisor Fund may invest in are limited
to shares of money market mutual funds, except as set forth under "Investment
Limitations" below. Since such mutual funds pay management fees and other
expenses, shareholders of the Funds would indirectly pay both Fund expenses and
the expenses of underlying funds with respect to Fund assets invested therein.
Applicable regulations prohibit an investment company from acquiring the
securities of other investment companies that are not "part of the same group of
investment companies" if, as a result of such acquisition: (i) the investment
company owns more than 3% of the total voting stock of the company; (ii) more
than 5% of the investment company's total assets are invested in securities of
any one investment company; or (iii) more than 10% of the total assets of the
investment company are
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invested in securities (other than treasury stock of the investment company)
issued by all investment companies. Each PBHG Advisor Fund has no intention
currently or in the foreseeable future of investing more than 5% of its assets
in investment company securities.
Illiquid Investments
Illiquid investments are investments that cannot be sold or disposed of in the
ordinary course of business within seven (7) days at approximately the prices at
which they are valued. Under the supervision of the Board of Directors 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 market place 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.
Restricted Securities
Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, as amended (the "1933 Act"), or in a registered public offering.
Where registration is required, a PBHG Advisor Fund may be obligated to pay all
or part of the registration expense and a considerable period may elapse between
the time it decides to seek registration and the time a Fund may be permitted to
sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, a Fund might obtain a less
favorable price than prevailed when it decided to seek registration of the
security. Moreover, investing in Rule 144A securities (i.e., securities that
qualify for resale under Rule 144A under the 1933 Act) would have the effect of
increasing 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 deemed to be liquid in the same manner
as determined under the preceding paragraph, ("Illiquid Investments").
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Foreign Currency Transactions
A 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 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
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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
A futures contract is a bilateral agreement to buy or sell a security (or
deliver a cash settlement price, in the case of a contract relating to an index
or otherwise not calling for physical delivery at the end of trading in the
contracts) for a set price in the future. Futures contracts are designated by
boards of trade which have been designated "contracts markets" by the
Commodities Futures Trading Commission ("CFTC").
No purchase price is paid or received when the contract is entered into.
Instead, a PBHG Advisor Fund, upon entering into a futures contract (and to
maintain that Fund's open positions in futures contracts), would be required to
deposit with its custodian in a segregated account in the name of the futures
broker an amount of cash, or other assets, known as "initial margin." The margin
required for a particular futures contract is set by the exchange on which the
contract is traded, and may be significantly modified from time to time by the
exchange during the term of the contract. Futures contracts are customarily
purchased and sold on margin that may range upward from less than 5% of the
value of the contract being traded. By using futures contracts as a risk
management technique, given the greater liquidity in the futures market than in
the cash market, it may be possible to accomplish certain results more quickly
and with lower transaction costs.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
pay the excess to the applicable PBHG Advisor Fund. These subsequent payments,
called "variation margin," to and from the futures broker, are made on a daily
basis as the price of the underlying assets fluctuate making the long and short
positions in the futures contract more or less valuable, a process known as
"marking to the market." A Fund expects to earn interest income on its initial
and variation margin deposits.
A PBHG Advisor Fund will incur brokerage fees when it purchases and sells
futures contracts. Positions taken in the futures markets are not normally held
until delivery or cash settlement is required, but are instead liquidated
through offsetting transactions which may result in a gain or a loss. While
futures positions taken by a Fund will usually be liquidated in this manner, a
Fund may instead make or take delivery of underlying securities whenever it
appears economically advantageous
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to that Fund to do so. A clearing organization associated with the exchange on
which futures are traded assumes responsibility for closing out transactions and
guarantees that, as between the clearing members of an exchange, the sale and
purchase obligations will be performed with regard to all positions that remain
open at the termination of the contract.
Securities Index Futures Contracts. Purchases or sales of securities index
futures contracts may be used in an attempt to protect each PBHG Advisor Fund's
current or intended investments from broad fluctuations in securities prices. A
securities index futures contract does not require the physical delivery of
securities, but merely provides for profits and losses resulting from changes in
the market value of the contract to be credited or debited at the close of each
trading day to the respective accounts of the parties to the contract. On the
contract's expiration date a final cash settlement occurs and the futures
positions are simply closed out. Changes in the market value of a particular
index futures contract reflect changes in the specified index of securities on
which the future is based.
By establishing an appropriate "short" position in index futures, a PBHG Advisor
Fund may also seek to protect the value of its portfolio against an overall
decline in the market for such securities. Alternatively, in anticipation of a
generally rising market, a Fund can seek to avoid losing the benefit of
apparently low current prices by establishing a "long" position in securities
index futures and later liquidating that position as particular securities are
in fact acquired. To the extent that these hedging strategies are successful, a
Fund will be affected to a lesser degree by adverse overall market price
movements than would otherwise be the case.
Limitations on Purchase and Sale of Futures Contracts. A PBHG Advisor Fund,
except the PBHG Advisor Value Opportunities Fund, PBHG Advisor New Contrarian
Fund, PBHG Enhanced Equity Fund, PBHG Master Fixed Income Fund, and PBHG Advisor
Short-Term Government Fund, will not purchase or sell futures contracts unless
either (i) the futures contracts are purchased for "bona fide hedging" purposes
(as that term is defined under the CFTC regulations) or (ii) if purchased for
other than "bona fide hedging" purposes, the sum of the amounts of initial
margin deposits on a Fund's existing futures contracts and premiums required to
establish non-hedging positions would not exceed 5% of the liquidation value of
that Fund's total assets. In instances involving the purchase of futures
contracts by a Fund, an amount of cash or other liquid assets, equal to the cost
of such futures contracts (less any related margin deposits), will be deposited
in a segregated account with its custodian, thereby insuring that the use of
such futures contracts is unleveraged. In instances involving the sale of
futures contracts by a Fund, the securities underlying such futures contracts or
options will at all times be maintained by that Fund or, in the case of index
futures contracts, the Fund will own securities the price changes of which are,
in the opinion of the Adviser, expected to replicate substantially the movement
of the index upon which the futures contract is based.
The PBHG Advisor Value Opportunities Fund, PBHG Advisor New Contrarian Fund,
PBHG Enhanced Equity Fund, PBHG Master Fixed Income Fund, and PBHG Advisor
Short-Term Government Fund may purchase and sell ("write") both put options and
call options on securities, securities indices and foreign currencies, enter
into interest rate, foreign currency and index futures contracts, and purchase
and sell options on such futures contracts ("Futures options") 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,
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and/or to seek higher investment returns when a futures or option contract
is attractively priced relative to a typical portfolio investment in the
underlying security or index or securities highly correlated to the underlying
index, and not for speculation. The PBHG Advisor Value Opportunities Fund, PBHG
Advisor New Contrarian Fund, PBHG Enhanced Equity Fund, PBHG Master Fixed Income
Fund, and PBHG Advisor Short-Term Government Fund may purchase and sell foreign
currency options for purposes of increasing exposure to a foreign currency or to
shift exposure to foreign currency fluctuations from one country to another. If
other types of options, futures contracts, or futures options are traded in the
future, the PBHG Advisor Value Opportunities Fund, PBHG Advisor New Contrarian
Fund, PBHG Enhanced Equity Fund, PBHG Master Fixed Income Fund, and PBHG Advisor
Short-Term Government Fund may also use those instruments, provided the Board of
Directors determines that their use is consistent with such Fund's investment
objectives, and their use is consistent with restrictions applicable to options
and futures contracts currently eligible for use by such Fund.
For information concerning the risks associated with utilizing futures
contracts, please see "Risks of Transactions in Futures Contracts Options"
below.
Options
The types of options transactions that each PBHG Advisor Fund is permitted to
utilize are discussed below.
Writing Call Options. A call option is a contract which gives the purchaser of
the option (in return for a premium paid) the right to buy, and the writer of
the option (in return for a premium received) the obligation to sell, the
underlying security at the exercise price at any time prior to the expiration of
the option, regardless of the market price of the security during the option
period. A call option on a security is covered, for example, when the writer of
the call option owns the security on which the option is written (or on a
security convertible into such a security without additional consideration)
throughout the option period.
A PBHG Advisor Fund will write covered call options both to reduce the risks
associated with certain of its investments and to increase total investment
return through the receipt of premiums. In return for the premium income, a Fund
will give up the opportunity to profit from an increase in the market price of
the underlying security above the exercise price so long as its obligations
under the contract continue, except insofar as the premium represents a profit.
Moreover, in writing the call option, a Fund will retain the risk of loss should
the price of the security decline. The premium is intended to offset that loss
in whole or in part. Unlike the situation in which a Fund owns securities not
subject to a call option, a Fund, in writing call options, must assume that the
call may be exercised at any time prior to the expiration of its obligation as a
writer, and that in such circumstances the net proceeds realized from the sale
of the underlying securities pursuant to the call may be substantially below the
prevailing market price.
A PBHG Advisor Fund may terminate its obligation under an option it has written
by buying an identical option. Such a transaction is called a "closing purchase
transaction." A Fund will realize a gain or loss from a closing purchase
transaction if the amount paid to purchase a call option is less or
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more than the amount received from the sale of the corresponding call option.
Also, because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the exercise or closing out of a call option is likely to be
offset in whole or part by unrealized appreciation of the underlying security
owned by the Fund. When an underlying security is sold from a Fund's securities
portfolio, that Fund will effect a closing purchase transaction so as to close
out any existing covered call option on that underlying security.
Writing Put Options. The writer of a put option becomes obligated to purchase
the underlying security at a specified price during the option period if the
buyer elects to exercise the option before its expiration date. A PBHG Advisor
Fund when it writes a put option will be required to "cover" it, for example, by
depositing and maintaining in a segregated account with its custodian cash or
other liquid obligations having a value equal to or greater than the exercise
price of the option.
A PBHG Advisor Fund may write put options either to earn additional income in
the form of option premiums (anticipating that the price of the underlying
security will remain stable or rise during the option period and the option will
therefore not be exercised) or to acquire the underlying security at a net cost
below the current value (e.g., the option is exercised because of a decline in
the price of the underlying security, but the amount paid by such Fund, offset
by the option premium, is less than the current price). The risk of either
strategy is that the price of the underlying security may decline by an amount
greater than the premium received. The premium which a Fund receives from
writing a put option will reflect, among other things, the current market price
of the underlying security, the relationship of the exercise price to that
market price, the historical price volatility of the underlying security, the
option period, supply and demand and interest rates.
A PBHG Advisor Fund may effect a closing purchase transaction to realize a
profit on an outstanding put option or to prevent an outstanding put option from
being exercised.
Purchasing Put and Call Options. A PBHG Advisor Fund may purchase put options on
securities to protect its holdings against a substantial decline in market
value. The purchase of put options on securities will enable a Fund to preserve,
at least partially, unrealized gains in an appreciated security in its portfolio
without actually selling the security. In addition, a Fund will continue to
receive interest or dividend income on the security. A Fund may also purchase
call options on securities to protect against substantial increases in prices of
securities that the Fund intends to purchase pending its ability to invest in an
orderly manner in those securities. A Fund may sell put or call options it has
previously purchased, which could result in a net gain or loss depending on
whether the amount received on the sale is more or less than the premium and
other transaction costs paid on the put or call option which was bought.
Securities Index Options. Each PBHG Advisor Fund may write covered put and call
options and purchase call and put options on securities indexes for the purpose
of hedging against the risk of unfavorable price movements adversely affecting
the value of the Fund's securities or securities it intends to purchase. A Fund
will only write "covered" options. A call option on a securities index is
considered covered, for example, if, so long as the Fund is obligated as the
writer of the call, it holds securities the price changes of which are, in the
opinion of the Adviser, expected to replicate substantially the movement of the
index or indexes upon which the options written by the Fund are based. A put on
a securities index written by a Fund will be considered covered if, so long as
it is
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obligated as the writer of the put, the Fund segregates with its custodian cash
or other liquid obligations having a value equal to or greater than the exercise
price of the option. Unlike a stock option, which gives the holder the right to
purchase or sell a specified stock at a specified price, an option on a
securities index gives the holder the right to receive a cash "exercise
settlement amount" equal to (i) the difference between the exercise price of the
option and the value of the underlying stock index on the exercise date,
multiplied by (ii) a fixed "index multiplier." A securities index fluctuates
with changes in the market value of the securities so included. For example,
some securities index options are based on a broad market index such as the S&P
500 or the NYSE Composite Index, or a narrower market index such as the S&P 100.
Indexes may also be based on an industry or market segment such as the AMEX Oil
and Gas Index or the Computer and Business Equipment Index.
Over-the-Counter Options. Each PBHG Advisor Fund may enter into contracts with
primary dealers with whom it may write over-the-counter options. Such contracts
will provide that the Fund has the absolute right to repurchase an option it
writes at any time at a repurchase price which represents the fair market value,
as determined in good faith through negotiation between the parties, but which
in no event will exceed a price determined pursuant to a formula contained in
the contract. Although the specific details of the formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by a Fund for writing the option, plus the
amount, if any, of the option's intrinsic value (i.e., the amount the option is
"in-the-money"). The formula will also include a factor to account for the
difference between the price of the security and the strike price of the option
if the option is written "out-of-the-money." Each PBHG Advisor Fund has
established standards of creditworthiness for these primary dealers, although
such Fund may still be subject to the risk that firms participating in such
transactions will fail to meet their obligations. In instances in which a Fund
has entered into agreements with respect to the over-the-counter options it has
written, and such agreements would enable the Fund to have an absolute right to
repurchase at a pre-established formula price the over-the-counter option
written by it, the Fund would treat as illiquid only securities equal in amount
to the formula price described above less the amount by which the option is
"in-the-money," i.e., the amount by which the price of the option exceeds the
exercise price.
For information concerning the risks associated with utilizing options and
futures contracts, please see "Risks of Transactions in Futures Contracts and
Options" below.
Risks of Transactions in Futures Contracts and Options
Futures. The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in the market and interest
rates, which in turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the
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limit may prevent the liquidation of unfavorable positions. Futures contract
prices have occasionally moved to the daily limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation of
futures positions and subjecting some futures traders to substantial losses.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the futures contract were closed out.
Thus, a purchase or sale of a futures contract may result in losses in excess of
the amount invested in the futures contract.
A decision of whether, when, and how to hedge involves skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior, market trends or interest rate trends. There are
several risks in connection with the use by a Fund of futures contracts as a
hedging device. One risk arises because of the imperfect correlation between
movements in the prices of the futures contracts and movements in the prices of
the underlying instruments which are the subject of the hedge. The Adviser or
applicable sub-adviser will, however, attempt to reduce this risk by entering
into futures contracts whose movements, in its judgment, will have a significant
correlation with movements in the prices of a PBHG Advisor Fund's underlying
instruments sought to be hedged.
Successful use of futures contracts by a PBHG Advisor Fund for hedging purposes
is also subject to the Fund's ability to correctly predict movements in the
direction of the market. It is possible that, when a Fund has sold futures to
hedge its portfolio against a decline in the market, the index, indices, or
instruments underlying futures might advance and the value of the underlying
instruments held in that Fund's portfolio might decline. If this were to occur,
the Fund would lose money on the futures and also would experience a decline in
value in its underlying instruments.
Positions in futures contracts may be closed out only on an exchange or a board
of trade which provides the market for such futures. Although the PBHG Advisor
Funds intend to purchase or sell futures only on exchanges or boards of trade
where there appears to be an active market, there is no guarantee that such will
exist for any particular contract or at any particular time. If there is not a
liquid market at a particular time, it may not be possible to close a futures
position at such time, and, in the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin.
However, in the event futures positions are used to hedge portfolio securities,
the securities will not be sold until the futures positions can be liquidated.
In such circumstances, an increase in the price of securities, if any, may
partially or completely offset losses on the futures contracts.
Options. A closing purchase transaction for exchange-traded options may be made
only on a national securities exchange. There is no assurance that a liquid
secondary market on an exchange will exist for any particular option, or at any
particular time, and for some options, such as over-the-counter options, no
secondary market on an exchange may exist. If a Fund is unable to effect a
closing
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purchase transaction, that Fund will not sell the underlying security until the
option expires or the Fund delivers the underlying security upon exercise.
Options traded in the over-the-counter market may not be as actively traded as
those on an exchange. Accordingly, it may be more difficult to value such
options. In addition, it may be difficult to enter into closing transactions
with respect to options traded over-the-counter. A Fund will engage in such
transactions only with firms of sufficient credit so as to minimize these risks.
Such options and the securities used as "cover" for such options may be
considered illiquid securities.
The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the selected
securities index. Perfect correlation is not possible because the securities
held or to be acquired by a Fund will not exactly match the composition of the
securities indexes on which options are written. In the purchase of securities
index options the principal risk is that the premium and transaction costs paid
by a Fund in purchasing an option will be lost if the changes (increase in the
case of a call, decrease in the case of a put) in the level of the index do not
exceed the cost of the option.
INVESTMENT LIMITATIONS
Fundamental Policies
Each Fund has adopted certain investment restrictions which, in addition to
those restrictions in the Prospectus, are fundamental and may not be changed
without approval by a majority vote of the Fund's shareholders. Such majority is
defined in the 1940 Act as the lesser of (i) 67% or more of the voting
securities of the Fund present in person or by proxy at a meeting, if the
holders of more than 50% of the outstanding voting securities are present or
represented by proxy; or (ii) more than 50% of the outstanding voting securities
of the Fund.
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Each Fund other than the PBHG Advisor Enhanced Equity Fund, PBHG Advisor
Master Fixed Income Fund and PBHG Advisor Short-Term Government Fund, as a
fundamental investment policy, may not:
1. Pledge any of its assets, except that each Fund may pledge assets to the
extent permitted by the 1940 Act in order to (i) secure temporary borrowings
including securities lending and reverse repurchase arrangements, (ii) secure
permitted borrowings, or (iii) as may be necessary in connection with the Fund's
use of options and futures contracts.
2. Make loans except by the purchase of bonds or other debt obligations of types
commonly offered publicly or privately and purchased by financial institutions,
including investment in repurchase agreements, provided that each Fund will not
make any investment in repurchase agreements maturing in more than seven days if
such investments, together with any other illiquid securities held by the Fund,
would exceed 15% of the value of its net assets (or 10% of the value of net
assets of the PBHG Advisor Cash Reserves Fund), and each Fund may lend its
portfolio securities to the extent permitted by the 1940 Act.
3. Engage in the underwriting of securities of other issuers, except that the
Fund may sell an investment position even though it may be deemed to be an
underwriter as that term is defined in the 1933 Act.
4. Purchase or sell futures contracts, commodities or commodity contracts,
except that this shall not prevent a Fund from: (i) investing in readily
marketable securities of issuers which can invest in commodities; and (ii)
entering into forward contracts, futures contracts and options thereon that are
based on securities, market or currency indexes, or similar financial
instruments where, as a result thereof, no more than 5% of the total assets for
that Fund (taken at market value at the time of entering into the futures
contracts) would be committed to margin deposits on such futures contracts and
premiums paid for unexpired options on such futures contracts; provided that, in
the case of an option that is "in-the-money" at the time of purchase, the
"in-the-money" amount, as defined under the Commodity Futures Trading Commission
regulations, may be excluded in computing the 5% limit. These limitations shall
not be applicable to the PBHG Advisor Value Opportunity Fund, PBHG Advisor New
Contrarian Fund, PBHG Advisor Enhanced Equity Fund and the PBHG Advisor Master
Fixed Income Fund.
5. Purchase or sell real estate, or real estate partnership interests, except
that this shall not prevent a Fund from investing in readily marketable
securities of issuers which can invest in real estate, institutions that issue
mortgages, or real estate investment trusts which deal with real estate or
interests therein.
6. Issue senior securities (as defined in the 1940 Act) except in
connection with a permitted borrowing of money or pledging, mortgaging or
hypothecating assets, as described in each Fund's limitation on borrowing money
and each Fund's limitation on permitted borrowings and each Fund's limitation on
pledging, mortgaging or hypothecating assets, or as permitted by rule,
regulation or order of the SEC.
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Non-fundamental Policies
In addition to the foregoing, and the policies set forth in each Fund's
Prospectus, each Fund has adopted additional investment restrictions which may
be amended by the Board of Directors without a vote of shareholders.
Each Fund other than the PBHG Advisor Enhanced Equity Fund, PBHG Advisor
Master Fixed Income Fund and PBHG Advisor Short-Term Government Fund, as a
non-fundamental investment policy, may not:
1. Purchase or hold the securities of an issuer if, at the time thereof, any
such purchase or holding would cause more than 15% of the Fund's net assets to
be invested in illiquid securities. This limitation does not include any Rule
144A security that has been determined by, or pursuant to procedures established
by, the Board, based on trading markets for such security, to be liquid.
2. Purchase puts, calls, straddles, spreads, and any combination thereof (except
for such instruments based upon or derived from securities, market and currency
indexes or similar financial instruments), except to the extent permitted by the
1940 Act or the rules or regulations thereunder.
3. Except to the extent permitted by the 1940 Act, invest in the securities of
other open-end investment companies, or invest in the securities of closed-end
investment companies except through purchase in the open market in a transaction
involving no commission or profit to a sponsor or dealer (other than the
customary broker's commission) or as part of a merger, consolidation or other
acquisition.
4. Invest in companies for the purpose of exercising control.
5. Except for PBHG Advisor New Contrarian Fund make short sales of
securities, maintain a short position or purchase securities on margin, except
that each Fund may: (i) obtain short-term credits as necessary for the clearance
of security transactions; and (ii) establish margin accounts as may be necessary
in connection with the Fund's use of options and futures contracts.
6. Invest in interests in oil, gas or other mineral leases, exploration or
development programs, except that this shall not prevent a Fund from investing
in readily marketable securities of issuers which can invest in oil, gas or
other mineral leases, exploration or development programs.
Each of the PBHG Advisor Enhanced Equity Fund, PBHG Advisor Master Fixed
Income Fund and PBHG Advisor Short-Term Government Fund, as a non-fundamental
investment policy, may not:
1. Invest directly in real estate, oil, gas, or other mineral exploration or
development programs; however, this limitation will not prevent the purchase of
securities of companies engaged in such activities or secured by interests in
such activities.
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2. Make loans, except that such Fund may (i) purchase money market securities
and enter into repurchase agreements, (ii) acquire bonds, debentures, notes and
other debt securities, and (iii) lend portfolio securities in an amount not to
exceed 30% of its total assets.
3. Purchase securities on margin, except that such Fund may (i) use short-term
credit necessary for clearance of purchases of portfolio securities, and (ii)
make margin deposits in connection with futures contracts and options on futures
contracts.
4. Underwrite securities issued by other persons except to the extent that such
Fund may be deemed to be an underwriter within the meaning of the 1933 Act in
connection with the purchase and sale of its portfolio securities in the
ordinary course of pursuing its investment program.
5. Purchase or sell commodities or commodity contracts, except that such Fund
may (i) enter into financial and currency futures contracts and options on such
futures contracts, (ii) enter into forward foreign currency exchange contracts
(the Fund does not consider such contracts to be commodities), and (iii) invest
in instruments which have the characteristics of both futures contracts and
securities.
6. Purchase a security if, as a result of such purchase, more than 15% of the
value of the Fund's net assets would be invested in illiquid securities or other
securities that are not readily marketable, including repurchase agreements
which do not provide for payment within seven days.
7. Purchase securities of open-end or closed-end investment companies except in
compliance with the 1940 Act.
8. Purchase or retain the securities of any issuer if, to the knowledge of the
Company's management, any officers and directors of the Company and of the
Adviser or sub-adviser who own beneficially more than 0.5% of the outstanding
securities of such issuer, together own beneficially more than 5% of such
securities.
9. Purchase securities (other than obligations issued or guaranteed by the U.S.
Government or any foreign government, their agencies or instrumentalities) if,
as a result, more than 5% of the value of the Fund's net assets would be
invested in the securities of issuers which at the time of purchase had been in
operation for less than three years (for this purpose, the period of operation
of any issuer will include the period of operation of any predecessor or
unconditional guarantor of such issuer).
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The foregoing percentages will apply at the time of each purchase of a security
(except with respect to the limitation on investments in illiquid securities).
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THE ADVISER
The Company and Pilgrim Baxter & Associates, Ltd. (the "Adviser") have entered
into an investment advisory agreement with respect to the Funds (the "Advisory
Agreement"). The Advisory Agreement provides certain limitations on the
Adviser's liability, but also provides that the Adviser shall not be protected
against any liability to the Company or each of its Funds or its shareholders by
reason of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its obligations or
duties thereunder.
The Advisory Agreement obligates the Adviser to: (i) provide a program of
continuous investment management for the Company in accordance with the
Company's investment objectives, policies and limitations; (ii) make investment
decisions for the Company; and (iii) place orders to purchase and sell
securities for the Company, subject to the supervision of the Board of
Directors. The Advisory Agreement provides that the Adviser is not responsible
for other expenses of operating the Company. (See the Prospectuses for a
description of expenses borne by the Company.)
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, PBHG Advisor New Contrarian Fund, PBHG Advisor
Blue Chip Growth Fund, and PBHG Advisor Enhanced Equity Fund; 1.07% of the PBHG
Advisor Value Opportunities Fund, PBHG Advisor Large Cap Concentrated Fund, PBHG
Advisor Growth II Fund, and PBHG Advisor Global Technology & Communications
Fund; 0.97% of the PBHG Advisor REIT Fund and PBHG Advisor New Opportunities
Fund; 0.87% of the PBHG Advisor Growth Opportunities Fund and PBHG Advisor Trend
Fund; 0.67% of the PBHG Advisor Master Fixed Income Fund; 0.72% of the PBHG
Advisor High Yield Fund; and 0.52% of the PBHG Advisor Short-Term Government
Fund and 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. 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.
The continuance of the Advisory Agreement with respect to a PBHG Advisor Fund
after the first two years must be specifically approved at least annually (i) by
the Company's Board of Directors or by vote of a majority of the Fund's
outstanding voting securities and (ii) by the affirmative vote of a
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majority of the directors who are not parties to the agreement or interested
persons of any such party by votes cast in person at a meeting called for such
purpose. The Advisory Agreement may be terminated (i) at any time without
penalty by the Fund upon the vote of a majority of the directors or by vote of
the majority of the Fund's outstanding voting securities upon 60 days' written
notice to the Adviser or (ii) by the Adviser at any time without penalty upon 60
days' written notice to the Company. The Advisory Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
THE SUB-ADVISERS
Pilgrim Baxter Value Investors, Inc.
The Company, on behalf of each of the PBHG Advisor Core Value Fund, PBHG Advisor
New Contrarian Fund, PBHG Advisor Value Opportunities Fund, and PBHG Advisor
REIT Fund, and the Adviser have entered into a sub-advisory agreement (the
"Value Investors Sub-Advisory Agreement") with Pilgrim Baxter Value Investors,
Inc. ("Value Investors"), a wholly owned subsidiary of the Adviser. The Value
Investors Sub-Advisory Agreement provides certain limitations on Value
Investors' liability, but also provides that Value Investors shall not be
protected against any liability to the Company or its shareholders by reason of
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its obligations or
duties thereunder.
The Value Investors Sub-Advisory Agreement obligates Value Investors to: (i)
manage the investment operations of the applicable PBHG Advisor Fund and the
composition of such Fund's investment portfolios, including the purchase,
retention and disposition thereof in accordance with such Fund's investment
objective, policies and limitations; (ii) provide supervision of such Fund's
investments and to determine from time to time what investments and securities
will be purchased, retained or sold by such Fund and what portion of the assets
will be invested or held uninvested in cash; and (iii) determine the securities
to be purchased or sold by such Fund and will place orders with or through such
persons, brokers or dealers to carry out the policy with respect to brokerage
set forth in the Fund's Prospectus or as the Board of Directors or the Adviser
may direct from time to time, in conformity with federal securities laws.
With respect to each applicable PBHG Advisor Fund, the continuance of the Value
Investors Sub-Advisory Agreement after the first two years must be specifically
approved at least annually (i) by the Company's Board of Directors or by vote of
a majority of the outstanding voting securities of such Fund and (ii) by the
affirmative vote of a majority of the Directors who are not parties to the
agreement or interested persons of any such party by votes cast in person at a
meeting called for such purpose. The Value Investors Sub-Advisory Agreement may
be terminated with respect to a Fund (i) by the Company, without the payment of
any penalty, by the vote of a majority of the Directors of the Company or by the
vote of a majority of the outstanding voting securities of the applicable Fund,
(ii) by the Adviser at any time, without the payment of any penalty, on not more
than 60 days' nor less than 30 days' written notice to the other parties, or
(iii) by Value Investors at any time, without the payment of any penalty, on 90
days' written notice to the other parties. The Value Investors Sub-Advisory
Agreement will also terminate automatically in the event of its assignment (as
defined in the 1940 Act).
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Analytic o TSA Global Asset Management, Inc.
The Company, on behalf of the PBHG Advisor Enhanced Equity Fund, PBHG Advisor
Master Fixed Income Fund, and PBHG Advisor Short-Term Government Fund, and the
Adviser have entered into a sub-advisory agreement (the "Analytic Sub-Advisory
Agreement") with Analytic o TSA Global Asset Management, Inc. ("Analytic"), 700
South Flower Street, Suite 2400, Los Angeles, CA 90017, which is a wholly owned
subsidiary of United Asset Management Corporation, the parent of the Adviser.
Analytic 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 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 serves, among others, pension and
profit-sharing plan, 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 the Analytic Sub-Advisory Agreement, Analytic, subject to the
control and direction of the Company's Officers and Board of Directors, manages
the PBHG Advisor Enhanced Equity Fund, PBHG Advisor Master Fixed Income Fund,
and PBHG Advisor Short-Term Government Fund in accordance with each Fund's
stated investment objective and policies and makes investment decisions for the
Funds.
PBHG Advisor Enhanced Equity Fund. Dennis M. Bein, Harindra de Silva and Charles
L. Dobson have been the portfolio managers since November 1996 for a portfolio
with similar investment objectives and policies to the PBHG Advisor Enhanced
Equity Fund. Mr. Bein has been a member of the portfolio management and research
team for Analytic since August 1995. He concurrently serves as a senior
associate for Analysis Group, Inc. with which he has been associated since
August 1990. Dr. de Silva serves as a managing director of Analytics, which he
joined in May of 1995. He concurrently serves as a principal of Analysis Group,
Inc., which he joined in March 1986. Mr. Dobson has been a portfolio manager of
Analytic since 1978. They are subject to the supervision of Analytic's
investment management committee.
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PBHG Advisor Master Fixed Income Fund and PBHG Advisor Short-Term Government
Fund. 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 since August 1995. He concurrently serves as a research analyst
with Analysis Group, Inc. with which he has been associated since October 1993.
Previously, he was with Xontech, Inc. for six years as a scientific analyst. Mr.
McMurran is the Chief Investment Officer of Analytic and has been with the firm
since October of 1976 as a portfolio manager. Mr. Bannon is a managing director
of Analytic specializing in the fixed income area. He initially joined the firm
in January 1996 when TSA Capital Management 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. They
are subject to the supervision of Analytic's investment management committee.
Wellington Management Company, LLP
The Company, on behalf of the PBHG Advisor Cash Reserves Fund, and the Adviser
have entered into a sub-advisory agreement (the "Wellington Sub-Advisory
Agreement") with Wellington Management Company, LLP ("Wellington Management").
The Wellington Sub-Advisory Agreement provides certain limitations on Wellington
Management's liability, but also provides that Wellington Management shall not
be protected against any liability to the Company or its shareholders by reason
of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from a breach of fiduciary duty with respect to the
receipt of compensation for services thereunder.
The Wellington Sub-Advisory Agreement obligates Wellington Management to: (i)
manage the investment operations of the PBHG Advisor Cash Reserves Fund and the
composition of such Fund's portfolio, including the purchase, retention and
disposition thereof in accordance with the Fund's investment objectives,
policies and restrictions; (ii) provide supervision of the Fund's investments
and determine from time to time what investments and securities will be
purchased, retained or sold by the Fund, and what portion of the assets will be
invested or held uninvested in cash; and (iii) determine the securities to be
purchased or sold by the Fund and will place orders with or through such
persons, brokers or dealers to carry out the policy with respect to brokerage
set forth in the Fund's Registration Statement or as the Board of Directors or
the Adviser may direct from time to time, in conformity with federal securities
laws.
The Wellington Sub-Advisory Agreement will continue in effect for a period of
more than two years from the date thereof only so long as continuance is
specifically approved at least annually in conformance with the 1940 Act;
provided, however, that this Agreement may be terminated with respect to the
Company (i) by the Company at any time, without the payment of any penalty, by
the vote of a majority of Directors of the Company or by the vote of a majority
of the outstanding voting securities of the PBHG Advisor Cash Reserves Fund,
(ii) by the Adviser at any time, without the payment of any penalty, on not more
than 60 days' nor less than 30 days' written notice to the other parties, or
(iii) by Wellington Management at any time, without the payment of any penalty,
on 90 days' written notice to the other parties. The Wellington Sub-Advisory
Agreement shall terminate automatically and immediately in the event of its
assignment as defined in the 1940 Act.
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THE ADMINISTRATOR AND SUB-ADMINISTRATOR
The Company and PBHG Fund Services (the "Administrator") have entered into an
Administrative Services Agreement (the "Administrative Agreement") pursuant to
which the Administrator oversees the administration of the Company's and each
Fund's business and affairs, including services performed by various third
parties. The Administrator, a wholly-owned subsidiary of the Adviser, is
organized as a Pennsylvania business trust and has its principal place of
business at 825 Duportail Road, Wayne, Pennsylvania 19087. The Administrator is
entitled to a fee from the Company, which is calculated daily and paid monthly
at an annual rate of 0.15% of the average daily net assets of each Fund. The
Administrative Agreement provides that the Administrator shall not be liable for
any error of judgment or mistake of law or for any loss suffered by a Fund in
connection with the matters to which the Administrative Agreement relates,
except a loss resulting from willful misfeasance, bad faith or negligence on the
part of the Administrator in the performance of its duties. The Administrative
Agreement shall remain in effect until December 31, 1999 and shall thereafter
continue for successive periods of one year, unless terminated by either party
upon not less than 90 days' prior written notice to the other party.
The Company, the Administrator and SEI Fund Resources (the "Sub-Administrator")
entered into a Sub-Administrative Services Agreement, as will be amended
effective May 1, 1998, pursuant to which the Sub-Administrator assists the
Administrator in connection with the administration of the business and affairs
of the Company. SEI Investment Management Corporation ("SEI Investments"), which
is a wholly owned subsidiary of SEI Investment Company ("SEI"), owns all
beneficial interest in the Sub-Administrator. The Sub-Administrator is organized
as a Delaware business trust, and has its principal business offices at One
Freedom Valley Road, Oaks, Pennsylvania 19456. The Sub-Administrative Services
Agreement provides that the Sub-Administrator shall not be liable for any error
of judgment or mistake of law or for any loss suffered by a Fund in connection
with the matters to which the Sub-Administrative Service Agreement relates,
except a loss resulting from willful misfeasance, bad faith or negligence on the
part of the Sub-Administrator in the performance of its duties. The
Sub-Administrative Service Agreement shall remain in effect until December 31,
2000, and shall continue for successive periods of one year, unless terminated
by either party upon not less than 90 days' prior written notice to the other
party.
Under the Sub-Administrative Services Agreement, the Administrator pays the
Sub-Administrator fees at an annual rate based on the combined average daily net
assets of the 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 DISTRIBUTION PLANS
The Class A Plan. The Company has adopted a Distribution Plan pursuant to Rule
12b-1 under the 1940 Act relating to the Class A shares of each PBHG Advisor
Fund (the "Class A Plan"). The Class A Plan provides that the Class A shares pay
up to 0.35% per annum of their daily average net assets as compensation to the
Distributor for the purpose of financing any activity which is primarily
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intended to result in the sale of Class A shares and for shareholder services.
Activities appropriate for financing under the Class A Plan include, but are not
limited to, the following: 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;
expenses of organizing and conducting sales seminars; supplemental payments to
dealers and other institutions such as asset-based sales charges or as payments
of service fees under shareholder service arrangements; and costs of
administering the Class A Plan. The directors of the Company have determined to
limit payments under the Class A Plan to 0.25% per annum of the Class A shares
daily net assets for the time being.
The Class B Plan. The Company has also adopted a Distribution Plan pursuant to
Rule 12b-1 under the 1940 Act relating to Class B shares of each PBHG Advisor
Fund (the "Class B Plan", and collectively with the Class A Plan, the "Plans").
Under the Class B Plan, the Funds pay compensation to the Distributor at an
annual rate of 1.00% of the average daily net assets attributable to Class B
shares. Of such amount, the Funds pay a service fee of 0.25% of the average
daily net assets attributable to Class B shares to selected dealers and other
institutions which furnish continuing personal shareholder services to their
customers who purchase and own Class B shares. Amounts paid in accordance with
the Class B Plan may be used to finance any activity primarily intended to
result in the sale of Class B shares, including, but 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; expenses or organizing and conducting sales
seminars; supplemental payments to dealers and other institutions such as
asset-based sales charges or as payments of service fees under shareholder
service arrangements; and costs of administering the Class B Plan. The
Distributor may transfer and sell its right under the Class B Plan in order to
finance distribution expenditures in respect of Class B shares.
Both Plans. The Distributor may enter into agreements ("Shareholder Service
Agreements") with investment dealers, banks and other financial institutions
selected from time to time by the Distributor for the provision of shareholder
service assistance in connection with the sale of the Funds' shares to such
dealers' customers, and for the provision of continuing personal shareholder
services to customers who may from time to time directly or beneficially own
shares of the Funds. The distribution assistance and continuing personal
shareholder services to be rendered by dealers under the Shareholder Service
Agreements may include, but shall not be limited to, the following: distributing
sales literature; answering routine customer inquiries concerning the Funds;
assisting customers in changing dividend options, account designations and
addresses, and in enrolling in any of several special investment plans offered
in connection with the purchase of the Fund's shares; assisting in the
establishment and maintenance of customer accounts and records and in the
processing of purchase and redemption transactions; investing dividends and any
capital gains distributions automatically in the Fund's shares; and providing
such other information and services as the Funds or the customer may reasonably
request.
Under a Shareholder Service Agreement, the Funds agree to pay periodically fees
to selected dealers and other institutions who render the foregoing services to
their customers. The fees payable under a Shareholder Service Agreement
generally will be calculated at the end of each payment period for each business
day of the Funds during such period at the annual rate of 0.25% of the average
daily net asset value of the Funds' shares purchased or acquired through
exchange. Fees calculated in this
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manner shall be paid only to those selected dealers or other institutions who
are dealers or institutions of record at the close of business on the last
business day of the applicable payment period for the account in which the
Funds' shares are held.
The Plans are subject to any applicable limitations imposed from time to time by
rules of the National Association of Securities Dealers, Inc.
The Plans require the Distributor to provide the Board of Directors at least
quarterly with a written report of the amounts expended pursuant to the Plans
and the purposes for which such expenditures were made. The Board of Directors
reviews these reports in connection with their decisions with respect to the
Plans.
As required by Rule 12b-1, the Plans were approved by the Board of Directors,
including a majority of the directors who are not "interested persons" (as
defined in the 1940 Act) of the Company and who have no direct or indirect
financial interest in the operation of the Plans or in any agreements related to
the Plans ("Qualified Directors"). In approving the Plans in accordance with the
requirements of Rule 12b-1, the directors considered various factors and
determined that there is a reasonable likelihood that the Plans would benefit
each class of the Fund and its respective shareholders.
The Plans do not obligate the Fund to reimburse the Distributor for the actual
expenses the Distributor may incur in fulfilling its obligations under the
Plans. Thus, even if the Distributor's actual expenses exceed the fee payable to
the Distributor thereunder at any given time, the Fund will not be obligated to
pay more than that fee. If the Distributor's expenses are less than the fee it
receives, the Distributors will retain the full amount of the fee.
Unless the Plans are terminated earlier in accordance with their terms, both
Plans continue as long as such continuance is specifically approved at least
annually by the Board of Directors, including a majority of the Qualified
Directors.
The Plans may be terminated with respect to any or all Funds by the vote of
a majority of the Qualified Directors, or, with respect to a particular class,
by the vote of a majority of the outstanding voting securities of that class.
Any change in the Plans that would increase materially the distribution expenses
paid by the applicable class requires shareholder approval; otherwise, it may be
amended by the directors, including a majority of the Qualified Directors, by
votes cast in person at a meeting called for the purpose of voting upon such
amendment. As long as the Plans are in effect, the selection or nomination of
the Qualified Directors is committed to the discretion of the Qualified
Directors. In the event the Class A Plan is amended in a manner which the Board
of Directors determines would materially increase the charges paid by holders of
Class A shares under the Class A Plan, the Class B shares of the Fund will no
longer convert into Class A shares of the Fund unless the Class B shares, voting
separately, approve such amendment. If the Class B shareholders do not approve
such amendment, the Board of Directors will (i) create a new class of shares of
the Fund which is identical in all material respects to the Class A shares as
they existed prior to the implementation of the amendment, and (ii) ensure that
the existing Class B shares of the Fund will be exchanged or
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converted into such new class of shares no later than the date the Class B
shares were scheduled to convert into Class A shares.
The principal differences between the Class A Plan and the Class B Plan are: (i)
the Class A Plan allows payment to the Distributor or to dealers or financial
institutions of up to .35% of average daily net assets of Class A Shares
(although the payments are currently limited to 0.25% of average net assets);
(ii) the Class B Plan obligates the Class B shares to continue to make payments
to the Distributor following termination of the Class B shares Distribution
Agreement with respect to Class B shares sold by or attributable to the
distribution efforts of the Distributor unless there has been a complete
termination of the Class B Plan (as defined in such Plan); and (iii) the Class B
Plan expressly authorizes the Distributor to assign, transfer or pledge its
rights to payments pursuant to the Class B Plan.
THE DISTRIBUTOR
Information concerning the Distributor and the continuous offering of the Funds'
shares is set forth in the Prospectus under the headings "How to Purchase Fund
Shares." A Distribution Agreement with the Distributor relating to the Class A
shares of the PBHG Advisor Funds was approved by the Board of Directors on
February 20, 1998. A Distribution Agreement with the Distributor relating to the
Class B shares of the Funds was also approved by the Board of Directors on
February 20, 1998. A third Distribution Agreement which relates to the Class I
shares of the Funds was approved by the Board of Directors on February 20, 1998.
Such Distribution Agreements are hereinafter, collectively, referred to as the
"Distribution Agreements."
The Distribution Agreements provide that the Distributor will bear the expenses
of printing from the final proof and distributing prospectuses and statements of
additional information of the Funds relating to public offerings made by the
Distributor pursuant to the Distribution Agreements (other than those
prospectuses and statements of additional information distributed to existing
shareholders of the Funds), and any promotional or sales literature used by the
Distributor or furnished by the Distributor to dealers in connection with the
public offering of the Funds' shares, including expenses of advertising in
connection with such public offerings. The Distributor has not undertaken to
sell any specified number of shares of any classes of the Funds.
The Distributor expects to pay sales commissions from its own resources to
dealers and institutions who sell Class B shares of the Funds at the time of
such sales. Payments with respect to Class B shares will equal 4.0% 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. The portion of the payments to the Distributor under the
Class B Plan which constitutes an asset-based sales charge (0.75%) is intended
in part to permit the Distributor to recoup a portion of such sales commissions
plus financing costs. The Distributor anticipates that it will require a number
of years to recoup from Class B Plan payments the sales commissions paid to
dealers and institutions in connection with sales of Class B shares.
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<PAGE>
In the future, if multiple distributors serve the Funds, each such distributor
(or its assignee or transferee) would receive a share of the payments under the
Class B Plan based on the portion of such Fund's Class B shares sold by or
attributable to the distribution efforts of that distributor.
The Company (on behalf of any class of the Funds) or the Distributor may
terminate the Distribution Agreements on sixty (60) days' written notice without
penalty. The Distribution Agreements will terminate in the event of their
assignment. In the event the Class B shares Distribution Agreement is
terminated, the Distributor would continue to receive payments of asset-based
distribution fees 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 Plan (as defined in such Plan) would terminate all
payments to the Distributor. Termination of the Class B Plan or Distribution
Agreement does not affect the obligations of Class B shareholders to pay
contingent deferred sales charges.
HOW TO PURCHASE AND REDEEM SHARES
A completion description of the manner by which shares of the Funds may be
purchased appears in the Prospectus under the caption "How to Purchase Fund
Shares."
The sales charge normally deducted on purchases of Class A shares of the Funds
is used to compensate the Distributor and participating dealers for their
expenses incurred in connection with the distribution of such shares. Since
there is little expense associated with unsolicited orders placed directly with
the Distributor by persons, who because of their relationship with the Funds or
with the Adviser and its affiliates, are familiar with the Funds, or whose
programs for purchase involve little expense (e.g., because of the size of the
transaction and shareholder records required), the Distributor believes that it
is appropriate and in the Funds' best interests that such persons be permitted
to purchase Class A shares of the Funds through the Distributor without payment
of a sales charge. The persons who may purchase Class A shares of the Funds
without a sales charge are shown in the Prospectus.
Complete information concerning the method of exchanging shares of the Funds for
shares of the other Funds is set forth in the Prospectus under the Caption
"Exchange Privileges."
Information concerning redemption of the Funds' shares is set forth in the
Prospectus under the caption "How to Redeem Fund Shares." The Funds intend to
redeem all shares of the Funds in cash. See "Purchase and Redemption of Shares."
In addition to the Funds' obligation to redeem shares, the Distributor may also
repurchase shares as an accommodation to shareholders. To effect a repurchase,
those dealers who have executed Selected Dealer Agreements with the Distributor
must phone orders to the order desk of the Fund telephone, 1-888-800-2685, and
guarantee delivery of all required documents in good order. A repurchase is
effected at the net asset value of the Fund next determined after such order is
received. Such arrangement is subject to timely receipt of all required
documents in good order. If such documents are not received within a reasonable
time after the order is placed, the order is subject to cancellation. While
there is no charge imposed by the Funds or by the Distributor (other than any
applicable contingent deferred sales charge) when shares are redeemed or
repurchased, dealers may charge a service fee for handling the transaction.
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<PAGE>
The right of redemption may be suspended or the date of payment postponed when
(a) trading on the New York Stock Exchange is restricted, as determined by
applicable rules and regulations of the SEC, (b) the New York Stock Exchange is
closed for other than customary weekend and holiday closings, (c) the SEC has by
order permitted such suspension, or (d) an emergency as determined by the SEC
exists making disposition of portfolio securities or the valuation of the net
assets of the Fund not reasonably practicable.
THE CUSTODIANS
Corestates Bank, N.A., Broad and Chestnut Streets, P.O. 7618, Philadelphia,
Pennsylvania 19101, serves as the custodian for the Company and each PBHG
Advisor Fund. The Custodian holds cash, securities and other assets of the
Company as required by the 1940 Act.
DIRECTORS AND OFFICERS OF THE COMPANY
The management and affairs of the Company are supervised by the Directors under
the laws of the State of Maryland. The Directors and executive officers of the
Company and the principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during that
period. Each Director serves as a Director of two other registered investment
companies advised by the Adviser and each officer serves as an officer in a
similar capacity of two other investment companies advised by the Adviser. The
age of each Director and officer is indicated in the parentheses.
JOHN R. BARTHOLDSON (51) - Director - Triumph Group Holdings, Inc.
(manufacturing), 1255 Drummers Lane, Suite 200, Wayne, PA 19087-1590. Chief
Financial Officer and Director, the Triumph Group Holdings, Inc. since 1992.
Senior Vice President and Chief Financial Officer, Lukens, Inc., 1978-1992.
HAROLD J. BAXTER (51)* - Chairman of the Board and Director - Chairman, Chief
Executive Officer and Director, the Adviser, 825 Duportail Road, Wayne, PA
19087. Trustee, the Administrator since May 1996. Chief Executive Officer, Value
Investors, 825 Duportail Road, Wayne, PA 19087, since June 1996. Trustee, the
Distributor since January 1998.
JETTIE M. EDWARDS (49) - Director - Syrus Associates, 76 Seaview Drive, Santa
Barbara, California 93108. Consultant, Syrus Associates since 1986. Trustee,
Provident Investment Counsel Trust (investment company) since 1992.
ALBERT A. MILLER (62) - Director - 7 Jennifer Drive, Holmdel, New Jersey 07733.
Principal and Treasurer, JK Equipment Exporters since 1995. Advisor and
Secretary, the Underwoman Shoppes Inc. (retail clothing stores) since 1980.
Merchandising Group Vice President, R.H. Macy & Co., 1958-1995 (retired).
- --------
* Mr. Baxter is a Director who may be deemed to be an "interested person" of
the Company as that term is defined in the 1940 Act.
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<PAGE>
GARY L. PILGRIM (57) - President - Chief Investment Officer and Director, the
Adviser since 1982. Trustee, the Administrator since May 1996. Director, Value
Investors since June 1996.
PAUL J. HONDROS (49) - Executive Vice President - President and Chief Operating
Officer, the Adviser since October 1997. President and Chief Operating Officer,
Value Investors since January 1998. Trustee, the Distributor since January 1998.
President and Chief Executive Officer, Fidelity Investments Retail Group,
1990-1997.
SANDRA K. ORLOW (44) - Vice President - Vice President and Assistant Secretary
of SEI and the Sub-Administrator since 1983 and SEI Investments since 1996.
KATHRYN L. STANTON (39) - Vice President, Assistant Secretary - Vice President
and Assistant Secretary of SEI and the Sub-Administrator since 1994 and SEI
Investments since 1996. Associate, Morgan, Lewis & Bockius LLP (law firm),
1989-1994.
TODD CIPPERMAN (32) - Vice President, Assistant Secretary - Vice President and
Assistant Secretary of SEI and the Sub-Administrator since 1995 and SEI
Investments since 1996. Associate, Dewey Ballantine (law firm) 1994-1995.
Associate, Winston & Strawn, (law firm) 1991-1994.
BARBARA A. NUGENT (41) - Vice President, Assistant Secretary - Counsel, the
Adviser since February 1998. Vice President and Assistant Secretary, SEI,
1996-1998. Associate, Drinker, Biddle & Reath (law firm), 1994-1996. Assistant
Vice President/Operations, Delaware Group of Funds, 1980-1994.
MICHAEL J. HARRINGTON (29) - Vice President - Director of Fund Services, the
Adviser since 1994. Secretary, the Administrator since May 1996. Vice President,
the Distributor since January 1998. Account Manager, SEI, 1991-1994.
LEE T. CUMMINGS (34) - Treasurer, Chief Financial Officer and Controller -
Director of Mutual Fund Operations, the Adviser since 1996. Treasurer, the
Administrator since May 1996. Vice President and Treasurer, the Distributor
since January 1998. Investment Accounting Officer, Delaware Group of Funds,
1994-1996. Vice President, Fund/Plan Services, Inc., 1992-1994.
BRIAN F. BEREZNAK (36) - Vice President - Trustee and President, the
Administrator since May 1996. Chief Operating Officer, the Adviser from 1989
through December 31, 1996. Director, Value Investors since June 1996. President,
the Distributor since January 1998.
JOHN M. ZERR (35) - Vice President and Secretary - General Counsel and
Secretary, the Adviser since November 1996. General Counsel and Secretary, Value
Investors since November 1996. General Counsel and Secretary, the Distributor
since January 1998. Vice President and Assistant Secretary, Delaware Management
Company, Inc. and the Delaware Group of Funds, 1995-1996. Associate, Ballard
Spahr Andrews & Ingersoll (law firm), 1987-1995.
Each current Director of the Company who is not an "interested person" of the
Company received the following compensation during the year ended December 31,
1997:
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<PAGE>
<TABLE>
<CAPTION>
=================================================================================================
Pension or
Retirement Total
Benefits Estimated Compensation
Aggregate Accrued as Annual from Registrant
Compensation Part Benefits and Complex
Name of Person, from of Company Upon Fund Paid to
Position Registrant(1) Expenses Retirement Directors(2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
John R. Bartholdson, $0 N/A N/A $47,583
Director
- -------------------------------------------------------------------------------------------------
Harold J. Baxter, N/A N/A N/A N/A
Director(3)
- -------------------------------------------------------------------------------------------------
Jettie M. Edwards, $0 N/A N/A $47,583
Director
- -------------------------------------------------------------------------------------------------
Albert A. Miller, $0 N/A N/A $47,583
Director
=================================================================================================
</TABLE>
(1) The Company was not in existence during 1997.
(2) The Company is expected to pay approximately $27,500 to each Director who
is not an "interested person" of the Company for the fiscal year ending
October 31, 1998, which includes $1000 for each Board meeting and $500 for
each committee meeting attended. Each Portfolio pays its proportionate
share of the total compensation, based on its total net assets relative to
the total net assets of the Company.
(3) Mr. Baxter is a Director who may be deemed to be an "interested person" of
the Company, as that term is defined in the 1940 Act, and consequently will
be receiving no compensation from the Company.
As of the date of this Statement of Additional Information, the Directors and
officers of the Company as a group owned less than 1% of the outstanding shares
of each class of shares of each PBHG Advisor Fund.
COMPUTATION OF YIELD
From time to time, the PBHG Advisor Cash Reserves Fund may advertise its
"current yield" and "effective compound yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the PBHG Advisor Cash Reserves Fund refers to the income generated by
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" is calculated similarly but, when annualized, the income
earned by an investment in the Fund is assumed to be reinvested. The
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<PAGE>
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
The current yield of the PBHG Advisor Cash Reserves Fund will be calculated
daily based upon the seven days ending on the date of calculation ("base
period"). The yield is computed by determining the net change (exclusive of
capital changes and income other than investment income) in the value of a
hypothetical pre-existing shareholder account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return and multiplying the result by (365/7). Realized and unrealized gains and
losses are not included in the calculation of the yield. The effective compound
yield of the Fund is determined by computing the net change (exclusive of
capital changes and income other than investment income) in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account at
the beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result, according to the
following formula: Effective Yield = ((Base Period Return + 1) 365/7) - 1. The
current and the effective yields reflect the reinvestment of net income earned
daily on portfolio assets.
The yield of the PBHG Advisor Cash Reserves Fund fluctuates, and the
annualization of a week's dividend is not a representation by the Fund as to
what an investment in the Fund will actually yield in the future. Actual yields
will depend on such variables as asset quality, average asset maturity, the type
of instruments the Fund invests in, changes in interest rates on money market
instruments, changes in the expenses of the Fund and other factors.
Yields are one basis upon which investors may compare the PBHG Advisor Cash
Reserves Fund with other money market funds; however, yields of other money
market funds and other investment vehicles may not be comparable because of the
factors set forth above and differences in the methods used in valuing portfolio
instruments.
CALCULATION OF TOTAL RETURN
From time to time, each of the PBHG Advisor Funds may advertise its total
returns. The total return refers to the average compounded rate of return to a
hypothetical investment for designated time periods (including, but not limited
to, the period from which a Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula: P (1 + T)n = ERV, where P = a hypothetical initial payment of
$1,000; T = average annual total return; n = number of years; and ERV = ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
designated time period as of the end of such period.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made on any day on which the New York Stock
Exchange is open for business. However, shares of the PBHG Advisor Cash Reserves
Fund cannot be purchased,
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<PAGE>
exchanged or redeemed (i) on days when the Federal Reserve is closed, or (ii) by
Federal Reserve wire on federal holidays restricting wire transfers. Currently,
the following holidays are observed by the PBHG Advisor Funds: New Year's Day,
Martin Luther King, Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Shares of the Funds are offered on a continuous basis.
It is currently the Company's policy to pay all redemptions in cash. The Company
retains the right, however, to provide for redemptions in whole or in part by a
distribution in-kind of securities held by the Funds in lieu of cash in certain
cases. Each PBHG Advisor Fund has made an election pursuant to Rule 18f-1 under
the 1940 Act by which such Fund has committed itself to pay in cash all requests
for redemption by any shareholder of record, limited in amount with respect to
each shareholder during any 90-day period to the lesser of (1) $250,000 or (2)
one percent of the net asset value of the Fund at the beginning of such 90-day
period. Shareholders may incur brokerage charges on the sale of any securities
received in payment of redemptions.
The Company reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of a PBHG Advisor Fund's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Company also reserves the right to suspend sales of shares of a Fund for any
period during which the New York Stock Exchange, the Adviser, the Administrator,
Sub-Administrator, the Transfer Agent and/or the Custodian are not open for
business.
DETERMINATION OF NET ASSET VALUE
The securities of each PBHG Advisor Fund are valued by the Sub-Administrator.
The Sub-Administrator will use an independent pricing service to obtain
valuations of securities. The pricing service relies primarily on prices of
actual market transactions as well as trade quotations. The procedures of the
pricing service and its valuations are reviewed by the officers of the Company
under the general supervision of the Directors.
Securities listed on an exchange or quoted on a national market system are
valued at the last sales price. Other securities are quoted at the last bid
price. In the event a listed security is traded on more than one exchange, it is
valued at the last sale price on the exchange on which it is principally traded.
If there are no transactions in a security during the day, it is valued at the
most recent bid price. However, debt securities (other than short-term
obligations), including listed issues, are valued on the basis of valuations
furnished by a pricing service which utilizes electronic data processing
techniques to determine valuations for normal institutional size trading units
of debt securities, without exclusive reliance upon exchange or over-the-counter
prices. Short-term obligations are valued at amortized cost. Securities for
which market quotations are not readily available and other assets held by the
PBHG Advisor Funds, if any, are valued at their fair value as determined in good
faith by the Board of Directors.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded, and are translated from the local currency into U.S.
dollars using current exchange rates. In
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<PAGE>
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 net asset value per share of the PBHG Advisor Cash Reserves Fund is
calculated by adding the value of securities and other assets, subtracting
liabilities and dividing by the number of outstanding shares. Securities will be
valued by the amortized cost method which involves valuing a security at its
cost on the date of purchase and thereafter (absent unusual circumstances)
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuations in general market rates of interest on
the value of the instrument. While this method provides certainty in valuation,
it may result in periods during which a security's value, as determined by this
method, is higher or lower than the price the Fund would receive if it sold the
instrument. During periods of declining interest rates, the daily yield of the
PBHG Advisor Cash Reserves Fund may tend to be higher than a like computation
made by a company with identical investments utilizing a method of valuation
based upon market prices and estimates of market prices for all of its portfolio
securities. Thus, if the use of amortized cost by the Fund resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in the
Fund would be able to obtain a somewhat higher yield than would result from
investment in a company utilizing solely market values, and existing investors
in the Fund would experience a lower yield. The converse would apply in a period
of rising interest rates.
The use of amortized cost valuation by the PBHG Advisor Cash Reserves Fund and
the maintenance of the Fund's net asset value at $1.00 are permitted by
regulations set forth in Rule 2a-7 under the 1940 Act, provided that certain
conditions are met. Under Rule 2a-7, as amended, a money market portfolio must
maintain a dollar-weighted average maturity in the Fund of 90 days or less and
not purchase any instrument having a remaining maturity of more than 397 days.
In addition, money market funds may acquire only U.S. dollar denominated
obligations that present minimal credit risks and that are "eligible securities"
which means they are (i) rated, at the time of investment, by at least two
nationally recognized statistical rating organizations (one if it is the only
organization rating such obligation) in the highest short-term rating category
or, if unrated, determined to be of comparable quality (a "first tier
security"), or (ii) rated according to the foregoing criteria in the second
highest short-term rating category or, if unrated, determined to be of
comparable quality ("second tier security"). The Adviser will determine that an
obligation presents minimal credit risks or that unrated instruments are of
comparable quality in accordance with guidelines established by the Directors.
The Directors must approve or ratify the purchase of any unrated securities or
securities rated by only one rating organization. In addition, investments in
second tier securities are subject to the further constraints that (i) no more
than 5% of the Fund's assets may be invested in such securities in the
aggregate, and (ii) any investment in such securities of one issuer is limited
to the greater of 1% of the Fund's total assets or $1 million. The regulations
also require the Directors to establish procedures which are reasonably designed
to stabilize the net asset value per share at $1.00 for the Fund. However, there
is no assurance that the Fund will be able to meet this objective. The Fund's
procedures include the determination of the extent of deviation, if any, of the
Fund's current net asset value per unit calculated using available market
quotations from the Fund's amortized cost price per share at such intervals as
the Directors deem appropriate and reasonable in light of market conditions and
periodic reviews of the amount of the deviation and the methods used to
calculate such deviation. In the event that such deviation exceeds 1/2 of 1%,
the Directors are required to consider promptly
S-30
<PAGE>
what action, if any, should be initiated. If the Directors believe that the
extent of any deviation may result in material dilution or other unfair results
to shareholders, the Directors are required to take such corrective action as
they deem appropriate to eliminate or reduce such dilution or unfair results to
the extent reasonably practicable. In addition, if the Fund incurs a significant
loss or liability, the Directors have the authority to reduce pro rata the
number of shares of that Fund in each shareholder's account and to offset each
shareholder's pro rata portion of such loss or liability from the shareholder's
accrued but unpaid dividends or from future dividends.
TAXES
The following is only a summary of certain income tax considerations generally
affecting the PBHG Advisor Funds and their shareholders and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their tax
advisors with specific reference to their own tax situations, including their
state and local income tax liabilities.
Federal Income Tax
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated herein.
Qualification as a Regulated Investment Company
Each PBHG Advisor Fund intends to qualify as a "regulated investment company"
("RIC") as defined under Subchapter M of the Code. In order to qualify for
treatment as a RIC under the Code, each Fund must distribute annually to its
shareholders at least the sum of 90% of its net interest income excludable from
gross income plus 90% of its investment company taxable income (generally, net
investment income plus net short-term capital gain) ("Distribution
Requirement"). In addition to the Distribution Requirement, each Fund must meet
several other requirements. Among these requirements are the following: (i) each
Fund must derive at least 90% of its gross income in each taxable year from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
and other income (including but not limited to gains from options, futures or
forward contracts derived with respect to the Fund's business of investing in
such stock, securities or currencies) (the "Income Requirement"); (ii) at the
close of each quarter of the Fund's taxable year, at least 50% of the value of
its total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and securities of other issuers, with such
securities of other issuers limited, in respect to any one issuer, to an amount
that does not exceed 5% of the value of the Fund's assets and that does not
represent more than 10% of the outstanding voting securities of such issuer; and
(iii) no more than 25% of the value of a Fund's total assets may be invested in
the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which the Fund controls and which are engaged in the same or similar trades or
businesses (the "Asset Diversification Test"). For purposes of the Asset
Diversification Test, it is unclear under present law who should be treated as
the issuer of forward foreign currency exchange contracts, of
S-31
<PAGE>
options on foreign currencies, or of foreign currency futures and related
options. It has been suggested that the issuer in each case may be the foreign
central bank or foreign government backing the particular currency.
Consequently, a Fund may find it necessary to seek a ruling from the Internal
Revenue Service on this issue or to curtail its trading in forward foreign
currency exchange contracts in order to stay within the limits of the Asset
Diversification Test.
For purposes of the Income Requirement, foreign currency gains (including gains
from options, futures or forward contracts on foreign currencies) that are not
"directly related" to a Fund's principal business may, under regulations not yet
issued, be excluded from qualifying income.
If a PBHG Advisor Fund fails to qualify as a RIC for any taxable year, it will
be taxable at regular corporate rates on its net investment income and net
capital gain without any deductions for amounts distributed to shareholders. In
such an event, all distributions (including capital gains distributions) will be
taxable as ordinary dividends to the extent of that Fund's current and
accumulated earnings and profits and such distributions will generally be
eligible for the corporate dividends-received deduction.
Fund Distributions
Notwithstanding the Distribution Requirement described above, which requires
only that a PBHG Advisor Fund distribute at least 90% of its annual investment
company taxable income and does not require any minimum distribution of net
capital gain (the excess of net long-term capital gain over net short-term
capital loss), the Fund will be subject to a nondeductible 4% federal excise tax
to the extent it fails to distribute by the end of any calendar year 98% of its
ordinary income for that year and 98% of its capital gain net income (the excess
of short- and long-term capital gains over short-and long-term capital losses)
for the one-year period ending on October 31 of that calendar year, plus certain
other amounts.
Treasury regulations permit a RIC in determining its investment company taxable
income and undistributed net capital gain for any taxable year to elect to treat
all or part of any net capital loss, any net long-term capital loss, or any net
foreign currency loss incurred after October 31 as if it had been incurred in
the succeeding year.
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in shares. Capital gain dividends are taxable to
shareholders as a long-term capital gain, regardless of the length of time a
shareholder has held his shares. Under the Taxpayer Relief Act of 1997, the
Internal Revenue Service is authorized to issue regulations that will enable
shareholders to determine the tax rates applicable to such capital gain
distributions. For calendar year 1997, the Internal Revenue Service has
announced that RICs will be required to report to their shareholders the amount
of capital gain dividends subject to taxation at the 28 percent tax rate.
Withholding
In certain cases, a PBHG Advisor Fund will be required to withhold, and remit to
the U.S. Treasury, 31% of any distributions paid to a shareholder who (i) has
failed to provide a correct taxpayer
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<PAGE>
identification number, (ii) is subject to backup withholding by the Internal
Revenue Service, or (iii) has not certified to the Fund that such shareholder is
not subject to backup withholding.
Redemption or Exchange of Shares.
Upon a redemption or exchange of shares, a shareholder will recognize a taxable
gain or loss depending upon his or her basis in the shares. Unless the shares
are disposed of as part of a conversion transaction, such gain or loss will be
treated as capital gain or loss if the shares are capital assets in the
shareholder's hands and will be long-term or short-term, depending upon the
shareholder's holding period for the shares. Any loss recognized by a
shareholder on the sale of Fund shares held six months or less will be treated
as a long-term capital loss to the extent of any distributions of net capital
gains received by the shareholder with respect to such shares.
Any loss recognized on a sale or exchange will be disallowed to the extent that
Fund shares are sold and replaced within the 61-day period beginning 30 days
before and ending 30 days after the disposition of such shares. In such a case,
the basis of the shares acquired will be increased to reflect the disallowed
loss. Shareholders should particularly note that this loss disallowance rule
applies even where shares are automatically replaced under the dividend
reinvestment plan.
Investment in Foreign Financial Instruments. Under Code Section 988, gains or
losses from certain foreign currency forward contracts or fluctuations in
currency exchange rates will generally be treated as ordinary income or loss.
Such Code Section 988 gains or losses will increase or decrease the amount of a
PBHG Advisor Fund's investment company taxable income available to be
distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gains. Additionally, if Code
Section 988 losses exceed other investment company taxable income during a
taxable year, the Fund would not be able to pay any ordinary income dividends,
and any such dividends paid before the losses were realized, but in the same
taxable year, would be recharacterized as a return of capital to shareholders,
thereby reducing the tax basis of Fund shares.
Hedging Transactions
Some of the forward foreign currency exchange contracts, options and futures
contracts that the Funds may enter into will be subject to special tax treatment
as "Section 1256 contracts." Section 1256 contracts are treated as if they are
sold for their fair market value on the last business day of the taxable year,
regardless of whether a taxpayer's obligations (or rights) under such contracts
have terminated (by delivery, exercise, entering into a closing transaction or
otherwise) as of such date. Any gain or loss recognized as a consequence of the
year-end deemed disposition of Section 1256 contracts is combined with any other
gain or loss that was previously recognized upon the termination of Section 1256
contracts during that taxable year. The net amount of such gain or loss for the
entire taxable year (including gain or loss arising as a consequence of the
year-end deemed sale of such contracts) is deemed to be 60% long-term and 40%
short-term gain or loss. However, in the case of Section 1256 contracts that are
forward foreign currency exchange contracts, the net gain or loss is separately
determined and (as discussed above) generally treated as ordinary income or
loss.
Generally, the hedging transactions in which the PBHG Advisor Funds may engage
may result in "straddles" or "conversion transactions" for U.S. federal income
tax purposes. The straddle and
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<PAGE>
conversion transaction rules may affect the character of gains (or in the case
of the straddle rules, losses) realized by the Funds. In addition, losses
realized by the Funds on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules and the
conversion transaction rules have been promulgated, the tax consequences to the
Funds of hedging transactions are not entirely clear. The hedging transactions
may increase the amount of short-term capital gain realized by the Funds (and,
if they are conversion transactions, the amount of ordinary income) which is
taxed as ordinary income when distributed to shareholders.
Each PBHG Advisor Fund may make one or more of the elections available under the
Code which are applicable to straddles. If a Fund makes any of the elections,
the amount, character, and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Transactions that may be engaged in by certain of the Funds (such as short sales
"against the box") may be subject to special tax treatment as "constructive
sales" under section 1259 of the Code if a Fund holds certain "appreciated
financial positions" (defined generally as any interest (including a futures or
forward contract, short sale or option) with respect to stock, certain debt
instruments, or partnership interests if there would be a gain were such
interest sold, assigned, or otherwise terminated at its fair market value). Upon
entering into a constructive sales transaction with respect to an appreciated
financial position, a Fund will be deemed to have constructively sold such
appreciated financial position and will recognize gain as if such position were
sold, assigned, or otherwise terminated at its fair market value on the date of
such constructive sale (and will take into account any gain for the taxable year
which includes such date).
Because application of the straddle, conversion transaction and constructive
sale rules may affect the character of gains or losses, defer losses and/or
accelerate the recognition of gains or losses from the affected straddle or
investment positions, the amount which must be distributed to shareholders and
which will be taxed to shareholders as ordinary income or long-term capital gain
may be increased or decreased as compared to a fund that did not engage in such
transactions.
Requirements relating to each PBHG Advisor Fund's tax status as a RIC may limit
the extent to which a Fund will be able to engage in transactions in options and
futures contracts.
State Taxes
Distributions by a PBHG Advisor Fund to shareholders and the ownership of shares
may be subject to state and local taxes.
S-34
<PAGE>
Foreign Income Taxes
Foreign Tax Consequences
Investment Income received from foreign sources may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on a PBHG Advisor Fund's securities. Tax conventions
between certain countries and the United States may reduce or eliminate these
taxes. Foreign countries generally do not impose taxes on capital gains with
respect to investments by foreign investors. If a Fund meets the Distribution
Requirement and if more than 50% of the value of the Fund's total assets at the
close of its taxable year consists of securities of foreign corporations, the
Fund will be eligible to file an election with the Internal Revenue Service that
will enable shareholders, in effect, to receive the benefit of the foreign tax
credit with respect to any foreign and U.S. possessions income taxes paid by the
Fund (the "Foreign Tax Credit Election"). Pursuant to the Foreign Tax Credit
Election, the Fund will treat those taxes as dividends paid to its shareholders.
Each shareholder will be required to include a proportionate share of those
taxes in gross income as income received from a foreign source and must treat
the amount so included as if the shareholder had paid the foreign tax directly.
The shareholder may then either deduct the taxes deemed paid by him or her in
computing his or her taxable income or, alternatively, use the foregoing
information in calculating the foreign tax credit against the shareholder's
federal income tax. However, the Taxpayer Relief Act of 1997 has imposed holding
period requirements that must be satisfied by both the Fund and the shareholders
before a shareholder will be allowed a deduction or credit. If the Fund makes
the Foreign Tax Credit Election, it will report annually to its shareholders the
respective amounts per share of the Fund's income from sources within, and taxes
paid to, foreign countries and U.S. possessions.
Foreign Shareholders
Dividends from a PBHG Advisor Fund's investment company taxable income and
distributions constituting returns of capital paid to a nonresident alien
individual, a foreign trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") generally will be subject to U.S.
withholding tax at a rate of 30% (or lower treaty rate) upon the gross amount of
the dividend. Foreign shareholders may be subject to U.S. withholding tax at a
rate of 30% on the income resulting from a Fund's Foreign Tax Credit Election,
but may not be able to claim a credit or deduction with respect to the
withholding tax for the foreign taxes treated as having been paid by them.
A foreign shareholder generally will not be subject to U.S. taxation on gain
realized upon the redemption or exchange of shares of a PBHG Advisor Fund or on
capital gain dividends. In the case of a foreign shareholder who is a
nonresident alien individual, however, gain realized upon the sale or redemption
of shares of a Fund and capital gain dividends ordinarily will be subject to
U.S. income tax at a rate of 30% (or lower applicable treaty rate) if such
individual is physically present in the U.S. for 183 days or more during the
taxable year and certain other conditions are met. In the case of a foreign
shareholder who is a nonresident alien individual, the Funds may be required to
withhold U.S. federal income tax at a rate of 31% unless proper notification of
such shareholder's foreign status is provided.
S-35
<PAGE>
Notwithstanding the foregoing, if distributions by the PBHG Advisor Funds are
effectively connected with a U.S. trade or business of a foreign shareholder,
then dividends from such Fund's investment company taxable income, capital
gains, and any gains realized upon the sale of shares of the Fund will be
subject to U.S. income tax at the graduated rates applicable to U.S. citizens or
domestic corporations.
Transfers by gift of shares of a PBHG Advisor Fund by a foreign shareholder who
is a nonresident alien individual will not be subject to U.S. federal gift tax.
An individual who, at the time of death, is a foreign shareholder will
nevertheless be subject to U.S. federal estate tax with respect to shares at the
graduated rates applicable to U.S. citizens and residents, unless a treaty
exception applies. In the absence of a treaty, there is a $13,000 statutory
estate tax credit.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisors with respect to the
particular tax consequences to them of an investment in any of the PBHG Advisor
Funds.
Miscellaneous Considerations
The foregoing general discussion of federal income tax consequences is based on
the Code and the regulations issued thereunder as in effect on November 1, 1997.
Future legislative or administrative changes or court decisions may
significantly change the conclusions expressed herein, and any such changes or
decisions may have a retroactive effect with respect to the transactions
contemplated herein.
Prospective shareholders are encouraged to consult their tax advisors as to the
consequences of these and other U.S., state, local, and foreign tax rules
affecting investments in the PBHG Advisor Funds.
PORTFOLIO TRANSACTIONS
The Adviser or sub-advisers are authorized to select brokers and dealers to
effect securities transactions for the PBHG Advisor Funds. The Adviser or
sub-advisers will seek to obtain the most favorable net results by taking into
account various factors, including price, commission, if any, size of the
transactions and difficulty of executions, the firm's general execution and
operational facilities and the firm's risk in positioning the securities
involved. While the Adviser or sub-advisers generally seek reasonably
competitive spreads or commissions, the Fund will not necessarily be paying the
lowest spread or commission available. The Adviser or sub-advisers seek to
select brokers or dealers that offer the Funds best price and execution or other
services which are of benefit to the Funds. Certain brokers or dealers assist
their clients in the purchase of shares from the Distributor and charge a fee
for this service in addition to a Fund's public offering price. In the case of
securities traded in the over-the-counter market, the Adviser or sub-advisers
expect normally to seek to select primary market makers.
The Adviser or sub-advisers may, consistent with the interests of the PBHG
Advisor Funds, select brokers on the basis of the research services they provide
to the Adviser or sub-advisers. Such services may include analyses of the
business or prospects of a company, industry or economic sector,
S-36
<PAGE>
or statistical and pricing services. Information so received by the Adviser will
be in addition to and not in lieu of the services required to be performed by
the Adviser under the Advisory Agreement. If, in the judgment of the Adviser or
sub-adviser, a Fund or other accounts managed by the Adviser or sub-adviser will
be benefitted by supplemental research services, the Adviser or sub-advisers are
authorized to pay brokerage commissions to a broker furnishing such services
which are in excess of commissions which another broker may have charged for
effecting the same transaction. These research services include advice, either
directly or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; furnishing of
analyses and reports concerning issuers, securities or industries; providing
information on economic factors and trends; assisting in determining portfolio
strategy; providing computer software used in security analyses; and providing
portfolio performance evaluation and technical market analyses. The expenses of
the Adviser or sub-advisers will not necessarily be reduced as a result of the
receipt of such information, and such services may not be used exclusively, or
at all, with respect to the Fund or account generating the brokerage, and there
can be no guarantee that the Adviser or sub-advisers will find any specific
service of value in advising the Funds.
It is expected that the PBHG Advisor Funds may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934,
as amended, and rules promulgated by the SEC. In addition, the Adviser or
sub-advisers may direct commission business to one or more designated
broker-dealers, including the Distributor, in connection with such
broker-dealer's payment of certain of the Fund's or the Company's expenses. In
addition, the Adviser or sub-adviser may place orders for the purchase or sale
of Fund securities with qualified broker-dealers that refer prospective
shareholders to the Funds. The Directors, including those who are not
"interested persons" of the Company, have adopted procedures for evaluating the
reasonableness of commissions paid to the Distributor and will review these
procedures periodically.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD") and subject to seeking best execution and such other
policies as the Board of Directors may determine, the Adviser may consider sales
of a PBHG Advisor Fund's shares as a factor in the selection of broker-dealers
to execute portfolio transactions for the Fund.
The Company's Board of Directors has adopted a Code of Ethics governing personal
trading by persons who manage, or who have access to trading activity by a PBHG
Advisor Fund. The Code of Ethics allows trades to be made in securities that may
be held by the Fund, however, it prohibits a person from taking advantage of
Fund trades or from acting on inside information.
DESCRIPTION OF SHARES
The Company may increase the number of shares which each PBHG Advisor Fund is
authorized to issue and may create additional portfolios of the Company. Each
share of a Fund represents an equal proportionate interest in that Fund with
each other share. Shares are entitled upon liquidation to a pro rata share in
the net assets of the Fund available for distribution to shareholders.
Shareholders have no preemptive rights. All consideration received by the
Company for shares of any Fund and all
S-37
<PAGE>
assets in which such consideration is invested would belong to that Fund and
would be subject to the liabilities related thereto.
5% AND 25% SHAREHOLDERS
As of March 31,1998, Pilgrim Baxter & Associates, Ltd. owned all of the shares
of each Fund.
FINANCIAL STATEMENTS
Coopers & Lybrand L.L.P. serves as the independent accountants for the Company.
An audited Statement of Assets and Liabilities with notes thereto of each Fund
as of March 20, 1998, and the report of Coopers & Lybrand, L.L.P. with respect
thereto are set forth below.
S-38
<PAGE>
PBHG Advisor Funds, Inc.
Statements of Assets and Liabilities
March 20, 1998
<TABLE>
<CAPTION>
PBHG Advisor
PBHG Advisor Value PBHG Advisor PBHG Advisor
Core Value Opportunities New Contrarian REIT
Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash $ 300 $10,900 $10,875 $ 300
Organizational Cost $25,875 $ 2,875 $ 2,875 $2,875
------- ------- ------- ------
Total Assets $26,175 $13,775 $13,750 $3,175
Liabilities:
Accrued Expenses $25,875 $ 2,875 $ 2,875 $2,875
------- ------- ------- ------
Total Liabilities $25,875 $ 2,875 $ 2,875 $2,875
Net Assets:
Portfolio shares of Class A (authorized 100,000,000 shares -
$0.001 par value for each fund) based on 10, 365, 363 and 10
outstanding shares of common stock, respectively $ 100 $ 3,650 $ 3,625 $ 100
Net Assets:
Portfolio shares of Class B (authorized 100,000,000 shares -
$0.001 par value for each fund) based on 10, 363, 363 and 10
outstanding shares of common stock, respectively $ 100 $ 3,625 $ 3,625 $ 100
Net Assets:
Portfolio shares of Class I (authorized 100,000,000 shares -
$0.001 par value for each fund) based on 10, 363, 363 and 10
outstanding shares of common stock, respectively $ 100 $ 3,625 $ 3,625 $ 100
- --------------------------------------------------------------------------------------------------------------------------------
Total Net Assets $ 300 $10,900 $10,875 $ 300
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share - Class A $ 10.00 $ 10.00 $ 10.00 $10.00
Net Asset Value Per Share - Class B $ 10.00 $ 10.00 $ 10.00 $10.00
Net Asset Value Per Share - Class I $ 10.00 $ 10.00 $ 10.00 $10.00
The accompanying notes are an integral part of the statements of assets and liabilities.
</TABLE>
<PAGE>
PBHG Advisor Funds, Inc.
Statements of Assets and Liabilities
March 20, 1998
<TABLE>
<CAPTION>
PBHG
PBHG PBHG PBHG PBHG Advisor
Advisor Advisor Advisor PBHG Advisor Global
Blue Chip Growth Enhanced Advisor New Technology &
Growth Opportunities Equity Trend Opportunities Communications
Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash $ 300 $10,875 $10,875 $ 300 $10,875 $10,875
Organizational Cost $29,571 $ 2,555 $29,571 $2,555 $ 2,555 $ 2,555
------- ------- ------- ------ ------- -------
Total Assets $29,871 $13,430 $40,446 $2,855 $13,430 $13,430
Liabilities:
Accrued Expenses $29,571 $ 2,555 $29,571 $2,555 $ 2,555 $ 2,555
------- ------- ------- ------ ------- -------
Total Liabilities $29,571 $ 2,555 $29,571 $2,555 $ 2,555 $ 2,555
Net Assets:
Portfolio shares of Class A
(authorized 100,000,000 shares -
$0.001 par value for each fund)
based on 10, 363, 363, 10, 363 and 363
outstanding shares of common stock,
respectively $ 100 $ 3,625 $ 3,625 $ 100 $ 3,625 $ 3,625
Net Assets:
Portfolio shares of Class B
(authorized 100,000,000 shares -
$0.001 par value for each fund)
based on 10, 363, 363, 10, 363 and 363
outstanding shares of common stock,
respectively $ 100 $ 3,625 $ 3,625 $ 100 $ 3,625 3,625
Net Assets:
Portfolio shares of Class I
(authorized 100,000,000 shares -
$0.001 par value for each fund)
based on 10, 363, 363, 10, 363 and 363
outstanding shares of common stock,
respectively $ 100 $ 3,625 $ 3,625 $ 100 $ 3,625 $ 3,625
- -----------------------------------------------------------------------------------------------------------------------------
Total Net Assets $ 300 $10,875 $10,875 $ 300 $10,875 $10,875
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share - Class A $ 10.00 $ 10.00 $ 10.00 $10.00 $ 10.00 $ 10.00
Net Asset Value Per Share - Class B $ 10.00 $ 10.00 $ 10.00 $10.00 $ 10.00 $ 10.00
Net Asset Value Per Share - Class I $ 10.00 $ 10.00 $ 10.00 $10.00 $ 10.00 $ 10.00
The accompanying notes are an integral part of the statements of assets and liabilities.
</TABLE>
<PAGE>
PBHG Advisor Funds, Inc.
Statements of Assets and Liabilities
March 20, 1998
<TABLE>
<CAPTION>
PBHG
PBHG Advisor PBHG PBHG
PBHG Advisor PBHG Master Advisor Advisor
Advisor Large Cap Advisor Fixed Short-Term Cash
Growth II Concentrated High Yield Income Government Reserves
Fund Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash $ 300 $10,875 $ 300 $10,875 $ 300 $10,875
Organizational Cost $ 2,555 $29,571 $2,555 $29,571 $29,571 $29,571
------- ------- ------ ------- ------- -------
Total Assets $ 2,855 $40,446 $2,855 $40,446 $29,871 $40,446
Liabilities:
Accrued Expenses $ 2,555 $29,571 $2,555 $29,571 $29,571 $29,571
------- ------- ------ ------- ------- -------
Total Liabilities $ 2,555 $29,571 $2,555 $29,571 $29,571 $29,571
Net Assets:
Portfolio shares of Class A
(authorized 100,000,000 shares -
$0.001 par value for each fund)
based on 10, 363, 10, 363, 10 and 3,625
outstanding shares of common stock,
respectively $ 100 $ 3,625 $ 100 $ 3,625 $ 100 $ 3,625
Net Assets:
Portfolio shares of Class B
(authorized 100,000,000 shares -
$0.001 par value for each fund)
based on 10, 363, 10, 363, 10 and 3,625
outstanding shares of common stock,
respectively $ 100 $ 3,625 $ 100 $ 3,625 $ 100 $ 3,625
Net Assets:
Portfolio shares of Class I
(authorized 100,000,000 shares -
$0.001 par value for each fund)
based on 10, 363, 10, 363, 10 and 3,625
outstanding shares of common stock,
respectively $ 100 $ 3,625 $ 100 $ 3,625 $ 100 $ 3,625
- -----------------------------------------------------------------------------------------------------------------------------
Total Net Assets $ 300 $10,875 $ 300 $10,875 300 $10,875
- ------------------------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share - Class A $ 10.00 $ 10.00 $10.00 $ 10.00 $ 10.00 $ 1.00
Net Asset Value Per Share - Class B $ 10.00 $ 10.00 $10.00 $ 10.00 $ 10.00 $ 1.00
Net Asset Value Per Share - Class I $ 10.00 $ 10.00 $10.00 $ 10.00 $ 10.00 $ 1.00
The accompanying notes are an integral part of the statements of assets and liabilities.
</TABLE>
<PAGE>
Notes To Statements of Assets and Liabilities PBHG Advisor Funds, Inc.
March 20, 1998
(1) Organization
PBHG Advisor Funds, Inc. (the "Funds"), a Maryland corporation, is registered
under the Investment Company Act of 1940, as amended, as an open-end management
investment company with sixteen series: the PBHG Advisor Core Value Fund (the
"Core Value Fund"), the PBHG Advisor Value Opportunities Fund (the "Value
Opportunities Fund"), the PBHG Advisor New Contrarian Fund (the "New Contrarian
Fund"), the PBHG Advisor REIT Fund (the "REIT Fund"), the PBHG Advisor Large Cap
Concentrated Fund (the "Large Cap Concentrated Fund"), the PBHG Advisor Growth
II Fund (the "Growth II Fund"), the PBHG Advisor New Opportunities Fund (the
"New Opportunities Fund"), the PBHG Advisor Global Technology & Communications
Fund (the "Global Technology & Communications Fund"), the PBHG Advisor Blue Chip
Growth Fund (the "Blue Chip Growth Fund"), the PBHG Advisor Growth Opportunities
Fund (the "Growth Opportunities Fund"), the PBHG Advisor Enhanced Equity Fund
(the "Enhanced Equity Fund"), the PBHG Advisor Trend Fund (the "Trend Fund"),
(collectively referred to as the "Equity Portfolios"), the PBHG Advisor Master
Fixed Income Fund (the "Master Fixed Income Fund"), the PBHG Advisor High Yield
Fund (the "High Yield Fund"), the PBHG Advisor Cash Reserves Fund (the "Cash
Reserves Fund"), and the PBHG Advisor Short-Term Government Fund (the
"Short-Term Government Fund") (each a "Fund" and, collectively, the "Funds"). To
date, the Fund has had no transactions other than those relating to
organizational matters and the issuance of 10,000 shares of common stock to
Pilgrim Baxter & Associates, Ltd. (the "Adviser"). Each of the Funds has
distinct investment objectives and policies that are described in the
prospectus.
(2) Significant Accounting Policies
The following is a summary of the significant accounting policies followed by
the Funds.
Security Valuation -- Investment securities of the Equity Funds that are listed
on a securities exchange for which market quotations are available are valued at
the last quoted sales price on each business day. If there is no such reported
sale, these securities and unlisted securities for which market quotations are
readily available, are valued at the most recently quoted bid price. However,
debt securities (other than short-term obligations), including listed issues,
are valued on the basis of valuations furnished by the pricing service which
utilizes electronic data processing techniques to determine valuations for
normal institutional size trading units of debt securities, without exclusive
reliance upon exchange or over-the-counter prices. Short-term investments may be
valued at amortized cost which approximates market value. Foreign securities are
valued based upon 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 values of investment
securities held by the Cash Reserves Fund are stated at amortized cost, which
approximates market value. Under this valuation method, acquisition discounts
and premiums are accreted and amortized ratably to maturity and are included in
interest income.
Security Transactions and Investment Income - Security transactions are
accounted for on the date the securities are purchased or sold (trade date).
Dividend income and distributions to shareholders are recognized on the
ex-dividend date; interest income is recognized on the accrual basis. Costs used
in determining realized capital gains and losses on the sale of investment
securities are those of the specific securities sold adjusted for the accretion
and amortization of acquisition discounts and premiums during
<PAGE>
Notes To Statements of Assets and Liabilities PBHG Advisor Funds, Inc.
March 20, 1998 (continued)
the respective holding periods. Acquisition discounts and premiums are accreted
and amortized to maturity using a method which approximates the effective
interest method.
Dividends - Dividends from net investment income for the Equity Funds are
declared annually, if available. Dividends from net investment income for the
Master Fixed Income Fund, the High Yield Fund, the Short-Term Government Fund
and the Cash Reserves Fund are declared daily and paid monthly. Distributions of
net realized capital gains, for all funds, are generally made to shareholders
annually. Dividends from net investment income and distributions from net
realized capital gains are determined in accordance with U.S. Federal income tax
regulations, which may differ from those amounts determined under generally
accepted accounting principles. These book/tax differences are either temporary
or permanent in nature. To the extent these differences are permanent, they are
charged or credited to paid-in-capital or accumulated net realized gain, as
appropriate, in the period that the differences arise.
Organizational Costs -- All organizational costs incurred with the start up of
the Funds will be amortized on a straight line basis over a period of sixty
months commencing with operations provided that the series commence operations
prior to June 30, 1998. For those series that commence operations after June 30,
1998 such costs will be expensed over a period not to exceed one year. In the
event that any of the initial shares of the Fund are redeemed by any holder
thereof during the period that the Fund is amortizing its organizational costs,
the redemption proceeds payable to the holder thereof will be reduced by the
unamortized organizational costs in the same ratio as the number of initial
shares being redeemed bears to the number of initial shares outstanding at the
time of redemption.
Federal Income Taxes -- It is each Fund's intention to qualify as a regulated
investment company for federal income tax purposes, and to distribute all of its
taxable income and net capital gains. Accordingly, no provision has been made
for Federal income taxes.
Net Asset Value Per Share - The net asset value per share is calculated each
business day by dividing the total value of each Fund's assets, less
liabilities, by the number of shares outstanding.
Repurchase Agreements - Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements and procedures adopted by
Pilgrim Baxter & Associates, Ltd. (the "Adviser") ensure that the market value
of the collateral including accrued interest thereon, is sufficient in the event
of default by the counterparty. If the counterparty defaults and the value of
the collateral declines, or if the counterparty enters into insolvency
proceedings, realization of the collateral by a Fund may be delayed or limited.
Other - Expenses that are directly related to one of the Funds are charged
directly to that Fund. Other operating expenses are prorated to the Funds on the
basis of relative net assets. Class specific expenses, such as l2b-1 service
fees and transfer agent fees, are borne directly by that class. Income, other
expenses and realized and unrealized gains and losses of a Fund are allocated to
the respective class on the basis of the relative net assets each day.
(3) Investment Advisory Fees, Administrative Fees and Other Transactions with
Affiliates
The Funds and the Adviser are parties to an Investment Advisory Agreement (the
"Advisory Agreement"). Under the terms of the Advisory Agreement, the Adviser is
entitled to a fee, which is calculated daily and paid monthly, at an annual rate
of 0.85% of the average daily net assets of the Value Opportunities, Large Cap
Concentrated, Growth II, and Global Technology & Communications Funds; 0.75% of
the average net assets of the REIT and New Opportunities Funds; 0.65% of the
average net assets of the Growth Opportunities and Trend Funds; 0.60% of the
average net assets of the Core Value, New Contrarian, Blue Chip Growth, and
Enhanced Equity Funds; 0.50% of the average net assets of the
<PAGE>
Notes To Statements of Assets and Liabilities PBHG Advisor Funds, Inc.
March 20, 1998 (continued)
High Yield Fund; 0.45% of the average net assets of the Master Fixed Income
Fund; and 0.30% of the average net assets of the Cash Reserves and Short-Term
Government Funds.
Pilgrim Baxter Value Investors ("Value Investors") serves as the sub-adviser to
the Core Value, New Contrarian, REIT, and Value Opportunities Funds. For its
services provided pursuant to its Investment Sub-Advisory Agreement with the
Adviser and the Fund, Value Investors is entitled to receive, from the Adviser,
a sub-advisory fee with respect to the average daily net assets of each such
Fund that is computed daily and paid monthly at annual rates of 0.40%, 0.40%,
0.55% and 0.65%, respectively. Value Investors receives no fees directly from
the Core Value, New Contrarian, REIT, and Value Opportunities Funds.
Wellington serves as the sub-adviser to the Cash Reserves Fund. For its services
provided pursuant to its Investment Sub-Advisory Agreement with the Adviser and
the Fund, Wellington is entitled to receive, from the Adviser, a sub-advisory
fee that is computed daily and paid monthly at an annual rate of 0.075% of the
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 receives no fees directly from the Cash
Reserves Fund.
Analytic TSA serves as the sub-adviser to the Enhanced Equity, Master Fixed
Income, and Short-Term Government Funds. For its services provided pursuant to
its Investment Sub-Advisory Agreement with the Adviser and the Fund, Analytic
TSA is entitled to receive, from the Adviser, a sub-advisory fee with respect to
the average daily net assets of each such Fund that is computed daily and paid
monthly at annual rates of 0.40%, 0.25%, and 0.10%, respectively. Analytic TSA
receives no fees directly from the Enhanced Equity, Master Fixed Income, and
Short-Term Government Funds.
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, PBHG Advisor New Contrarian Fund, PBHG Advisor Blue Chip Growth
Fund, and PBHG Advisor Enhanced Equity Fund; 1.07% of the PBHG Advisor Value
Opportunities Fund, PBHG Advisor Large Cap Concentrated Fund, PBHG Advisor
Growth II Fund, and PBHG Advisor Global Technology & Communications Fund; 0.97%
of the PBHG Advisor REIT Fund and PBHG Advisor New Opportunities Fund; 0.87% of
the PBHG Advisor Growth Opportunities Fund and PBHG Advisor Trend Fund; 0.67% of
the PBHG Advisor Master Fixed Income Fund; 0.72% of the PBHG Advisor High Yield
Fund; and 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 l8f-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) expense
specifically allocated to a class of shares of a Fund under the Rule l8f-3 Plan,
such as Rule l2b-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. The total amount of
reimbursement to which the Adviser may be entitled shall equal, at any time, the
sum of all investment advisory fees previously waived or reduced by the Adviser
and all other payments remitted by the Adviser to the Fund, during any of the
previous two fiscal years, less any reimbursement previously paid by such Fund
to the Adviser.
<PAGE>
Notes To Statements of Assets and Liabilities PBHG Advisor Funds, Inc.
March 20, 1998 (continued)
PBHG Fund Services (the "Administrator"), a wholly-owned subsidiary of the
Adviser, provides the Funds 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 Funds.
SEI Financial Management Corporation, a wholly-owned subsidiary of SEI
Corporation, is the owner of all beneficial interest in SEI Fund Resources (the
"Sub-Administrator"). The Sub-Administrator assists the Administrator in
providing administrative services to the Funds.
PBHG Fund Distributors, a wholly owned subsidiary of the Adviser, provides the
Funds with distribution services.
DST Systems, Inc. serves as the transfer agent, dividend disbursing agent for
the Funds under a transfer agent agreement with the Funds. PBHG Fund Services
provides shareholder support and other shareholder account-related services with
assistance from UAM Shareholder Service Center. CoreStates Bank, N.A. serves as
the custodian for the Funds.
The Funds have adopted Distribution Plans (the "12b-1 Plan") for those Funds
offering Class A and B shares. The Plan provides for the payment by the Funds to
the Distributor of up to 0.35% of each Fund's average net assets attributable to
Class A shares and up to 1.00% for Class B shares. The Funds' directors have
determined that payments under the l2b-1 distribution plan for Class A shares
will currently be limited to 0.25%. Class I shares are not subject to l2b-1
fees.
Certain officers and directors of the Fund who are or were officers of the
Adviser, Administrator, Sub-Administrator and the Distributor receive no
compensation from the Fund for their services.
(4) Reorganization
On February 20, 1998, the Board of Directors of the Fund and the Board of
Trustees of The Analytic Series Fund approved an Agreement and Plan of
Reorganization to reorganize the Analytic Enhanced Equity Portfolio, Analytic
Master Fixed Income Portfolio, and Analytic Short-Term Government Portfolios
into the PBHG Advisor Enhanced Equity Fund, PBHG Advisor Master Fixed Income
Fund and PBHG Advisor Short-Term Government Fund, respectively. This
reorganization is pending approval of the shareholders of the Analytic Series
Fund at a special meeting currently scheduled to be held on May- 28, 1998.
The reorganization is expected to be performed on May 31, 1998 with all of the
property and assets of the Analytic Series Fund to be transferred to the
corresponding PBHG Advisor Fund. Upon this transfer, the PBHG Advisor Fund will
issue Class A shares of the voting common stock. The portfolios of the Analytic
Series Fund will be accounting survivors for financial reporting purposes.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors
of PBHG Advisor Series Fund, Inc.:
We have audited the accompanying Statements of Assets and Liabilities of PBHG
Advisor Funds, Inc. (the "Fund"), comprised of the PBHG Advisor Core Value, PBHG
Advisor Value Opportunities, PBHG Advisor New Contrarian, PBHG Advisor REIT,
PBHG Advisor Blue Chip Growth, PBHG Advisor Growth Opportunities, PBHG Advisor
Enhanced Equity, PBHG Advisor Trend, PBHG Advisor New Opportunities, PBHG
Advisor Global Technology & Communications, PBHG Advisor Growth II, PBHG Advisor
Large Cap Concentrated, PBHG Advisor High Yield, PBHG Advisor Master Fixed
Income, PBHG Advisor Short-Term Government and PBHG Advisor Cash Reserves Funds,
as of March 20, 1998. These financial statements are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Fund as of March 20, 1998
in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
- ----------------------------
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 30, 1998
<PAGE>
Appendix
RATINGS OF SECURITIES
The following is a description of the factors underlying the commercial paper
and debt ratings of Moody's, S&P and Fitch:
Moody's Bond Ratings
Moody's describes its ratings for corporate bonds as follows:
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
A-1
<PAGE>
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
low end of its generic rating category.
Moody's Commercial Paper Ratings
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months.
Prime-1: Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earning coverage of fixed
financial charges and high internal cash generation; and well established access
to a range of financial markets and assured sources of alternate liquidity.
Prime-2: Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuers rated Prime-3 (or related supported institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Not Prime: Issuers rated Not Prime do not fall within any of the Prime rating
categories.
S&P Bond Ratings
S&P describes its ratings for corporate bonds as follows:
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
A-2
<PAGE>
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it nominally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB-B-CCC-CC-C: Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation and C
the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or large exposure
to adverse conditions.
S&P Dual Ratings
S&P assigns "dual" ratings to all debt issues that have a put option or demand
feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and interest
as due, and the second rating addresses only the demand feature. The long-term
debt rating symbols are used for bonds to denote the long-term maturity and the
commercial paper rating symbols for the put option (for example, AAA/A-1+). With
short-term demand debt, the note rating symbols are used with the commercial
paper rating symbols (for example, SP-1+/A-1+).
S&P Commercial Paper Ratings
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Rating categories are as follows:
A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
A-3
<PAGE>
B: Issues with this rating are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt with this rating is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless it is believed that such
payments will be made during such grace period.
Fitch Investment Grade Bond Ratings
Fitch investment grade bond ratings provide a guide to investors in determining
the credit risk associated with a particular security. The ratings represent
Fitch's assessment of the issuer's ability to meet the obligations of a specific
debt issue in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.
Bonds carrying the same rating are of similar but not necessarily identical
credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell or hold any security. Ratings
do not comment on the adequacy of market price, the suitability of any security
for a particular investor, or the tax-exempt nature or taxability of payments
made in respect of any security.
Fitch ratings are based on information obtained from issuers, other obligors,
underwriters, their experts, and other sources Fitch believes to be reliable.
Fitch does not audit or verify the truth or accuracy of such information.
Ratings may be changed, suspended, or withdrawn as a result of changes in, or
the unavailability of, information or for other reasons.
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
A-4
<PAGE>
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds and, therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
Conditional: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.
Suspended: A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.
Withdrawn: A rating will be withdrawn when an issue matures or is called or
refinanced, and, at Fitch's discretion, when an issuer fails to furnish proper
and timely information.
FitchAlert: Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely direction
of such change. These are designated as "Positive," indicating a potential
upgrade, "Negative," for potential downgrade, or "Evolving," where ratings may
be raised or lowered. FitchAlert is relatively short-term and should be resolved
within 12 months.
Ratings Outlook
An outlook is used to describe the most likely direction of any rating change
over the intermediate term. It is described as "Positive" or "Negative." The
absence of a designation indicates a stable outlook.
Fitch Speculative Grade Bond Ratings
Fitch speculative grade bond ratings provide a guide to investors in determining
the credit risk associated with a particular security. The ratings ("BB" to "C")
represent Fitch's assessment of the likelihood of timely payment of principal
and interest in accordance with the terms of obligation for bond issues not in
default. For defaulted bonds, the rating ("DDD" to "D") is an assessment of the
ultimate recovery value through reorganization or liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer or possible recovery value in
bankruptcy, the current and prospective financial condition and operating
performance of the issuer and any guarantor, as well as the economic and
political environment that might affect the issuer's future financial strength.
A-5
<PAGE>
Bonds that have the same rating are of similar but not necessarily identical
credit quality since rating categories cannot fully reflect the differences in
degrees of credit risk.
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified, which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics that, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "DDD", "DD", or "D" categories.
Fitch Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
Fitch short-term ratings are as follows:
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+."
A-6
<PAGE>
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned "F-1+" and "F-1" ratings.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
F-S: Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.
D: Default. Issues assigned this rating are in actual or imminent payment
default.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
A-7
<PAGE>
APPENDIX II
ANALYTIC SERIES FUND
February 2, 1998
Dear Fellow Shareholders,
[LOGO]
The U.S. stock markets continued to climb during the fourth quarter of
1997. Large capitalization ("Blue Chip") indices, such as the S&P 500 Index,
continued their strong showing in the U.S. equity markets. Despite its setback
of -3.34% in October, the S&P 500 Index returned 2.87% for the quarter and
returned 33.36% for the year ended December 31, 1997. The performance of small
capitalization stocks tailed off, with the S&P Small Cap 600 Index down -3.10%
for the quarter, bringing the return for the year ended December 31, 1997 down
to 25.58%. All of the above returns are with dividends reinvested.
U.S. fixed income markets also continued their rise during the fourth
quarter of 1997. Steady economic growth fueled the bond market and all parts of
the yield curve benefited. Shorter-term (1-3 years) Treasury issues were up
1.68% for the quarter and 6.66% at year end while intermediate-term (5-10 years)
Treasury issues increased 3.51% for the quarter and 10.00% at year end.
Longer-term issues gained the most, with 15+ year Treasury issues up 6.69% for
the quarter and 15.38% at year end.
Enhanced Equity Portfolio
As of December 31, 1997, your Portfolio's net asset value increased 29.86%
for the year, after a decline of -0.57% in the fourth quarter, while the S&P 500
Index increased 33.36% and 2.87% for the same periods, both with dividends
reinvested. At quarter end, your Portfolio's share price was $13.72 after paying
its 18th consecutive quarterly dividend from net investment income of $0.05 per
share and a capital gain of $1.81. With the addition of the fourth quarter, your
Portfolio has now increased 44.66% versus the S&P 500's 44.37% since September
30, 1996, since the inception of the new stock selection model.
The Fund's success is evident in its Morningstar performance and
risk-adjusted performance (Sharpe ratio) -- rankings -- the Fund ranks in the
top quintile and top quartile, respectively, of all (1,651) domestic equity
mutual funds for the most recent three-year period ended December 31, 1997.
Master Fixed Income Portfolio
As of December 31, 1997, your Portfolio was up 2.17% for the quarter and
10.04% at year end. The Lehman Brothers Government/Corporate Bond Index (LBGC)
was up 3.21% for the quarter and 9.75% at year end. At quarter end, the
Portfolio's share price was $8.84 after paying its 18th consecutive quarterly
dividend from net investment income. The total quarterly dividend paid through
December 31 was $0.149 per share with a long-term capital gain of $1.84, and the
SEC 30-day yield was 6.36%.
Morningstar ranks the Master Fixed Income Portfolio among the top 5% of the
over 250 funds in its category on both a three-year absolute performance basis
and a risk-adjusted performance basis (Sharpe ratio).
<PAGE>
Short-Term Government Portfolio
As of December 31, 1997, your Portfolio's total return was 1.22% for the
quarter and 5.49% at year end. The Merrill Lynch 1 to 3 Year Treasury Index
increased 1.68% and 6.66%, respectively, for the same periods. At quarter end,
the Portfolio's share price was $9.81 after paying its 18th consecutive
quarterly dividend from net investment income. The fourth quarter dividend paid
through December 31 was $0.140 per share, and the SEC 30-day yield was 5.47%.
Morningstar ranks the Short-Term Government Portfolio among the top 10% of
the nearly 400 funds in its category on a risk-adjusted performance basis
(Sharpe ratio).
These Portfolios are suited for investors with differing risk tolerance
levels, allowing investors to easily adjust their portfolio within the Analytic
Family of Funds. Should you have any questions regarding your Portfolios'
investment strategy or results, please do not hesitate to call us at
1-800-374-2633.
We appreciate your business and thank you for investing with us.
Your Investment Management Team:
[LOGO]
Harindra de Silva, Ph.D., CFA
President/Portfolio Manager
[LOGO]
Greg McMurran
Chief Investment Officer
[LOGO]
Bob Bannon
Portfolio Manager
[LOGO]
Dennis Bein, CFA
Portfolio Manager
[LOGO]
Scott Barker
Portfolio Manager
<PAGE>
Analytic Series Fund
Total Return*(1)
From Inception 7/1/93 -- 12/31/97, Percent
1 Quarter 1 year 3 year Inception
--------- ------ ------ ---------
Short-Term Government Portfolio....... 1.22 5.49 7.08 5.12
Master Fixed Income Portfolio......... 2.17 10.04 10.63 7.56
Enhanced Equity Portfolio............. -0.57 29.86 29.29 19.73
- ----------
* Periods greater than six months are annualized.
(1) The investment returns quoted in this letter represent past returns and
should not be construed as a guarantee of the Fund's future performance.
Returns are net of all fees and expenses. The investment return and
principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
[LOGO]
Federal Income Tax Information (Unaudited):
For the year ended December 31, 1997 $33,583 and $59,055 has been
designated as a 28% long-term capital gain dividend for the purpose of the
dividend paid deduction on its federal income tax return in The Master Fixed
Income Portfolio and the Enhanced Equity Portfolio, respectively. The Enhanced
Equity Portfolio has also designated $77,992 as a 20% long-term capital gain
dividend for the purpose of the dividend paid deduction on its Federal income
tax return.
For the year ended December 31, 1997, the percentage of dividends paid that
qualify for the 70% dividend received deduction for corporate shareholders is
11.21% for the Enhanced Equity Portfolio.
<PAGE>
THE ANALYTIC SERIES FUND
SHORT-TERM GOVERNMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
Principal Maturity Market
Amount Coupon Date Value
--------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
Corporate Obligations -- 20.98% of net assets
$325,000 Associates Corp. N.A. ............................ 6.63% 5/15/01 $ 328,968
275,000 Shell Canada Ltd.................................. 8.88% 1/14/01 295,831
-------
Total Corporate Obligations
(Cost $627,073).................................. 624,799
Asset-Backed Securities -- 40.88%
300,000 Federal National Mortgage Association............. 7.32% 5/03/06 309,437
350,000 Federal National Mortgage Association............. 6.83% 10/10/07 352,547
300,000 Federal Home Loan Mortgage Corp. ................. 6.51% 12/10/01 299,517
250,000 Federal Home Loan Mortgage Corp. ................. 7.05% 11/07/06 255,722
-------
Total Asset-Backed Securities
(Cost $1,218,767)................................. 1,217,223
U.S. Treasury Obligations -- 33.73%
150,000 Treasury Note..................................... 6.00% 8/15/00 151,078
300,000 Treasury Note..................................... 5.63% 11/30/00 299,438
275,000 Treasury Note..................................... 5.50% 12/31/00 273,539
275,000 Treasury Note..................................... 6.38% 3/31/01 280,156
-------
Total U.S. Treasury Obligations
(Cost $1,005,768)................................. 1,004,211
Total Investments
(Cost $2,851,608)........................................................... 2,846,233
Cash Equivalents -- 7.95%
236,726 Vista Cash Managed Money Market Fund 5.21%
(Cost $236,726)................................... 236,726
-------
Total Investments and Cash Equivalents
(Cost $3,088,334 -- 103.54% .......................................... 3,082,959
Excess Other Liabilities over Assets (Net) -- (3.54%) ......................... (105,415)
Net Assets -- 100% .............................................................. $2,977,544
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
SHORT-TERM GOVERNMENT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
Assets:
Investments at market value (identified cost $2,851,608)....................... $2,846,233
Cash equivalents............................................................... 236,726
Receivable for shares sold..................................................... 187,974
Interest receivable............................................................ 36,465
Receivable from investment adviser............................................. 5,083
Total assets................................................................. 3,312,481
Liabilities:
Payable for investments purchased.............................................. 307,828
Payable for administrative fees................................................ 3,869
Other liabilities.............................................................. 23,240
Total liabilities............................................................ 334,937
Net Assets........................................................................ $2,977,544
Represented by:
Paid in capital................................................................ $3,780,319
Undistributed net investment income............................................ 373
Net realized loss on investment................................................ (797,773)
Net unrealized depreciation on investments..................................... (5,375)
$2,977,544
Net asset value, purchase and redemption price per outstanding capital share
(303,637 capital shares outstanding)......................................... $ 9.81
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
SHORT-TERM GOVERNMENT PORTFOLIO
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<TABLE>
<S> <C>
Investment Income:
Interest.............................................................. $ 57,059
Total investment income............................................. 57,059
Expenses:
Administrative fees................................................... 21,124
Registration fees..................................................... 15,778
Shareholder services, reports and notices............................. 14,809
Audit fees............................................................ 9,979
Investment advisory and management fees............................... 2.791
Organizational expenses............................................... 2,518
Custodian fees........................................................ 691
Trustees' fees and expenses........................................... 226
Other fees............................................................ 3,924
Total expenses...................................................... 71,840
Reimbursed expenses by the adviser.................................... (66,253)
Net expenses.......................................................... 5,587
Net investment income................................................. 51,472
Net Realized & Unrealized Gains (Losses) on Investments
Net realized loss on investments...................................... (3,860)
Net change in unrealized appreciation/depreciation on investments..... 2,655
Net realized and unrealized loss on investments....................... (1,205)
Net increase in net assets from operations............................ $ 50,267
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
SHORT-TERM GOVERNMENT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1996
---------- -----------
<S> <C> <C>
Operations:
Net investment income............................................................ $ 51,472 $ 1,521,025
Net realized loss on investments................................................. (3,860) (444,657)
Change in unrealized appreciation/depreciation on investments.................... 2,655 (8,088)
Increase in net assets from operations......................................... 50,267 1,068,280
Distributions to Shareholders:
From net investment income....................................................... (51,472) (1,521,025)
In excess of net investment income............................................... (184) --
Return of capital................................................................ -- (12,345)
Decrease in net assets from distributions...................................... (51,656) (1,533,370)
Fund Share Transactions:
Proceeds from sales of 385,159 and 115,424 capital shares for the years ended
December 31, 1997 and 1996, respectively....................................... 3,777,511 1,165,744
Proceeds from 5,298 and 149,181 capital shares issued upon reinvestment of
distributions for the years ended December 31, 1997 and 1996,
respectively................................................................. . 50,743 1,465,395
Cost of 189,278 and 2,957,142 capital shares redeemed for the years ended
December 31, 1997 and 1996, respectively....................................... (1,856,900) (29,038,540)
Increase (decrease) in net assets from fund share transactions................. 1,971,354 (26,407,401)
Net increase (decrease) in net assets............................................ 1,969,965 (26,872,491)
Net assets, beginning of year.................................................. 1,007,579 27,880,070
Net assets, end of year (including undistributed net investment income of
$373 and $0, respectively).................................................. $2,977,544 $ 1,007,579
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
SHORT-TERM GOVERNMENT PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year.............................. $ 9.83 $ 9.98 $ 9.55 $ 10.03 $ 10.03
Income From Investment Operations
Net investment income........................................ 0.55 0.62 0.56 0.48 0.53
Net realized and unrealized gains (losses) on investments.... (0.02) (0.10) 0.43 (0.48) 0.00
Total from investment operations........................... 0.53 0.52 0.99 0.00 0.53
Less Distributions:
From net investment income(1)................................ 0.55 0.66 0.56 0.48 0.53
Return of capital............................................ 0.00 0.01 0.00 0.00 0.00
Total distributions........................................ 0.55 0.67 0.56 0.48 0.53
Net Asset Value, End of Year.................................... $ 9.81 $ 9.83 $ 9.98 $ 9.55 $ 10.03
Total Return.................................................... 5.54% 5.28% 10.65% 0.00% 5.37%
Ratios/Supplemental Data
Net assets, end of period ($000)................................ $2,978 $1,008 $27,880 $24,481 $26,097
Ratio of expenses to average net assets:
Before expense reimbursement................................. 7.80% 0.76% 0.82% 0.85% 0.75%
After expense reimbursement.................................. 0.60% 0.56% 0.50% 0.45% 0.45%
Ratio of net investment income to average net assets............ 5.53% 5.99% 5.76% 5.37% 4.91%
Portfolio turnover rate......................................... 33.50% 31.48% 10.15% 3.21% 85.69%
</TABLE>
- ----------
(1) For the year ended December 31, 1997, the distributions in excess of net
investment income amounted to $0.002.
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
MASTER FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
Principal Maturity Market
Amount Coupon Date Value
--------- ------ -------- ----------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Obligations -- 14.61% of net assets
$250,000 Treasury Note............................................... 6.25% 2/15/03 $ 255,703
350,000 Treasury Note............................................... 6.50% 5/15/05 364,875
200,000 Treasury Note............................................... 8.00% 5/15/01 213,813
-------
Total U.S. Treasury Obligations
(Cost $842,922)............................................. 834,391
U.S. Mortgage Backed Securities -- 12.21%
496,070 Federal National Mortgage Association Pool #251115.......... 7.50% 8/01/27 507,387
106,048 Government National Mortgage Association Pool #344313....... 7.50% 7/15/23 108,996
78,921 Government National Mortgage Association Pool #326210....... 7.50% 9/15/23 81,165
------
Total U.S. Mortgage Backed Securities
(Cost $688,129)............................................. 697,548
U.S. Agency Obligations -- 25.13%
500,000 Federal Home Loan Bank...................................... 5.88% 8/20/03 497,750
200,000 Federal Home Loan Mortgage Corporation...................... 7.05% 11/20/12 198,599
350,000 Federal National Mortgage Association....................... 6.20% 11/12/03 345,263
394,000 Tennessee Valley Authority.................................. 6.13% 7/15/03 393,677
-------
Total U.S. Agency Obligations
(Cost $1,433,172)........................................... 1,435,289
Corporate Obligations -- 23.85%
150,000 Associates Corp. N.A. ...................................... 6.38% 8/15/98 150,351
250,000 First Chicago NBD Corp. .................................... 6.13% 2/15/06 243,171
300,000 Gillette Co. ............................................... 5.75% 10/15/05 292,863
200,000 KFW International Finance................................... 7.63% 2/15/04 214,605
200,000 Nippon Telegraph & Telephone................................ 6.00% 2/19/98 200,266
250,000 Philip Morris Companies, Inc. .............................. 7.63% 5/15/02 261,141
-------
Total Corporate Obligations
(Cost $1,342,796)........................................... 1,362,397
Total Fixed Income Securities -- 75.80%
(Cost $4,307,019) ......................................... $4,329,625
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
MASTER FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS -- (Continued)
December 31, 1997
<TABLE>
<CAPTION>
Outstanding Options
-------------------------------------------------------
(*Indicates Put)
Market Value
-------------------
Shares Expiration Exercise Purchased Written
Optioned Date Price Options Options
-------- ---------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
Common Stock
Banks/Savings & Loans -- (0.05%)
BankAmerica Corp. ............................... 800 Apr'98 $ 70.00* $ 3,150
Brewery/Spirits & Tobacco -- (0.02%)
Anheuser-Busch Companies, Inc. .................. 1,400 Mar'98 40.00* 1,050
Electric/Gas/Water Utilities -- (0.00%)
Unicom Corp. .................................... 800 Feb'98 22.50* 100
Electronics -- (0.20)%
Applied Materials, Inc. ......................... 1,800 Apr'98 32.50* 5,850
Lam Research Corp. .............................. 800 Mar'98 35.00 1,250
Maxim Integrated Products, Inc. ................. 1,400 Feb'98 75.00 2,275
Morgan Stanley High Tech Index................... 200 Mar'98 42.00* 3,437
Texas Instruments, Inc. ......................... 1,200 Apr'98 95.00* 6,900
Vitesse Semiconductor Corp. ..................... 600 Apr'98 50.00 1,425
-----
4,950 16,187
Financial Services & Brokers -- 0.16%
Concord EFS, Inc. ............................... 900 Jun'98 30.00 1,181
Morgan Stanley................................... 1,100 Apr'98 55.00 7,769
-----
8,950
Forest Products & Paper -- (0.09%)
International Paper Co. ......................... 1,300 Apr'98 45.00* 4,956
Medical Supplies & Services -- (0.03%)
Tenet Healthcare Corp. .......................... 2,000 May'98 30.00* 3,500
United Healthcare Corp. ......................... 1,000 Jan'98 50.00 1,812
-----
1,812 3,500
Oil and Gas -- (0.06%)
Amex Natural Gas Index........................... 300 Jan'98 360.00* 3,375
Oil Equipment/Exploration & Services -- (0.17%)
Smith International, Inc. ....................... 800 Apr'98 70.00* 9,700
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
MASTER FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(Continued)
December 31, 1997
<TABLE>
<CAPTION>
Outstanding Options
--------------------------------------------------------
(*Indicates Put)
Market Value
---------------------
Shares Expiration Exercise Purchased Written
Optioned Date Price Options Options
-------- ---------- -------- --------- -------
Common Stock -- (continued)
<S> <C> <C> <C> <C> <C>
Pharmaceutical & Biotechnology -- 0.08%
Centocor, Inc. ............................. 700 Apr'98 $45.00 $ 1,050 $
Gilead Sciences, Inc. ...................... 700 May'98 40.00 3,369
-------
4,419
Print & Publishing -- (0.04%)
Merrill Corp. .............................. 900 Apr'98 65.00* 2,138
Restaurants & Lodging -- (0.09%)
Hilton Hotels Corp. ........................ 2,000 Apr'98 30.00* 5,125
Railroad/Trucking/Miscellaneous -- (0.03%)
Illinois Central Corp. ..................... 800 Mar'98 35.00* 1,650
Specialty Retail/Wholesale -- (0.07%)
Bed Bath & Beyond, Inc. .................... 700 Feb'98 35.00 3,500
Reebok International Ltd. .................. 800 Apr'98 40.00* 9,100
Williams-Sonoma, Inc. ...................... 600 Feb'98 45.00 1,538
-------
5,038 9,100
Telecommunications & Equipment -- (0.16%)
Lucent Technologies, Inc.................... 800 Apr'98 80.00* 4,800
Western Wireless Corp....................... 1,700 May'98 17.50* 4,250
-------
9,050
Totals...................................... $25,169 $69,081
Total Fixed Income Securities -- 75.80%
(Cost $4,307,019)...................................................... $4,329,625
Total Purchased Options -- 0.44%
(Cost $32,346)......................................................... 25,169
Total Investments -- 76.24%
(Cost $4,339,365)...................................................... 4,354,794
Total Written Options -- (1.21%)
(Premiums Received $70,262)............................................ (69,081)
Cash Equivalents -- 24.38%
Vista Cash Managed Money Market Fund 5.21% (Cost $1,392,538)........... 1,392,538
Excess Other Assets over Liabilities (Net) -- 0.59%......................... 33,309
Net Assets--100%.......................................................... $5,711,560
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
MASTER FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(Continued)
December 31, 1997
Percent of
Ten Largest Holdings* Net Assets
-----------
1. Federal National Mortgage
Association Pool #25115 7.50%,
8/1/27................................ 8.9%
2. Federal Home Loan Bank 5.88%,
8/20/03............................... 8.7
3. Tennessee Valley Authority 6.13%,
7/15/03............................... 6.9
4. U.S. Treasury Note 6.50%,
5/15/05............................... 6.4
5. Federal National Mortgage
Association 6.20%, 11/12/03........... 6.0
6. Gillette Co. 5.75%, 10/15/05........... 5.1
7. Phillip Morris Companies, Inc.
7.63%, 5/15/02......................... 4.6
8. U.S. Treasury Note 6.25%,
2/15/03................................ 4.5
9. First Chicago NBD Corp. 6.13%,
2/15/06................................ 4.3
10. KFW International Finance 7.63%,
5/15/04................................ 3.8
- ----------
* Excludes cash equivalents
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
MASTER FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
Assets:
Investments at market value (identified cost $4,339,365)....................... $4,354,794
Cash equivalents............................................................... 1,392,538
Interest receivable............................................................ 73,605
Receivable from investment adviser............................................. 9,785
Receivable for shares sold..................................................... 8,000
Total assets................................................................. 5,838,722
Liabilities:
Written options outstanding at market value (premiums received $70,262)........ 69,081
Distributions payable.......................................................... 22,606
Payable for administrative fees................................................ 6,850
Other liabilities.............................................................. 28,625
Total liabilities............................................................ 127,162
Net Assets........................................................................ $5,711,560
Represented by:
Paid in capital................................................................ $5,741,144
Undistributed net investment income............................................ 1,406
Distributions in excess of net realized gains.................................. (47,600)
Net unrealized appreciation of investments..................................... 16,610
$5,711,560
Net asset value, purchase and redemption price per outstanding capital share
(645,955 capital shares outstanding)......................................... $ 8.84
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
MASTER FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
Investment Income:
Interest........................................... $1,521,759
Dividend........................................... 5,630
Total investment income............................... 1,527,389
Expenses:
Investment advisory and management fees............ 106,124
Administrative fees................................ 55,769
Registration fees.................................. 21,879
Custodian fees..................................... 18,533
Shareholder services, reports, and notices......... 15,276
Legal fees......................................... 10,919
Trustees' fees and expenses........................ 10,815
Audit fees......................................... 8,845
Amortization of organization cost.................. 2,988
Miscellaneous fees................................. 4,480
Total expenses................................... 255,628
Reimbursed expenses by the adviser................. (40,662)
Expense reductions................................. (800)
Net expenses....................................... 214,166
Net investment income.............................. 1,313,223
Net Realized Gain (Loss) on:
Investments...................................... 591,179
Written options.................................. 412,526
Futures.......................................... (67,687)
Total Net Realized Gain............................... 936,018
Change in Unrealized Appreciation/Depreciation:
Investments........................................ (214,180)
Written options.................................... 148,413
Net Change in Unrealized Appreciatio/Depreciation. (65,767)
Net Realized and Unrealized Gain...................... 870,251
Net Increase in Net Assets from Operations............ $2,183,474
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
MASTER FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Operations:
Net investment income......................................................... $ 1,313,223 $ 1,517,339
Net realized gain on investments.............................................. 936,018 388,620
Change in unrealized appreciation/depreciation on investments................. (65,767) (351,052)
Increase in net assets from operations...................................... 2,183,474 1,554,907
Distributions to Shareholders:
From net investment income.................................................... (1,311,868) (1,517,896)
From net realized gains....................................................... (936,018) (355,905)
In excess of net realized gains............................................... (46,569) (1,929)
Decrease in net assets from distributions................................... (2,294,455) (1,875,730)
Fund Share Transactions:
Proceeds from sales of 726,794 and 1,071,233 capital shares for the years
ended December 31, 1997 and 1996, respectively.............................. 7,587,121 10,955,161
Proceeds from 129,365 and 22,483 capital shares issued upon reinvestment
of distributions for the years ended December 31, 1997 and 1996,
respectively................................................................ 1,166,897 231,188
Cost of 3,026,174 and 665,512 capital shares redeemed for the years ended
December 31, 1997 and 1996, respectively.................................... (31,857,016) (6,807,732)
Increase (decrease) in net assets from fund share transactions.............. (23,102,998) 4,378,617
Net increase (decrease) in net assets......................................... (23,213,979) 4,057,794
Net assets, beginning of year............................................... 28,925,539 24,867,745
Net assets end of year (including undistributed net investment income of
$1,406 and $0, respectively)............................................. $ 5,711,560 $28,925,539
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
MASTER FIXED INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year....................... $ 10.27 $ 10.41 $ 9.50 $10.26 $10.06
Income from Investment Operations
Net investment income................................. 0.59 0.58 0.61 0.64 0.67
Net realized and unrealized gains (losses) on
investments......................................... 0.41 (0.01) 0.91 (0.75) 0.41
Total from investment operations.................... 1.00 0.57 1.52 (0.11) 1.08
Less Distributions:
From net investment income............................ 0.59 0.58 0.61 0.64 0.67
From net realized gains............................... 1.75 0.12 0.00 0.01 0.21
In excess of net realized gains....................... 0.09 0.01 0.00 0.00 0.00
Total distributions................................. 2.43 0.71 0.61 0.65 0.88
Net Asset Value, End of Year............................. $ 8.84 $ 10.27 $ 10.41 $ 9.50 $10.26
Total Return............................................. 10.04% 5.69% 16.43% (1.04)% 10.94%
Ratios/Supplemental data
Net assets, end of period ($000)......................... $ 5,712 $28,926 $24,868 $6,155 $8,066
Ratio of expenses to average net assets:
Before expense reimbursement.......................... 1.09% 0.97% 1.03% 1.17% 1.04%
After expense reimbursement........................... 0.90% 0.72% 0.69% 0.60% 0.60%
Ratio of net investment income to average net assets..... 5.60% 5.66% 5.99% 7.16% 6.39%
Portfolio turnover rate.................................. 39.98% 21.95% 31.82% 44.30% 105.39%
Average commission rate(1)............................... $0.0375 $0.0418 $0.0277 -- --
</TABLE>
- ----------
(1) For fiscal years beginning on or after September 1, 1995, a portfolio
is required to disclose the average commission rate per share it paid for
portfolio trades on which commissions were charged. The formula for
calculating the average commission rate is total commission paid divided by
the total shares purchased and sold. Each option contract is 100 shares.
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
ENHANCED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1997
Investments
----------------------
Number of Market
Shares Value
--------- ---------
Common Stocks
Aerospace & Defense -- 3.56% of net assets
Boeing Co. ............................... 1,558 $ 76,245
Lockheed Martin Corp. .................... 1,533 151,000
Northrop Grumman Corp. ................... 230 26,450
Raytheon Co., Class A..................... 147 7,249
---------
260,944
Auto & Truck -- 6.79%
Johnson Controls, Inc. ................... 3,240 154,710
Chrysler Corp. ........................... 3,378 118,863
General Motors Corp. ..................... 2,316 140,407
Navistar International Corp.**............ 3,379 83,841
---------
497,821
Banks/Savings & Loans -- 15.16%
Banc One Corp. ........................... 2,775 150,717
Bankers Trust New York Corp. ............. 967 108,727
Barnett Banks, Inc. ...................... 1,400 100,625
Chase Manhattan Corp. .................... 1,643 179,908
Citicorp.................................. 1,127 142,495
First Chicago NBD Corp. .................. 436 36,406
First Union Corp. (N.C.).................. 3,000 153,750
NationsBank Corp. ........................ 3,085 187,607
Washington Mutual, Inc. .................. 803 51,241
---------
1,111,476
Beverages, Food & Tobacco -- 5.72%
Coca-Cola Co. ............................ 2,387 159,034
Conagra, Inc. ............................ 594 19,491
Philip Morris Companies, Inc. ............ 5,312 240,700
---------
419,225
Commercial Services -- 0.59%
Federal Express Corp.**................... 300 18,319
Interpublic Group of Companies, Inc. ..... 500 24,906
---------
43,225
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
ENHANCED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS -- (Continued)
December 31, 1997
Investments
--------------------
Number of Market
Shares Value
--------- --------
Common Stocks -- (continued)
Computers -- 5.30%
International Business Machines Corp. .......... 2,283 $238,716
Unisys Corp.**.................................. 10,812 150,017
--------
388,733
Cosmetics -- 1.24%
Alberto-Culver Co. Class B...................... 350 11,222
Proctor & Gamble Co. ........................... 1,000 79,812
--------
91,034
Electric/Gas/Water Utilities -- 2.22%
People's Energy Corp. .......................... 4,022 158,366
Southern Co. ................................... 151 3,907
--------
162,273
Electronics -- 2.04%
General Electric Co. ........................... 236 17,317
Intel Corp. .................................... 549 38,567
Tektronix, Inc. ................................ 2,354 93,424
--------
149,308
Entertainment & Leisure -- 1.19%
The Walt Disney Co. ............................ 883 87,472
Financial Services & Brokers -- 0.68%
Green Tree Financial Corp. ..................... 1,906 49,913
Food Processing & Wholesale -- 2.88%
Fleming Companies, Inc. ........................ 4,973 66,825
Great Atlantic & Pacific Tea Company, Inc. ..... 836 24,819
Pepsico, Inc. .................................. 1,493 54,401
SuperValu, Inc. ................................ 1,551 64,948
--------
210,993
Health Care -- 1.41%
Guidant Corp. .................................. 548 34,113
Humana, Inc.**.................................. 3,332 69,139
--------
103,252
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
ENHANCED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(Continued)
December 31, 1997
<TABLE>
<CAPTION>
Investments
---------------------
Number of Market
Shares Value
--------- --------
<S> <C> <C>
Common Stocks -- (continued)
Insurance -- 2.73%
Loews Corp. .......................................... 1,452 $154,094
Travelers Group, Inc. ................................ 849 45,740
--------
199,834
Machinery -- 3.83%
Caterpillar, Inc. .................................... 1,448 70,319
NACCO Industries, Inc., Class A....................... 1,965 210,623
--------
280,942
Metals & Mining -- 2.12%
Armco, Inc. .......................................... 27,538 135,969
Freeport-McMoRan Copper & Gold, Inc., Class B......... 1,230 19,373
--------
155,342
Miscellaneous Manufacturing -- 5.02%
Eastman Kodak Co. .................................... 1,100 66,894
Eaton Corp. .......................................... 1,393 124,325
Tyco International Ltd. .............................. 3,914 176,375
--------
367,594
Office Equipment -- 3.02%
Harris Corp. ......................................... 3,265 149,782
Pitney Bowes, Inc. ................................... 794 71,410
--------
221,192
Oil/Gas Domestic -- 1.36%
Atlantic Richfield Co. ............................... 1,113 89,179
Union Pacific Resources Group, Inc. .................. 444 10,767
--------
99,946
Oil/Gas International -- 7.59%
Amoco Corp. .......................................... 1,161 98,830
Ashland, Inc. ........................................ 3,161 169,706
Chevron Corp. ........................................ 274 21,098
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
ENHANCED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(Continued)
December 31, 1997
Investments
----------------------
Number of Market
Shares Value
--------- ----------
Common Stocks -- (continued)
Oil/Gas International -- (continued)
Royal Dutch Petroleum Co. (NY Shares)....... 259 $ 14,035
Sun Co., Inc ............................... 2,399 100,908
Texaco, Inc. ............................... 2,791 151,761
----------
556,338
Paper & Packaging -- 1.44%
Stone Container Corp.**..................... 10,132 105,753
Pharmaceuticals & Biotechnology -- 9.66%
Abbott Laboratories......................... 2,267 148,630
American Home Products Corp. ............... 224 17,136
Bristol Myers Squibb Co. ................... 718 67,941
Johnson & Johnson........................... 1,410 92,884
Merck & Co. ................................ 1,833 194,756
Warner-Lambert Co. ......................... 1,506 186,744
----------
708,091
Restaurants & Lodging -- 2.13%
Darden Restaurants, Inc .................... 12,491 156,138
Retail--2.13%
Sears Roebuck & Co. ........................ 3,456 156,384
Telecommunication Utilities -- 7.82%
G T E Corp. ................................ 2,837 148,233
SBC Communications, Inc. ................... 2,923 214,110
U.S. WEST Communications, Inc. ............. 3,272 147,649
WorldCom, Inc.**............................ 2,100 63,525
----------
573,517
Telecommunications & Equipment -- 0.30%
Northern Telecom, Ltd. ..................... 244 21,716
Transportation -- 0.05%
Ryder System, Inc. ......................... 121 3,963
Total Common Stocks (Cost $6,692,347).......... 7,182,419
Total Investments -- 97.98%
(Cost $6,692,347)........................... $7,182,419
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
ENHANCED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(Continued)
December 31, 1997
<TABLE>
<CAPTION>
Outstanding Options
---------------------------------------------------
Market Value
Shares Expiration Exercise Written
Optioned Date Price Options
-------- ---------- -------- ------------
<S> <C> <C> <C> <C>
Written Options -- (0.35%)
S&P 500 Index (Premiums Received $20,234).............. 500 Jan'98 $410.00 26,000
----------
Cash Equivalents -- 2.38%
Vista Cash Managed Money Market Fund 5.21%
(Cost $174,782)................................... 174,782
Excess Liabilities over Other Assets (Net) -- (0.01%).. (359)
Net Assets -- (100%)................................... $7,330,842
==========
</TABLE>
** Non-income producing security
Ten Largest Holdings*
Percent of
Net Assets
----------
1. Philip Morris Companies, Inc............. 3.3%
2. International Business Machines Corp. ... 3.3
3. SBC Communications, Inc. ................ 2.9
4. NACCO Industries, Inc., Class A.......... 2.9
5. Merck & Co. ............................. 2.7
Percent of
Net Assets
----------
6. NationsBank Corp. ........................................... 2.6%
7. Warner-Lamber Co. ........................................... 2.5
8. Chase Manhattan Corp. ....................................... 2.5
9. Tyco International Ltd. ..................................... 2.4
10. Ashland, Inc. ............................................... 2.3
* Excludes cash equivalents
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
ENHANCED EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
Assets:
Investments at market value (identified cost $6,692,347)....................... $7,182,419
Cash equivalent................................................................ 174,782
Cash held by brokers........................................................... 30,095
Dividends receivable........................................................... 12,677
Receivable for shares sold..................................................... 12,500
Receivable from investment advisor............................................. 1,875
Total assets................................................................. 7,414,348
Liabilities:
Written options outstanding at market value (premiums received $20,234)........ 26,000
Distributions payable.......................................................... 24,410
Payable for administrative fees................................................ 5,063
Payable for variation margin on futures........................................ 150
Other Liabilities.............................................................. 27,883
Total liabilities............................................................ 83,506
Net Assets........................................................................ $7,330,842
Represented by:
Paid in capital................................................................ $6,845,580
Distributions in excess of net investment income............................... (656)
Distributions in excess of net realized gain................................... (12,314)
Net unrealized appreciation on investments..................................... 498,232
$7,330,842
Net asset value, purchase and redemption price per outstanding capital share
(534,370 capital shares outstanding)......................................... $ 13.72
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
ENHANCED EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<TABLE>
<S> <C>
Investment Income:
Dividend..................................................................... $ 92,284
Interest..................................................................... 17,285
Total investment income.................................................... 109,569
Expenses:
Investment advisory and management fees...................................... 30,331
Administrative fees.......................................................... 24,891
Registration fees............................................................ 16,410
Shareholders services, reports, and notices.................................. 16,263
Audit fees................................................................... 6,733
Custodian fees............................................................... 4,491
Amortization of organization cost............................................ 4,185
Legal fees................................................................... 3,539
Trustees' fees and expenses.................................................. 1,053
Miscellaneous fees........................................................... 3,028
Total expenses............................................................. 110,924
Reimbursed expenses by the adviser........................................... (60,408)
Net expenses................................................................. 50,516
Net investment income........................................................ 59,053
Net Realized Gain on:
Investments................................................................ 719,023
Written options............................................................ 43,964
Futures.................................................................... 80,114
Total net realized gain...................................................... 843,101
Change in Unrealized Appreciation/Depreciation:
Investments................................................................ 259,609
Written options............................................................ (5,766)
Futures.................................................................... 13,926
Total Net Change in Unrealized Appreciation/Depreciation...................... 267,769
Net Realized and Unrealized Gains............................................... 1,110,870
Net Increase in Net Assets from Operations...................................... $1,169,923
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
ENHANCED EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Operations:
Net investment income........................................................... $ 59,053 $ 44,694
Net realized gain on investments................................................ 843,101 784,299
Change in unrealized appreciation/depreciation on investments................... 267,769 (197,964)
Increase in net assets from operations........................................ 1,169,923 631,029
Distributions to Shareholders:
From net investment income...................................................... (59,053) (44,694)
In excess of net investment income.............................................. (4,391) --
From net realized gains......................................................... (843,101) (784,299)
In excess of net realized gains................................................. (10,895) (1,613)
Decrease in net assets from distributions..................................... (917,440) (830,606)
Fund Share Transactions:
Proceeds from sales of 410,633 and 72,792 capital shares for the years ended
December 31, 1997 and 1996, respectively...................................... 5,881,889 1,003,474
Proceeds from 64,869 and 68,061 capital shares issued upon reinvestment of
distributions for the years ended December 31, 1997 and 1996, respectively.... 892,423 826,051
Cost of 232,295 and 28,811 capital shares redeemed for the years ended
December 31, 1997 and 1996, respectively...................................... (3,214,594) (428,908)
Increase in net assets from fund share transactions........................... 3,559,718 1,400,617
Net increase in net assets...................................................... 3,812,201 1,201,040
Net assets, beginning of year................................................. 3,518,641 2,317,601
Net assets end of year (including distributions in excess of net investment
income of $656 and $0, respectively)....................................... $7,330,842 $3,518,641
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
ENHANCED EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning Of Year............................. $ 12.09 $ 12.94 $ 9.83 $10.15 $10.02
Income From Investment Operations
Net investment income....................................... 0.15 0.21 0.23 0.28 0.40
Net realized and unrealized gains (losses) on investments
and options............................................... 3.45 2.74 3.22 (0.32) 0.62
Total from investment operations.......................... 3.60 2.95 3.45 (0.04) 1.02
Less Distributions:
From net investment income.................................. 0.15 0.21 0.23 0.28 0.40
In excess of net investment income.......................... 0.01 -- -- -- --
From net realized gains..................................... 1.79 3.58 0.11 -- 0.37
In excess of net realized gains............................. 0.02 0.01 -- -- --
Return of capital........................................... -- -- -- -- 0.12
Total distributions....................................... 1.97 3.80 0.34 0.28 0.89
Net Asset Value, End Of Year................................... $ 13.72 $ 12.09 $ 12.94 $ 9.83 $10.15
Total Return................................................... 29.86% 22.95% 35.36% (0.37)% 10.07%
Ratios/Supplemental data
Net assets, end of period ($000)............................... $ 7,331 $ 3,519 $ 2,318 $1,511 $ 903
Ratio of expenses to average net assets
Before expense reimbursement................................ 2.24% 1.51% 1.33% 1.35% 1.35%
After expense reimbursement................................. 1.00% 0.91% 0.50% 0.24% 0.57%
Ratio of net investment income to average net assets........... 1.17% 1.53% 2.02% 3.24% 2.16%
Portfolio turnover rate........................................ 189.39% 179.47% 10.15% 24.75% 76.34%
Average commission rate(1)..................................... $0.0288 $0.0658 $0.0431 -- --
</TABLE>
- ----------
(1) For fiscal years beginning on or after September 1, 1995, a portfolio is
required to disclose the average commission rate per share it paid for
portfolio trades on which commissions were charged. The formula for
calculating the average commission rate is total commission paid divided by
the total shares purchased and sold. Each option contract is 100 shares.
See accompanying Notes to Financial Statements.
<PAGE>
THE ANALYTIC SERIES FUND
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
The Analytic Series Fund (the "Fund") was organized on November 18, 1992, under
the laws of the state of Delaware, and is registered under the Investment
Company Act of 1940, as amended, as a no load, open-end investment company or
"mutual fund" consisting of three separate diversified portfolios. These
portfolios are : the Short-Term Government Portfolio, the Master Fixed Income
Portfolio and the Enhanced Equity Portfolio. Operations commenced on November
30, 1992.
The investment objective of each of the portfolios as stated in the prospectus
is as follows:
Short-Term Government Portfolio -- to provide a high level of income
consistent with both low fluctuations in market value and low credit risk.
At least 80% of the total assets of the portfolio will normally be invested
in U.S. government securities.
Master Fixed Income Portfolio -- to provide above-average total returns
from a diversified bond portfolio consisting primarily of domestic
government, corporate, and mortgage-related fixed income securities.
Enhanced Equity Portfolio -- to provide above-average total returns from a
diversified equity portfolio which consists primarily of domestic common
stocks and related investment such as options and futures.
Derivative Financial Instruments -- Each portfolio may utilize various call
option, put option, and financial futures strategies in pursuit of its
objective. 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 the portfolio 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. The
Portfolios will only write covered call and cash secured put options on common
stock or stock indices.
Estimates -- The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amount of assets and liabilities at the
date of the financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from these estimates.
Investment Valuation -- Common stocks and outstanding options are recorded at
market value. Investments traded on securities exchanges are valued at the last
sale price on the day of the valuation or, in the absence of a sale that day, at
the mean between the last current bid and asked prices. Fixed income securities
are valued on the basis of prices provided by a pricing service. Fixed income
securities that have remaining maturities of sixty days or less at the time of
purchase are valued at amortized cost, if it approximates market value.
Investments for which quotations are not readily available, including
circumstances in which it is determined by Analytic-TSA Global Asset Management,
Inc. (the "Adviser") the bid or asked prices are not reflective of an
investment's market value, are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Fund's Board of Trustees.
Investment Income and Investment Transactions -- Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Investment
transactions are accounted for on the trade date (the date the order to buy or
sell is executed). Realized gains or losses from investment transactions are
reported on an identified cost basis for financial statements.
<PAGE>
Expense Reductions -- The Master Fixed Income Portfolio has directed certain
portfolio trades to brokers who paid a portion of the Portfolio's expenses. This
amount is shown as an expense reduction on the statement of operations.
Written Option Accounting Principles -- When a covered put or call option is
written in a portfolio, an amount equal to the premium received by the portfolio
is included in the portfolio's statement of assets and liabilities as an asset
and an equivalent liability. The amount of the liability will be subsequently
marked-to-market to reflect the current market value of the option written.
When a covered written call expires on its stipulated expiration date, or if the
portfolio enters into a closing purchase transaction, the Fund will realize a
gain (or loss if the cost of the closing purchase transaction exceeds the
premium received when the call option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option will be extinguished. When a covered written call option is
exercised, the Fund will realize a gain or loss from the sale of the underlying
security and the proceeds of the sale are increased by the premium originally
received.
When a portfolio writes a covered put option, cash equal to the exercise price
is placed in an interest-bearing escrow account to secure the outstanding put
option. When a put option expires, or if the portfolio enters into a closing
purchase transaction, the portfolio will realize a gain or loss on the option
transaction, the cash is released from escrow, and the liability related to such
option is extinguished. When a put option is exercised, the portfolio uses the
cash in escrow to purchase the security, the cost of the security is reduced by
the premium originally received, and no gain or loss is recognized.
Federal Income Taxes -- It is the Fund's intention to comply with the provisions
of the Internal Revenue Code enabling each portfolio to qualify as a regulated
investment company and, in the manner provided therein, to distribute all of its
taxable income to its shareholders. Accordingly, no provision for income or
excise taxes has been made.
At December 31, 1997 the Short-Term Government Portfolio has unused capital loss
carryforwards of $797,773. These realized losses are intended to be used to
offset future net capital gains, to the extent provided by regulations through
the following expiration dates:
December 31,
-------------------------------------------------
1999 2001 2003 2004 2005
------- ------- -------- -------- ------
$34,059 $57,661 $257,536 $444,657 $3,860
The cost and net unrealized appreciation/(depreciation) of investments held at
December 31, 1997 as computed for U.S. Federal income tax purposes was:
<TABLE>
<CAPTION>
Aggregate Gross Aggregate Gross Net
Unrealized Unrealized Unrealized
Cost Gain Loss Gain/(Loss)
---------- --------------- --------------- -----------
<S> <C> <C> <C> <C>
Short-Term Government Portfolio....... $2,851,608 $ 3,922 $ (9,297) $ (5,375)
Master Fixed Income Portfolio......... 4,339,365 38,343 (22,914) 15,429
Enhanced Equity Portfolio............. 6,695,079 681,740 (194,400) 487,340
</TABLE>
<PAGE>
THE ANALYTIC SERIES FUND
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Distributions to Shareholders -- Distributions are recorded on the ex-dividend
date. Certain foreign currency gains (losses) are taxable as ordinary income
and, therefore increase (decrease) taxable ordinary income available for
distribution.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences, which may result in distribution reclassifications, are
primarily due to differing treatments for foreign currency transactions, passive
foreign investment companies (PFIC), market discount, capital loss carryforwards
and losses deferred due to wash sales. Certain funds also utilized earnings and
profits distributed to shareholders on redemption of shares as a part of the
dividends paid deduction for income tax purposes.
Permanent book and tax differences relating to shareholder distributions will
result in reclassifications to paid in capital and may affect the per-share
allocation between net investment income and realized and unrealized gain
(loss). Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investment and foreign currency transactions may include
temporary book and tax basis differences which will reverse in a subsequent
period. Any taxable income or gain remaining at fiscal year end is distributed
in the following year.
Organization Expenses -- Organization expenses were amortized over a period from
November 30, 1992 through November 30, 1997.
Cash and Cash Equivalents -- Cash and cash equivalents at December 31, 1997,
consist of cash on deposit and money market funds valued at cost, which
approximates market value. Cash held by brokers consists of cash held in margin
accounts to cover futures activity. The Master Fixed Income Portfolio cash
equivalents balance includes $865,650 to secure the written put options.
2. Advisory Services
The Adviser is a wholly-owned subsidiary of United Asset Management Corporation.
The Adviser, subject to the control and direction of the Fund's Board of
Trustees, manages and supervises the investment operations of the Fund and the
composition of its portfolio's, and makes recommendations to the trustees as to
investment policies.
As compensation for furnishing investment advisory, management and other
services, and costs and expenses assumed pursuant to the Investment Management
Agreement, each portfolio of the Fund pays the Adviser an annual fee based on
the average daily net assets of that portfolio. These annual fee schedules are:
Short-Term Government Portfolio....... 0.30%
Master Fixed Income Portfolio......... 0.45%
Enhanced Equity Portfolio............. 0.60%
The Adviser voluntarily agreed to reimburse expenses that exceeded the following
percentages of average daily net assets for the respective periods:
December 31,
------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Short-Term Government Portfolio..... .60% .60% .50% .45% .45%
Master Fixed Income Portfolio....... .90% .80% .70% .60% .60%
Enhanced Equity Portfolio........... 1.00% 1.00% .80% .70% .70%
At December 31, 1997, five officers and one trustee of the Fund also became
officers and director of the Adviser.
<PAGE>
THE ANALYTIC SERIES FUND
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Administration Services
Effective May 15, 1997, UAM Fund Services, Inc. (the "Administrator"), a
wholly-owned subsidiary of United Asset Management Corporation, provides and
oversees administrative, fund accounting, dividend disbursing and transfer agent
services to the Fund under a Fund Administration Agreement (the "Administration
Agreement"). Pursuant to the Administration Agreement, the Administrator is
entitled to receive annual fees computed daily and payable monthly, of 0.19% of
the first $200 million of the combined aggregate net assets; plus 0.11% of the
next $800 million of the combined aggregate net assets; plus 0.07% of the next
$2 billion of the combined aggregate net assets; plus 0.05% of the combined
aggregate net assets in excess of $3 billion. The fees are allocated among the
portfolios of other funds administered by UAM Fund Services, Inc., The Analytic
Series Fund and the Analytic Optioned Equity Fund on the basis of their relative
net assets and are subject to a graduated minimum fee schedule per portfolio
which rises from $2,000 per month, upon inception of a portfolio, to $70,000
annually after two years. In addition, the Administrator receives a
Portfolio-specific monthly fee of 0.04% of average daily net assets of the
Portfolio. Also effective May 15, 1997, the Administrator has entered into a
Mutual Funds Services Agreement with Chase Global Funds Services Company
("CGFSC"), a wholly owned subsidiary of The Chase Manhattan Bank, under which
CGFSC agrees to provide certain services, including but not limited to,
administration, fund accounting, dividend disbursing, and transfer agent
services. Pursuant to the Mutual Funds Services Agreement, the Administrator
pays CGFSC a monthly fee. For the period May 15, 1997 to December 31, 1997, UAM
Fund Services, Inc. earned the following amounts from the Portfolio's as
Administrator and paid the following portion to CGFSC for their services.
Portion
Administration Paid
Fees to CGFSC
-------------- --------
Short-Term Government Portfolio....... $20,330 $20,058
Master Fixed Income Portfolio......... 33,461 28,464
Enhanced Equity Portfolio............. 22,140 20,551
Prior to May 15, 1997, the Adviser served as the administrator, fund accounting
and transfer agent to the Analytic Funds. For its services, the Adviser received
annual fees, computed daily and payable monthly, based on the number of accounts
and the average daily net assets of each portfolio. For the period January 1,
1997 to May 14, 1997, the Adviser earned the following amounts from the Fund as
Administrator:
Short-Term Government Portfolio....... $ 794
Master Fixed Income Portfolio......... 22,308
Enhanced Equity Portfolio............. 2,751
4. Purchases and Sales of Investment Securities
For the year ended December 31, 1997, the cost basis of purchases and proceeds
of sales (including $147,399 premiums for call options exercised in the Master
Fixed Income Portfolio) aggregated:
Cost of Proceeds
Purchases of Sales
----------- -----------
Short-Term Government Portfolio....... $ 2,649,891 $ 301,375
Master Fixed Income Portfolio......... 6,503,901 25,141,708
Enhanced Equity Portfolio............. 11,836,266 9,074,650
<PAGE>
THE ANALYTIC SERIES FUND
NOTES TO FINANCIAL STATEMENTS -- (Continued)
5. Futures and Written Options Contracts
The Fund trades financial instruments with off-balance-sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates. These financial instruments include written options and
futures contracts. The notional or contractual amounts of these instruments
represent the investment the Fund has in particular classes of financial
instruments and does not necessarily represent the amounts potentially subject
to risk. The measurement of the risks associated with these instruments is
meaningful only when all related and offsetting transactions are considered.
Transactions in option contracts written in the Master Fixed Income Portfolio
were as follows:
<TABLE>
<CAPTION>
Number of
Contracts Premiums
--------- ----------
<S> <C> <C>
Outstanding at beginning of year....................... 749 $ 357,637
Options written........................................ 3,632 1,014,583
Options terminated in closing purchase transactions.... (2,747) (832,943)
Options exercised...................................... (417) (170,544)
Options expired........................................ (1,041) (298,471)
------ ----------
Outstanding at end of year............................. 176 $ 70,262
====== ==========
</TABLE>
Transactions in option contracts written in the Enhanced Equity Portfolio were
as follows:
<TABLE>
<CAPTION>
Number of
Contracts Premiums
--------- ---------
<S> <C> <C>
Outstanding at beginning of year....................... 0 $ 0
Options written........................................ 160 72,362
Options terminated in closing purchase transactions.... (58) (18,922)
Options expired........................................ (5) --
Options exercised...................................... (92) (33,206)
------ ----------
Outstanding at end of year............................. 5 $ 20,234
====== ==========
</TABLE>
At December 31, 1997, the following Portfolio had future contracts open;
<TABLE>
<CAPTION>
Number of Aggregate Expiration Unrealized
Portfolio Contracts Face Value Date Appreciation
--------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Purchases:
Enhanced Equity Portfolio
S&P 500.................. 3 $734,325 March 1998 $13,926
=======
</TABLE>
6. Other
At December 31, 1997 the percentage of total shares outstanding held by record
shareholders owning 10% or greater of the aggregate total shares outstanding for
each Portfolio was as follows:
No. of %
Portfolio Shareholders Ownership
--------- ------------ ---------
Short-Term Government Portfolio....... 2 81%
Master Fixed Income Portfolio......... 2 41
Enhanced Equity Portfolio............. 2 50
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of The Analytic Series Fund:
We have audited the accompanying statements of assets and liabilities, including
the schedules of portfolio investments, of The Analytic Series Fund (comprising
the Short-Term Government, Master Fixed Income and Enhanced Equity portfolios)
(the "Fund") as of December 31, 1997 and the related statements of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned and
outstanding options at December 31, 1997 by correspondence with custodians and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting The Analytic Series Fund as of
December 31, 1997, and the results of their operations, the changes in their net
assets and the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 6, 1998
<PAGE>
Officers and Trustees
Chairman of the
Board of Trustees
Michael F. Koehn
Trustee
Michael D. Butler
Trustee
Robertson Whittemore
President
Harindra de Silva
Executive Vice President and Secretary
Charles L. Dobson
Treasurer
Gregory M. McMurran
Senior Vice President
Angelo A. Calvello
Senior Vice President
Marie Nastasi Arlt
Investment Adviser
Analytic o TSA Global Asset Management, Inc.
700 South Flower Street, Suite 2400
Los Angeles, CA 90017
Transfer Agent, Dividend Disbursement Agent, and
Shareholder Relations Servicing Agent
UAM Fund Services, Inc.
Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208
Custodian
The Chase Manhattan Bank
1211 Avenue of the Americas
New York, NY 10036
Counsel
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, CA 90071
Independent Accountants
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
The Analytic Series Fund
The Analytic Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208
Phone: (800) 374-2633
This report has been prepared for shareholders and may be distributed to others
only if preceded or accompanied by a current prospectus.
<PAGE>
ANALYTICFUNDS
The Analytic
Series Fund
Enhanced Equity
Master Fixed Income
Short-Term Government
Annual Report
December 31, 1997
LOGO
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors
of PBHG Advisor Series Fund, Inc.:
We have audited the accompanying Statements of Assets and Liabilities of PBHG
Advisor Funds, Inc. (the "Fund"), comprised of the PBHG Advisor Core Value, PBHG
Advisor Opportunities, PBHG Advisor New Contrarian, PBHG Advisor REIT, PBHG
Advisor Blue Chip Growth, PBHG Advisor Growth Opportunities, PBHG Advisor
Enhanced Equity, PBHG Advisor Trend, PBHG Advisor New Opportunities, PBHG
Advisor Global Technology & Communications, PBHG Advisor Growth II, PBHG Advisor
Large Cap Concentrated, PBHG Advisor High Yield, PBHG Advisor Master Fixed
Income, PBHG Advisor Short-Term Government and PBHG Advisor Cash Reserves Funds,
as of March 20, 1998. These financial statements are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Fund as of March 20, 1998
in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
- -----------------------------
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 30, 1998
S-4
<PAGE>
APPENDIX III
PBHG Advisor Funds, Inc.
Statements of Assets and Liabilities
March 20, 1998
<TABLE>
<CAPTION>
PBHG Advisor
PBHG Advisor Value PBHG Advisor PBHG Advisor
Core Value Opportunities New Contrarian REIT
Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash $ 300.00 $10,900.00 $10,875.00 $ 300.00
Organizational Cost $25,875.00 $ 2,875.00 $2,875.00 $2,875.00
---------- ---------- ---------- ---------
Total Assets $26,175.00 $13,775.00 $13,750.00 $3,175.00
Liabilities:
Accrued Expenses $25,875.00 $ 2,875.00 $ 2,875.00 $2,875.00
---------- ---------- ---------- ---------
Total Liabilities $25,875.00 $ 2,875.00 $ 2,875.00 $2,875.00
Net Assets:
Portfolio shares of Class A (authorized 100,000,000 shares -
$0.001 par value for each fund) based on 10, 365, 363 and
10 outstanding shares of common stock, respectively $ 100.00 $ 3,650.00 $ 3,625.00 $ 100.00
Net Assets:
Portfolio shares of Class B (authorized 100,000,000 shares -
$0.001 par value for each fund) based on 10, 363, 363 and
10 outstanding shares of common stock, respectively $ 100.00 $ 3,625.00 $ 3,625.00 $ 100.00
Net Assets:
Portfolio shares of Class I (authorized 100,000,000 shares -
$0.001 par value for each fund) based on 10, 363, 363 and
10 outstanding shares of common stock, respectively $ 100.00 $ 3,625.00 $ 3,625.00 $ 100.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total Net Assets $ 300.00 $10,900.00 $10,875.00 $ 300.00
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share - Class A $ 10.00 $ 10.00 $ 10.00 $ 10.00
Net Asset Value Per Share - Class B $ 10.00 $ 10.00 $ 10.00 $ 10.00
Net Asset Value Per Share - Class I $ 10.00 $ 10.00 $ 10.00 $ 10.00
</TABLE>
The accompanying notes are an integral part of the statements of assets and
liabilities.
S-5
<PAGE>
PBHG Advisor Funds, Inc.
Statements of Assets and Liabilities
March 20, 1998
<TABLE>
<CAPTION>
PBHG Advisor PBHG Advisor
Blue Chip Growth PBHG Advisor PBHG Advisor
Growth Opportunities Enhanced Equity Trend
Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash $ 300.00 $10,875.00 $10,875.00 $ 300.00
Organizational Cost $25,875.00 $ 2,875.00 $25,875.00 $2,875.00
---------- ---------- ---------- ---------
Total Assets $26,175.00 $13,750.00 $36,750.00 $3,175.00
Liabilities:
Accrued Expenses $25,875.00 $ 2,875.00 $25,875.00 $2,875.00
---------- ---------- ---------- ---------
Total Liabilities $25,875.00 $ 2,875.00 $25,875.00 $2,875.00
Net Assets:
Portfolio shares of Class A (authorized 100,000,000 shares -
$0.001 par value for each fund) based on 10, 363, 363,
10, 363 and 363 outstanding shares of common stock,
respectively $ 100.00 $ 3,625.00 $ 3,625.00 $ 100.00
Net Assets:
Portfolio shares of Class B (authorized 100,000,000 shares -
$0.001 par value for each fund) based on 10, 363, 363,
10, 363 and 363 outstanding shares of common stock,
respectively $ 100.00 $ 3,625.00 $ 3,625.00 $ 100.00
Net Assets:
Portfolio shares of Class I (authorized 100,000,000 shares -
$0.001 par value for each fund) based on 10, 363, 363,
10, 363 and 363 outstanding shares of common stock,
respectively $ 100.00 $ 3,625.00 $ 3,625.00 $ 100.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total Net Assets $ 300.00 $10,875.00 $10,875.00 $ 300.00
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share - Class A $ 10.00 $ 10.00 $ 10.00 $ 10.00
Net Asset Value Per Share - Class B $ 10.00 $ 10.00 $ 10.00 $ 10.00
Net Asset Value Per Share - Class I $ 10.00 $ 10.00 $ 10.00 $ 10.00
<CAPTION>
PBHG Advisor
PBHG Advisor Global
New Technology &
Opportuities Communications
Fund Fund
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash $10,875.00 $10,875.00
Organizational Cost $25,875.00 $ 2,875.00
---------- ----------
Total Assets $36,750.00 $13,750.00
Liabilities:
Accrued Expenses $25,875.00 $ 2,875.00
---------- ----------
Total Liabilities $25,875.00 $ 2,875.00
Net Assets:
Portfolio shares of Class A (authorized 100,000,000 shares -
$0.001 par value for each fund) based on 10, 363, 363,
10, 363 and 363 outstanding shares of common stock,
respectively $ 3,625.00 $ 3,625.00
Net Assets:
Portfolio shares of Class B (authorized 100,000,000 shares -
$0.001 par value for each fund) based on 10, 363, 363,
10, 363 and 363 outstanding shares of common stock,
respectively $ 3,625.00 $ 3,625.00
Net Assets:
Portfolio shares of Class I (authorized 100,000,000 shares -
$0.001 par value for each fund) based on 10, 363, 363,
10, 363 and 363 outstanding shares of common stock,
respectively $ 3,625.00 $ 3,625.00
- --------------------------------------------------------------------------------------------------
Total Net Assets $ 10,875.00 $10,875.00
- --------------------------------------------------------------------------------------------------
Net Asset Value Per Share - Class A $ 10.00 $ 10.00
Net Asset Value Per Share - Class B $ 10.00 $ 10.00
Net Asset Value Per Share - Class I $ 10.00 $ 10.00
</TABLE>
The accompanying notes are an integral part of the statements of assets and
liabilities
<PAGE>
PBHG Advisor Funds, Inc.
Statements of Assets and Liabilities
March 20, 1998
<TABLE>
<CAPTION>
PBHG Advisor PBHG Advisor PBHG Advisor
PBHG Advisor Large Cap PBHG Advisor Master Fixed Short-Term PBHG Advisor
Growth II Concentrated High Yield Income Government Cash Reserves
Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash $ 300.00 $10,875.00 $ 300.00 $10,875.00 $ 300.00 $10,875.00
Organizational Cost $2,556.00 $29,571.00 $2,556.00 $29,571.00 $29,571.00 $29,571.00
--------- ---------- --------- ---------- ---------- ----------
Total Assets $2,856.00 $40,446.00 $2,856.00 $40,446.00 $29,871.00 $40,446.00
Liabilities:
Accrued Expenses $2,556.00 $29,571.00 $2,556.00 $29,571.00 $29,571.00 $29,571.00
--------- ---------- --------- ---------- ---------- ----------
Total Liabilities $2,556.00 $29,571.00 $2,556.00 $29,571.00 $29,571.00 $29,571.00
Net Assets
Portfolio shares of Class A
(authorized 100,000,000 shares
- $0.001 par value for each
fund) based on 10, 363, 10, 363,
10 and 3,625 outstanding shares
of common stock, respectively $ 100.00 $ 3,625.00 $ 100.00 $ 3,625.00 $ 100.00 $ 3,625.00
Net Assets
Portfolio shares of Class B
(authorized 100,000,000 shares
- $0.001 par value for each
fund) based on 10, 363, 10, 363,
10 and 3,625 outstanding shares
of common stock, respectively $ 100.00 $ 3,625.00 $ 100.00 $ 3,625.00 $ 100.00 $ 3,625.00
Net Assets
Portfolio shares of Class 1
(authorized 100,000,000 shares
- $0.001 par value for each
fund) based on 10, 363, 10, 363,
10 and 3,625 outstanding shares
of common stock, respectively $ 100.00 $ 3,625.00 $ 100.00 $ 3,625.00 $ 100.00 $ 3,625.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total Net Assets $ 300.00 $10,875.00 $ 300.00 $10,875.00 $ 300.00 $10,875.00
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share - Class A $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 1.00
Net Asset Value Per Share - Class B $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 1.00
Net Asset Value Per Share - Class I $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 1.00
The accompanying notes are an integral part of the statements of assets and liabilities.
</TABLE>
<PAGE>
Notes To Statements of Assets and Liabilities PBHG Advisor Funds, Inc.
March 20, 1998
(1) Organization
PBHG Advisor Funds, Inc. (the "Funds"), a Maryland corporation, is registered
under the Investment Company Act of 1940, as amended, as an open-end
management investment company with sixteen series: the PBHG Advisor Core
Value Fund (the "Core Value Fund"), the PBHG Advisor Value Opportunities Fund
(the "Value Opportunities Fund"), the PBHG Advisor New Contrarian Fund (the "New
Contrarian Fund"), the PBHG Advisor REIT Fund (the "REIT Fund"), the PBHG
Advisor Large Cap Concentrated Fund (the "Large Cap Concentrated Fund"), the
PBHG Advisor Growth II Fund (the "Growth II Fund"), the PBHG Advisor New
Opportunities Fund (the "New Opportunities Fund"), the PBHG Advisor Global
Technology & Communications Fund (the "Globa1 Technology & Communications
Fund"), the PBHG Advisor Blue Chip Growth Fund (the "Blue Chip Growth Fund"),
the PBHG Advisor Growth Opportunities Fund (the "Growth Opportunities Fund"),
the PBHG Advisor Enhanced Equity Fund (the "Enhanced Equity Fund"), the PBHG
Advisor Trend Fund (the "Trend Fund"), (collectively referred to as the
"Equity Portfolios"), the PBHG Advisor Master Fixed Income Fund (the "Master
Fixed Income Fund"), the PBHG Advisor High Yield Fund (the "High Yield
Fund"), the PBHG Advisor Cash Reserves Fund (the "Cash Reserves Fund"), and the
PBHG Advisor Short-Term Government Fund (the "Short-Term Government Fund")
(each a "Fund" and, collectively, the "Funds"). To date, the Fund has had no
transactions other than those relating to organizational matters and the
issuance of 10,000 shares of common stock to Pilgrim Baxter & Associates, Ltd.
(the "Adviser"). Each of the Funds has distinct investment objectives and
policies that are described in the prospectus.
(2) Significant Accounting Policies
The following is a summary of the significant accounting policies followed by
the Funds.
Security Valuation - Investment securities of the Equity Funds that are listed
on a securities exchange for which market quotations are available are valued at
the last quoted sales price on each business day. If there is no such reported
sale, these securities and unlisted securities for which market quotations are
readily available, are valued at the most recently quoted bid price. However,
debt securities (other than short-term obligations), including listed issues,
are valued on the basis of valuations furnished by the pricing service which
utilizes electronic data processing techniques to determine valuations for
normal institutional size trading units of debt securities, without exclusive
reliance upon exchange or over-the-counter prices. Short-term investments may be
valued at amortized cost which approximates market value. Foreign securities are
valued based upon 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 values of investment
securities held by the Cash Reserves Fund are stated at amortized cost, which
approximates market value. Under this valuation method, acquisition discounts
and premiums are accreted and amortized ratably to maturity and are included in
interest income.
Security Transactions and Investment Income - Security transactions are
accounted for on the date the securities are purchased or sold (trade date).
Dividend income and distributions to shareholders are recognized on the
ex-dividend date; interest income is recognized on the accrual basis.
Costs used in determining realized capital gains and losses on the sale of
investment securities are those of the specific securities sold adjusted for
the accretion and amortization of acquisition discounts and premiums during
<PAGE>
the respective holding periods. Acquisition discounts and premiums are accreted
and amortized to maturity using a method which approximates the effective
interest method.
Dividends - Dividends from net investment income for the Equity Funds are
declared annually, if available. Dividends from net investment income for the
Master Fixed Income Fund, the High Yield Fund, the Short-Term Government Fund
and the Cash Reserves fund are declared daily and paid monthly. Distributions of
net realized capital gains, for all funds, are generally made to shareholders
annually. Dividends from net investment income and distributions from net
realized capital gains are determined in accordance with U.S. Federal income tax
regulations, which may differ from those amounts determined under generally
accepted accounting principles, These book/tax differences are either temporary
or permanent in nature. To the extent these differences are permanent, they are
charged or credited to paid-in-capital or accumulated net realized gain, as
appropriate, in the period that the differences arise.
Organizational Costs - All organizational costs incurred with the start up of
the Funds will be amortized on a straight line basis over a period of sixty
months commencing with operations provided that the series commenced operations
prior to June 30, 1998. For those series that commenced operations after June
30, 1998 all organizational costs incurred with the start of the Funds will be
expensed over a period not to exceed one year. In the event that any of the
initial shares of the Fund are redeemed by any holder thereof during the period
that the Fund is amortizing its organizational costs, the redemption proceeds
payable to the holder thereof will be reduced by the unamortized organizational
costs in the same ratio as the number of initial shares being redeemed bears to
the number of initial shares outstanding at the time of redemption.
Federal Income Taxes - It is each Fund's intention to qualify as a regulated
investment company for federal income tax purposes, and to distribute all of its
taxable income and net capital gains. Accordingly, no provision has been made
for Federal income taxes.
Net Asset Value Per Share - The net asset value per share is calculated each
business day by dividing the total value of each Fund's assets, less
liabilities, by the number of shares outstanding.
Repurchase Agreements - Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements and procedures adopted by
Pilgrim Baxter & Associates, Ltd. (the "Adviser") ensure that the market value
of the collateral including accrued interest thereon, is sufficient in the event
of default by the counterparty. If the counterparty defaults and the value of
the collateral declines, of if the counterparty enters into insolvency
proceedings, realization of the collateral by a Fund may be delayed or limited.
Other - Expenses that are directly related to one of the Funds are charged
directly to that Fund. Other operating expenses are prorated to the Funds on the
basis of relative net assets. Class specific expenses, such as l2b-1 service
fees and transfer agent fees, are borne directly by that class. Income, other
expenses and realized and unrealized gains and losses of a Fund are allocated to
the respective class on the basis of the relative net assets each day.
(3) Investment Advisory Fees, Administrative Fees and Other Transactions with
Affiliates
The Funds and the Adviser are parties to an Investment Advisory Agreement (the
"Advisory Agreement"). Under the terms of the Advisory Agreement, the Adviser
is entitled to a fee, which is calculated daily and paid monthly, at an annual
rate of 0.85% of the average daily net assets of the Value Opportunities, Large
Cap Concentrated, Growth II, and Global Technology & Communications Funds;
0.75% of the average net assets of the REIT and New Opportunities Funds; 0.65%
of the average net assets of the Growth Opportunities and Trend Funds; 0.60% of
the average net assets of the Core Value, New Contrarian, Blue Chip Growth, and
Enhanced Equity Funds; 0.50% of the average net assets of the
<PAGE>
High Yield Fund; 0.45% of the average net assets of the Master Fixed Income
Fund; and 0.30% of the average net assets of the Cash Reserves and Short-Term
Government Funds.
Pilgrim Baxter Value Investors ("Value Investors") serves as the sub-adviser to
the Core Value, New Contrarian, REIT, and Value Opportunities Funds. For its
services provided pursuant to its Investment Sub-Advisory Agreement with the
Adviser and the Fund, Value Investors is entitled to receive, from the Adviser,
a sub-advisory fee with respect to the average daily net assets of each such
Fund that is computed daily and paid monthly at annual rates of 0.40%, 0.40%,
0.55% and 0.65%, respectively. Value Investors receives no fees directly from
the Core Value, New Contrarian REIT, and Value Opportunities Funds.
Wellington serves as the sub-adviser to the Cash Reserves Fund. For its services
provided pursuant to its Investment Sub-Advisory Agreement with the Adviser and
the Fund, Wellington is entitled to receive, from the Adviser, a sub-advisory
fee that is computed daily and paid monthly at an annual rate of 0.075% of the
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 receives no fees directly from the Cash
Reserves Fund.
Analytic TSA serves as the sub-adviser to the Enhanced Equity, Master Fixed
Income, and Short-Term Government Funds. For its services provided pursuant to
its Investment Sub-Advisory Agreement with the Adviser and the Fund, Analytic
TSA is entitled to receive, from the Adviser, a sub-advisory fee with respect
to the average daily net assets of each such Fund that is computed daily and
paid monthly at annual rates of 0.40%, 0.25%, and 0.10%, respectively.
Analytic TSA receives no fees directly from the Enhanced Equity, Master Fixed
Income, and Short-term Government Funds.
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, PBHG Advisor New Contrarian Fund, PBHG Advisor Blue Chip Growth
Fund, and PBHG Advisor Enhanced Equity Fund; 1.07% of the PBHG Advisor Value
Opportunities Fund, PBHG Advisor Large Cap Concentrated Fund, PBHG Advisor
Growth II Fund, and PBHG Advisor Global Technology & Communications Fund; 0.97%
of the PBHG Advisor REIT Fund and PBHG Advisor New Opportunities Fund; 0,87% of
the PBHG Advisor Growth Opportunities Fund and PBHG Advisor Trend Fund; 0.67%
of the PBHG Advisor Master Fixed Income Fund; 0.72% of the PBHG Advisor High
Yield Fund; and 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 l8f-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 capita1ized in
accordance with generally accepted accounting principles; (ii) expense
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. The total amount
of reimbursement to which the Adviser may be entitled shall equal, at any time,
the sum of all investment advisory fees previously waived or reduced by the
Adviser and all other payments remitted by the Adviser to the Fund, during
any of the previous two fiscal years, less any reimbursement previously paid
by such Fund to the Adviser.
PBHG Fund Services (the "Administrator"), a wholly-owned subsidiary of the
Adviser, provides the Funds 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 Funds.
<PAGE>
SEI Financial Management Corporation, a wholly-owned subsidiary of SEI
Corporation, is the owner of all beneficial interest in SEI Fund Resources (the
"Sub-Administrator"). The Sub-Administrator assists the Administrator in
providing administrative services to the Funds.
PBHG Fund Distributors, a wholly owned subsidiary of the Adviser, provides the
Funds with distribution services.
DST Systems, Inc. serves as the transfer agent, dividend disbursing agent for
the Funds under a transfer agent agreement with the Funds. PBHG Fund Services
provides shareholder support and other shareholder account-related services with
assistance from UAM Shareholder Service Center. CoreStates Bank, N.A. serves as
the custodian for the Funds.
The Funds have adopted Distribution Plans (the "12b-1 Plan") for those Funds
offering Class A and B shares. The Plan provides for the payment by the Funds to
the Distributor of up to 0.35% of each Fund's average net assets attributable to
Class A shares and up to 1.00% for Class B shares. The Funds' directors have
determined that payments under the 12b-1 distribution plan for Class A shares
will currently be limited to 0.25%. Class I shares are not subject to 12b-1
fees.
Certain officers and directors of the Fund who are or were officers of the
Adviser, Administrator, Sub-Administrator and the Distributor receive no
compensation from the Fund for their services.
(4) Reorganization
On February 20, 1998, the Board of Directors of the Fund and the Board of
Trustees of The Analytic Series Fund approved an Agreement and Plan of
Reorganization to reorganize the Analytic Enhanced Equity Portfolio,
Analytic Master Fixed Income Portfolio, and Analytic Short-Term Government
Portfolios into the PBHG Advisor Enhanced Equity Fund, PBHG Advisor Master
Fixed Income Fund and PBHG Advisor Short-Term Government Fund, respectively.
This reorganization is pending approval of the shareholders of the Analytic
Series Fund at a special meeting currently scheduled to be held on April 28,
1998.
The reorganization is expected to be performed on May 31, 1998 with all of the
property and assets of the Analytic Series Fund to be transferred to the
corresponding PBHG Advisor Fund. Upon this transfer, the PBHG Advisor Fund will
issue Class A shares of the voting common stock. The portfolios of the Analytic
Series Fund will be accounting survivors for financial reporting purposes.
<PAGE>
<PAGE>
PART C. OTHER INFORMATION
Item 15. Indemnification
---------------
Article 7.4 of Registrant's Articles of Incorporation provides as follows:
7.4 Indemnification. The Corporation, including its successors and assigns,
shall indemnify its directors and officers and make advance payment of
related expenses to the fullest extent permitted, and in accordance with
the procedures required, by the General Laws of the State of Maryland and
the Investment Company Act of 1940. The By-Laws may provide that the
Corporation shall indemnify its employees and/or agents in any manner and
within such limits as permitted by applicable law. Such indemnification
shall be in addition to any other right or claim to which any director,
officer, employee or agent may otherwise be entitled. The Corporation may
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation or is or was
serving at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or employee benefit
plan, against any liability (including, with respect to employee benefit
plans, excise taxes) asserted against and incurred by such person in any
such capacity or arising out of such person's position, whether or not the
Corporation would have had the power to indemnify against such liability.
The rights provided to any person by this Article 7.4 shall be enforceable
against the Corporation by such person who shall be presumed to have relied
upon such rights in serving or continuing to serve in the capacities
indicated herein. No amendment of these Articles of Incorporation shall
impair the rights of any person arising at any time with respect to events
occurring prior to such amendment.
In addition, Article VI of Registrant's By-Laws provides as follows:
Article VI: Indemnification
The Corporation shall indemnify (a) its Directors and officers whether
serving the Corporation or at its request any other entity, to the full
extent required or permitted by (i) Maryland law now or hereafter in force,
including the advance of expenses under the procedures and to the full
extent permitted by law, and (ii) the Investment Company Act of 1940, as
amended, and (b) other employees and agents to such extent as shall be
authorized by the Board of Directors and be permitted by law. The foregoing
rights of indemnification shall not be exclusive of any other rights to
which those seeking indemnification may be entitled. The Board of Directors
may take such action as is necessary to carry out these indemnification
provisions and is expressly empowered to adopt, approve and amend from time
to time such resolutions or contracts implementing such provisions nor such
further indemnification arrangements as may be permitted by law.
Insofar as indemnification for liability arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
<PAGE>
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
To the extent that the Articles of Incorporation, By-Laws or any other
instrument pursuant to which the Registrant is organized or administered
indemnify any director or officer of the Registrant, or that any contract
or agreement indemnifies any person who undertakes to act as investment
adviser or principal underwriter to the Registrant, any such provision
protecting or purporting to protect such persons against any liability to
the Registrant or its security holders to which he would otherwise by
subject by reason or willful misfeasance, bad faith, or gross negligence,
in the performance of his duties, or by reason of his contract or
agreement, will be interpreted and enforced in a manner consistent with the
provisions of Sections 17(h) and (i) of the Investment Company Act of 1940,
as amended, and Release No. IC-11330 issued thereunder.
Item 16. Exhibits.
1(a) Articles of Incorporation(1)
1(b) Articles Supplementary of Registrant(2)
2 By-Laws(1)
3 Voting trust agreement - none
4 Agreement and Plan of Reorganization, filed herewith as Exhibit A
to the Combined Proxy Statement and Prospectus
5 Not Applicable
6(a) Investment Advisory Agreement between the Registrant and Pilgrim
Baxter & Associates, Ltd. dated April 1, 1998(2)
6(b) Form of Investment Sub-Advisory Agreement by and among the Registrant
and Analytic TSA Global Asset Management, Inc.(2)
6(c) Investment Sub-Advisory Agreement by and among the Registrant,
Pilgrim Baxter & Associates, Ltd. and Wellington Management Company,
LLP dated April 1, 1998.(2)
6(d) Investment Sub-Advisory Agreement by and among the Registrant,
Pilgrim Baxter & Associates, Ltd. and Pilgrim Baxter Value
Investments, Inc. dated April 1, 1998.(2)
7(a) Distribution Agreement between the Registrant and PBHG
Fund Distributors relating to Class A Shares dated April 1, 1998.(2)
7(b) Distribution Agreement between the Registrant and PBHG Fund
Distributors relating to Class B Shares dated April 1, 1998.(2)
7(c) Distribution Agreement between the Registrant and PBHG Fund
Distributors relating to Class I Shares dated April 1, 1998.(2)
7(d) Form of Selected Dealer Agreement(2)
7(e) Form of Bank Agency Agreement relating to shares of the Registrant(2)
7(f) Form of Shareholder Service Agreement for sale of Shares of
Registrant(2)
8 Bonus, profit sharing or pension plans - none
9 Form of Custodian Agreement between the Registrant and CoreStates
Bank, N.A.(2)
10(a) Distribution Plan of the Registrant pursuant to Rule 12b-1
relating to Class A Shares dated April 1, 1998.(2)
10(b) Distribution Plan of the Registrant pursuant to Rule 12b-1
relating to Class B Shares dated April 1, 1998.(2)
10(c) Multiple Class Plan of the Registrant pursuant to Rule 18f-3
dated April 1, 1998.(2)
11 Opinion of Counsel and Consent of Ballard Spahr Andrews & Ingersoll,
LLP with respect to corporate matters - to be filed by Amendment.
C-2
<PAGE>
12 Opinion of counsel and Consent of Paul, Hastings, Janofsky & Walker
LLP with respect to tax matters - to be filed by Amendment.
13(a) Administrative Services Agreement by and between the Registrant and
PBHG Fund Services dated April 1, 1998.(2)
13(b) Form of Sub-Administrative Services Agreement by and between the
Registrant, PBHG Fund Services and SEI Fund Resources(2)
13(c) Expense Limitation Agreement by and between the Registrant, on behalf
of each portfolio of the Registrant and Pilgrim Baxter & Associates,
Ltd. dated April 1, 1998.(2)
(2)
14(a) Consent of Coopers & Lybrand, LLP(3)
14(b) Consent of Deliotte & Touche, LLP(3)
14(c) Consent of Coopers & Lybrand, LLP in respect of audited statements
of Assets and Liabilities(4)
15 Not Applicable
16 Not Applicable
17 Form of Proxy
(1) Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A (File Nos. 333-44193 and 811-08605) as filed electronically with
the Commission on January 13, 1998.
(2) Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (File No. 333-44193 and
811-08605).
(3) Incorporated herein by reference to Registrant's Registration Statement
on Form N-14 (File Nos. 333-44193 and 811-08605) as filed electronically with
the Commission on March 10, 1998.
(4) Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-14 (File Nos. 333-44193 and
811-08605) as filed electronically with the Commission on April 8, 1998.
Item 17. Undertakings
------------
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a
part of this registration statement by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c) of the Securities Act
of 1933, as amended, the reoffering prospectus will contain the information
called for by the applicable registration form for reofferings by persons
who may be deemed underwriters, in addition to the information called for
by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities Act
of 1933, each post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and the offering
of the securities at that time shall be deemed to be the initial bona fide
offering of them.
(3) The undersigned Registrant undertakes to file, by Post-Effective
Amendment, an opinion of counsel supporting the tax consequences of the
reorganization within a reasonable time after receipt of such opinion.
C-3
<PAGE>
SIGNATURES
Pursuant to the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has duly caused this Pre-Effective Amendment No. 2 to its
Registration Statement on Form N-14 to be signed on its behalf by the
undersigned thereto duly authorized, in the City of Wayne, and Commonwealth of
Pennsylvania, on the 22nd day of April, 1998.
PBHG ADVISOR FUNDS, INC.
Registrant
By: /s/ Harold J. Baxter
-----------------------------
Harold J. Baxter
Chairman and Director
Pursuant to the requirements of the Securities Act of 1933, this Pre-Effective
Amendment No. 2 to its Registration Statement on Form N-14 has been signed below
by the following persons on the 22nd day of April, 1998 in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE AND TITLE DATE
<S> <C> <C>
/s/ Harold J. Baxter Chairman and Director April 22, 1998
- ---------------------------
Harold J. Baxter
/s/ Harold J. Baxter , POA Director April 22, 1998
- ---------------------------
John R. Bartholdson
/s/ Harold J. Baxter , POA Director April 22, 1998
- ---------------------------
Jettie M. Edwards
/s/ Harold J. Baxter , POA Director April 22, 1998
- ---------------------------
Albert A. Miller
/s/ Gary L. Pilgrim President April 22, 1998
- ---------------------------
Gary L. Pilgrim
/s/ Lee T. Cummings Treasurer, Chief Financial Officer April 22, 1998
- --------------------------- and Controller
Lee T. Cummings
</TABLE>
C-4
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
17 Form of Proxy
ANALYTIC ENHANCED EQUITY PORTFOLIO
ANALYTIC MASTER FIXED INCOME PORTFOLIO
ANALYTIC SHORT-TERM GOVERNMENT PORTFOLIO
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
May 28, 1998
The undersigned holder of shares of Analytic Enhanced Equity Portfolio, Analytic
Master Fixed Income Portfolio and/or Analytic Short-Term Government Portfolio
(collectively, the "Analytic Portfolios"), each a series of The Analytic Series
Fund (the "Fund"), hereby appoints Harindra de Silva and Marie Nastasi Arlt
proxies for the undersigned with full powers of substitution and revocation, to
represent the undersigned and to vote on behalf of the undersigned all shares of
the Fund that the undersigned is entitled to vote at the Special Meeting of
Shareholders of the Fund to be held at 700 South Flower Street, Suite 2400, Los
Angeles, California, 90017 on May 28, 1998, at 10:00 a.m., and any adjournment
or adjournments thereof. The undersigned hereby acknowledges receipt of the
Notice of Special Meeting and Combined Prospectus and Proxy Statement dated
April 27, 1998 and hereby instructs said proxies to vote said shares as
indicated herein. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the Meeting. The undersigned
hereby revokes any proxy previously given.
Please indicate your vote by an "X" in the appropriate box below. This proxy, if
properly executed, will be voted in the manner directed by the undersigned
shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" APPROVAL OF
THE PROPOSAL.
1. To approve the Agreement and
Plan of Reorganization FOR [_] AGAINST [_] ABSTAIN [_]
To approve the Agreement and Plan of Reorganization dated as of March
23, 1998, between the Fund and PBHG Advisor Funds, Inc. ("PBHG Advisor
Funds"), providing for (a) the acquisition of all the assets of the
Enhanced Equity Portfolio, Master Fixed Income Portfolio, and
Short-Term Government Portfolio series of the Fund by the corresponding
series of PBHG Advisor Funds (the PBHG Advisor Enhance Equity Fund,
PBHG Advisor Master Fixed Income Fund, and PBHG Advisor Short-Term
Government Fund series, respectively), in exchange for Class A shares
of such respective series of PBHG Advisor Funds, and (b) the
liquidation of the Fund and its Portfolios, and the pro rata
distribution of each Portfolio's holdings of PBHG Fund shares to its
shareholders.
2. To transact such other business as it may properly come before the
Meeting or any adjournment or adjournments thereof.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE
Date: _______________________
------------------------------ ------------------------------
Signature Title(s), if applicable
Note: Please sign exactly as your name appears on this Proxy. If joint owners,
EITHER may sign this Proxy. When signing as attorney, executor, administrator,
trustee, guardian or corporate officer, please give your full title.
