As filed with the Securities and Exchange Commission on January 13, 1998
Registration Nos. _________
_________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. _____ [ ]
Post-Effective Amendment No. ____ [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. ____
(Check appropriate box or boxes.)
PBHG ADVISOR FUNDS, INC.
(Exact name of registrant as specified in charter)
825 Duportail Road
Wayne, PA 19087
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, Including Area Code (610) 647-4100
Harold J. Baxter
825 Duportail Road
Wayne, Pennsylvania 19087
(Name and Address of Agent For Service)
Copies to:
William H. Rheiner, Esq. John M. Zerr, Esq.
Ballard Spahr Andrews & Ingersoll Pilgrim Baxter & Associates, Ltd.
1735 Market Street, 51st Floor 825 Duportail Road
Philadelphia, PA 19103-7599 Wayne, PA 19087
(215) 864-8600 (610) 647-4100
<PAGE>
Approximate Date of Proposed Public Offering: As soon as practicable after
effective date of this Filing.
It is proposed that this filing will become effective (check appropriate box)
__ immediately upon filing pursuant to paragraph (b)
__ on (date) pursuant to paragraph (b)
__ 60 days after filing pursuant to paragraph (a)(1)
__ on (date) pursuant to paragraph (a)(1)
__ 75 days after filing pursuant to paragraph (a)(2)
__ on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
__ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities being registered: Common Stock
----------------------------------------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as this Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PBHG ADVISOR FUNDS, INC.
CROSS REFERENCE SHEET
(as required by Rule 495)
PART A
<TABLE>
<CAPTION>
Item No. Location in Prospectus
- -------- ----------------------
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Summary; Expense Summary
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objectives and Policies;
General Investment Policies and
Strategies; Risk Factors; Investment
Limitations; General Information--The
Company
5. Management of the Fund General Information--Directors of the
Company; General Information--Value Investors;
General Information--Analytic TSA;
General Information--Wellington; General Information--The
Administrator and the Sub-
Administrator; General Information--The
Transfer Agent;
General Information--The
Shareholder Servicing Agents; General
Information--The Distributor
5A. Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Other Securities Taxes; General Information -- Voting Rights;
General Information--Dividends and Distributions
7. Purchase of Securities Being Offered How to Purchase Fund Shares; Shareholder Services;
Determination of Net Asset Value
8. Redemption or Repurchase How to Redeem Fund Shares;
Shareholder Services; Determination of
Net Asset Value
9. Pending Legal Proceedings Not Applicable
<PAGE>
PART B
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History The Company
13. Investment Objectives and Policies Description of Permitted Investments;
Investment Limitations; Description of
Shares; Appendix A--Glossary of Permitted Investments;
Appendix B--Ratings of Securities
14. Management of the Fund Directors and Officers of the Company;
The Administrator and Sub-
Administrator
15. Control Persons and Principal Holders 5% and 25% Shareholders; Directors
of Securities and Officers of the Company
16. Investment Advisory and Other The Adviser; The Sub-Advisers; The
Services Administrator and Sub-Administrator;
The Distributor
17. Brokerage Allocation and Other Portfolio Transactions
Practices
18. Capital Stock and Other Securities Description of Shares
19. Purchase, Redemption and Pricing of Purchase and Redemption of Shares;
Securities Being Offered Determination of Net Asset Value
20. Tax Status Taxes
21. Underwriters The Distributor
22. Calculation of Performance Data Computation of Yield; Calculation of
Total Return
23. Financial Statements Financial Statements
</TABLE>
2
<PAGE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C of the Registration Statement.
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PBHG ADVISOR FUNDS, INC.
PROSPECTUS DATED __________________, 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 three classes of shares of each
of the following portfolios (each a "PBHG Advisor Fund" or "Fund," and together,
the "PBHG Advisor Funds" or "Funds"):
PBHG ADVISOR VALUE FUNDS
o PBHG ADVISOR CORE VALUE FUND
o PBHG ADVISOR VALUE OPPORTUNITIES FUND
o PBHG ADVISOR NEW CONTRARIAN FUND
o PBHG ADVISOR REIT FUND
PBHG ADVISOR GROWTH FUNDS
o PBHG ADVISOR BLUE CHIP GROWTH FUND
o PBHG ADVISOR GROWTH OPPORTUNITIES FUND
o PBHG ADVISOR ENHANCED EQUITY FUND
o PBHG ADVISOR TREND FUND
PBHG ADVISOR AGGRESSIVE GROWTH FUNDS
o PBHG ADVISOR LARGE CAP CONCENTRATED FUND
o PBHG ADVISOR GROWTH II FUND
o PBHG ADVISOR NEW OPPORTUNITIES FUND
o PBHG ADVISOR GLOBAL TECHNOLOGY &
COMMUNICATIONS FUND
PBHG ADVISOR FIXED INCOME FUNDS
o PBHG ADVISOR MASTER FIXED INCOME FUND
o PBHG ADVISOR HIGH YIELD FUND
o PBHG ADVISOR CASH RESERVES FUND
This Prospectus sets forth concisely the information about the Company, the PBHG
Advisor Funds and the classes of 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
_________________, which contains important information has been filed with the
Securities and Exchange Commission and is available upon request and without
charge by calling 1-800-XXX-XXXX. 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.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Mutual fund shares are not deposits or obligations of, 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
FINANCIAL HIGHLIGHTS................................................. 18
THE COMPANY AND THE FUNDS............................................ 18
INVESTMENT OBJECTIVES AND POLICIES................................... 18
GENERAL INVESTMENT POLICIES AND STRATEGIES........................... 32
RISK FACTORS......................................................... 36
INVESTMENT LIMITATIONS............................................... 44
HOW TO PURCHASE FUND SHARES.......................................... 46
SHAREHOLDER SERVICES................................................. 55
HOW TO REDEEM FUND SHARES............................................ 59
DETERMINATION OF NET ASSET VALUE..................................... 67
PERFORMANCE ADVERTISING.............................................. 67
TAXES ............................................................ 69
GENERAL INFORMATION.................................................. 71
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 15 separate series of the
Company: 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, and PBHG Advisor Cash Reserves Fund. Each Fund has
three classes of shares (Class A, Class B and Class I) which are described
below. Except for the PBHG Advisor New Contrarian Fund, PBHG Advisor REIT Fund,
and PBHG Advisor Large Cap Concentrated Fund, which are classified as
non-diversified investment companies, 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, PBHG Advisor Value
Opportunities Fund, and PBHG Advisor New Contrarian Fund. Wellington Management
Company, LLP ("Wellington") serves as the sub-adviser to the PBHG
3
<PAGE>
Advisor Cash Reserves Fund. Analytic TSA Global Asset Management, Inc.
("Analytic TSA") serves as sub-adviser to the PBHG Adviser Enhanced Equity Fund
and PBHG Advisor Master Fixed Income Fund. See "The Adviser," "Value Investors,"
"Analytic TSA," and "Wellington" 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 "The Administrator and
Sub-Administrator" under the caption "General Information."
Who are the Transfer Agent and shareholder servicing agents?
_________________ serves as the transfer agent and dividend disbursing agent
(the "Transfer Agent") of the Company. PBHG Fund Services 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 PBHG Fund Services 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 "The Transfer Agent"
and "Shareholder Servicing Agents" under the caption "General Information."
Who is the Distributor? PBHG Fund Distributors (the "Distributor"), a
wholly owned subsidiary of the Adviser, provides the Company with distribution
services. See "The Distributor" under the caption "General Information."
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 three classes
of 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
4
<PAGE>
charge). Certain purchases of Class A shares qualify for a sales charge waiver
or reduction. Class A shares bear a 12b-1 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 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 upon redemptions of Class A
shares of the PBHG Advisor Cash Reserves Fund when such shares were purchased in
an exchange, and 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 higher 12b-1 plan fee than
Class A shares, at the annual rate of 1.00% of each PBHG Advisor Fund's average
net assets. Class B shares will automatically convert into Class A shares, based
on relative net asset value, approximately eight years after purchase. Class B
shares provide you the benefit of putting all of your dollars 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 plan fee.
Class B shares of the PBHG Advisor Cash Reserves Fund can be purchased only in
an exchange are not available for direct purchase. See "Class B Shares" under
the caption "How to Purchase Fund Shares."
Class I Shares. Class I shares are available only to certain
institutional investors such as defined benefit plans and defined contribution
plans, management account programs, and trusts or custodial accounts maintained
at banks or trust companies, in each case where the institution maintains
individual shareholder records and does not receive any payment from the Company
or the Distributor for administrative, record keeping or transfer agency related
services performed by such institution and where the financial institution has
entered into a participation agreement with the Distributor. Class I shares are
sold without an initial sales charge, are not subject to a contingent deferred
sales charge, and have not adopted a 12b-1 plan. Thus, the entire purchase price
of Class I shares is immediately invested in Class I shares. See "Class I
Shares" under the caption "How to Purchase Fund Shares."
Which Arrangement is Better 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. Class I shares are only
available to certain institutional investors who have entered into a
participation agreement with the Distributor. For more information about these
sales arrangements, consult your investment dealer. Sales personnel may receive
different compensation depending on which class of shares
5
<PAGE>
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 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 month at the same time that the initial investment
is made. The minimum initial investment for Class I shares for all PBHG Advisor
Funds is $1 million in the aggregate.
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
"Class B Shares" and "Contingent Deferred Sales Charge Program for Large
Purchases" under the caption "How to Redeem Fund Shares."
EXPENSE SUMMARY
Shareholder Transaction Expenses (Class A Shares)
<TABLE>
<CAPTION>
===================================================================================================================================
Maximum
Maximum Maximum Deferred Sales
Sales Load Sales Load Loads (as a Redemption
Imposed on Imposed on percentage of Fees (as a
Purchases Reinvested original percentage
(as a Dividends as purchase price of amount
percentage a percentage or redemption redeemed, if
of offering of offering proceeds, as applicable) Exchange
price) price) applicable)(1) (2) Fees
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PBHG Advisor Core 5.75% None None None None
Value Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Value 5.75% None None None None
Opportunities Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor New 5.75% None None None None
Contrarian Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor REIT 5.75% None None None None
Fund
6
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Blue 5.75% None None None None
Chip Growth Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Growth 5.75% None None None None
Opportunities Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor 5.75% None None None None
Enhanced Equity Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Trend 5.75% None None None None
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Large 5.75% None None None None
Cap Concentrated Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Growth 5.75% None None None None
II Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor New 5.75% None None None None
Opportunities Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Global 5.75% None None None None
Technology &
Communications Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Master 4.75% None None None None
Fixed Income Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor High 4.75% None None None None
Yield Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Cash None None None None None
Reserves Fund
===================================================================================================================================
</TABLE>
(1) A contingent deferred sales charge of 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.
7
<PAGE>
Annual Operating Expenses (Class A Shares)
(as a percentage of average net assets after applicable fee waivers)
<TABLE>
<CAPTION>
================================================================================================================================
Total Operating
Expenses (net of fee
waiver or expense
Advisory 12b-1 Other reimbursement, if
Fees(1) Fees Expenses(1) any) (1)(2)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PBHG Advisor Core Value Fund 0.48% 0.25% 1.02% 1.75%
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Value 0.18% 0.25% 1.32% 1.75%
Opportunities Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor New Contrarian 0.00% 0.25% 1.50% 1.75%
Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor REIT Fund 0.25% 1.75%
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Blue Chip Growth 0.18% 0.25% 1.32% 1.75%
Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Growth 0.38% 0.25% 1.12% 1.75%
Opportunities Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Enhanced Equity 0.00% 0.25% 1.50% 1.75%
Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Trend Fund 0.44% 0.25% 1.06% 1.75%
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Large Cap 0.48% 0.25% 1.02% 1.75%
Concentrated Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Growth II Fund 0.51% 0.25% 0.99% 1.75%
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor New Opportunities 0.00% 0.25% 1.50% 1.75%
Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Global Technology 0.26% 0.25% 1.24% 1.75%
& Communications Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Master Fixed 0.00% 0.25% 1.30% 1.55%
Income Fund
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor High Yield Fund 0.00% 0.25% 1.30% 1.55%
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Cash Reserves 0.00% 0.25% 0.70% 0.95%
Fund
================================================================================================================================
</TABLE>
- ------------------
(1) Because the PBHG Advisor Funds had not yet commenced operations prior to
the date of this Prospectus, "Advisory Fees" and "Other Expenses" are
based on estimated amounts, net of any fee waiver or expense
8
<PAGE>
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 estimated as follows:
<TABLE>
<S> <C> <C> <C> <C>
PBHG Advisor Core Value Fund _____% _____% and ______%
PBHG Advisor Value Opportunities Fund _____% _____% and ______%
PBHG Advisor New Contrarian Fund _____% _____% and ______%
PBHG Advisor REIT Fund _____% _____% and ______%
PBHG Advisor Blue Chip Growth Fund _____% _____% and ______%
PBHG Advisor Growth Opportunities Fund _____% _____% and ______%
PBHG Advisor Enhanced Equity Fund _____% _____% and ______%
PBHG Advisor Trend Fund _____% _____% and ______%
PBHG Advisor Large Cap Concentrated Fund _____% _____% and ______%
PBHG Advisor Growth II Fund _____% _____% and ______%
PBHG Advisor New Opportunities Fund _____% _____% and ______%
PBHG Advisor Global Technology & Communications Fund _____% _____% and ______%
PBHG Advisor Master Fixed Income Fund _____% _____% and ______%
PBHG Advisor High Yield Fund _____% _____% and ______%
PBHG Advisor Cash Reserves Fund _____% _____% and ______%
</TABLE>
(2) The Adviser has agreed to waive or limit its Advisory Fees or assume
Other Expenses in an amount that operates to limit annual operating
expenses (excluding transfer agency and distribution expenses) 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 Large Cap Concentrated, PBHG Advisor Growth
II, PBHG Advisor New Opportunities and PBHG Advisor Global Technology &
Communications Funds to no more than 1.50% of each such Fund; of the
PBHG Advisor Master Fixed Income and PBHG Advisor High Yield Funds to
no more than 1.30% of each such Fund, and; of the PBHG Advisor Cash
Reserves Fund to no more than .70% of such Fund. "Other Expenses" as
shown in the table above includes transfer agency expenses and "Total
Operating Expenses" includes transfer agency and distribution expenses.
Each waiver of Advisory Fees or assumption of Other Expenses by the
Adviser is subject to a possible reimbursement by each such Fund in
future years if such reimbursement can be achieved 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 $74 $109
- -------------------------------------------------------------------------------
PBHG Advisor Value Opportunities Fund $74 $109
- -------------------------------------------------------------------------------
PBHG Advisor New Contrarian Fund $74 $109
- -------------------------------------------------------------------------------
PBHG Advisor REIT Fund
- -------------------------------------------------------------------------------
PBHG Advisor Blue Chip Growth Fund $74 $109
9
<PAGE>
- --------------------------------------------------------------------------------
PBHG Advisor Growth Opportunities Fund $74 $109
- --------------------------------------------------------------------------------
PBHG Advisor Enhanced Equity Fund $74 $109
- --------------------------------------------------------------------------------
PBHG Advisor Trend Fund $74 $109
- --------------------------------------------------------------------------------
PBHG Advisor Large Cap Concentrated Fund $74 $109
- --------------------------------------------------------------------------------
PBHG Advisor Growth II Fund $74 $109
- --------------------------------------------------------------------------------
PBHG Advisor New Opportunities Fund $74 $109
- --------------------------------------------------------------------------------
PBHG Advisor Global Technology & Communications Fund $74 $109
- --------------------------------------------------------------------------------
PBHG Advisor Master Fixed Income Fund $70 $96
- --------------------------------------------------------------------------------
PBHG Advisor High Yield Fund $70 $96
- --------------------------------------------------------------------------------
PBHG Advisor Cash Reserves Fund $10 $30
================================================================================
The example is based upon estimated 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
"The Adviser" and "The Administrator and Sub-Administrator" under the caption
"General Information."
Shareholder Transaction Expenses (Class B Shares)
<TABLE>
<CAPTION>
===================================================================================================================================
Maximum
Maximum Maximum Deferred Sales
Sales Load Sales Load Loads (as a Redemption
Imposed on Imposed on percentage of Fees (as a
Purchases Reinvested original percentage
(as a Dividends as purchase price of amount
percentage a percentage or redemption redeemed, if
of offering of offering proceeds, as applicable) Exchange
price) price) applicable) (1) Fees
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PBHG Advisor Core None None 5.00% None None
Value Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Value None None 5.00% None None
Opportunities Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor New None None 5.00% None None
Contrarian Fund
10
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor REIT None None 5.00% None None
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Blue None None 5.00% None None
Chip Growth Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Growth None None 5.00% None None
Opportunities Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor None None 5.00% None None
Enhanced Equity Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Trend None None 5.00% None None
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Large None None 5.00% None None
Cap Concentrated Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Growth None None 5.00% None None
II Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor New None None 5.00% None None
Opportunities Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Global None None 5.00% None None
Technology &
Communications Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Master None None 5.00% None None
Fixed Income Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor High None None 5.00% None None
Yield Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Cash None None None None None
Reserves Fund
===================================================================================================================================
</TABLE>
Annual Operating Expenses (Class B shares)
(as a percentage of average net assets after applicable fee waivers)
<TABLE>
<CAPTION>
===================================================================================================================================
Total Operating
Expenses (net of
reimbursement after fee
waiver or expense
Advisory 12b-1 Other reimbursement, if
Fees(1) Fees Expenses(1)(2) any)(1)(2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PBHG Advisor Core Value Fund 0.48% 1.00% 1.02% 2.50%
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Value 0.18% 1.00% 1.32% 2.50%
Opportunities Fund
11
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor New Contrarian 0.00% 1.00% 1.50% 2.50%
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor REIT Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Blue Chip Growth 0.18% 1.00% 1.32% 2.50%
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Growth 0.38% 1.00% 1.12% 2.50%
Opportunities Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Enhanced Equity 0.00% 1.00% 1.50% 2.50%
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Trend Fund 0.44% 1.00% 1.06% 2.50%
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Large Cap 0.48% 1.00% 1.02% 2.50%
Concentrated Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Growth II Fund 0.51% 1.00% 0.99% 2.50%
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor New Opportunities 0.00% 1.00% 1.50% 2.50%
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Global Technology 0.26% 1.00% 1.24% 2.50%
& Communications Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Master Fixed 0.00% 1.00% 1.30% 2.30%
Income Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor High Yield Fund 0.00% 1.00% 1.30% 2.30%
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Cash Reserves 0.00% 1.00% 0.70% 1.70%
Fund
===================================================================================================================================
</TABLE>
- ---------------
(1) Because the PBHG Advisor Funds had not yet commenced operations prior to
the date of this Prospectus, "Advisory Fees" and "Other Expenses" are
based on estimated amounts, net of any fee waiver or 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 estimated as follows:
<TABLE>
<S> <C> <C> <C> <C>
PBHG Advisor Core Value Fund _____% _____% and ______%
PBHG Advisor Value Opportunities Fund _____% _____% and ______%
PBHG Advisor New Contrarian Fund _____% _____% and ______%
PBHG Advisor REIT Fund _____% _____% and ______%
PBHG Advisor Blue Chip Growth Fund _____% _____% and ______%
PBHG Advisor Growth Opportunities Fund _____% _____% and ______%
PBHG Advisor Enhanced Equity Fund _____% _____% and ______%
PBHG Advisor Trend Fund _____% _____% and ______%
PBHG Advisor Large Cap Concentrated Fund _____% _____% and ______%
12
<PAGE>
PBHG Advisor Growth II Fund _____% _____% and ______%
PBHG Advisor New Opportunities Fund _____% _____% and ______%
PBHG Advisor Global Technology & Communications Fund _____% _____% and ______%
PBHG Advisor Master Fixed Income Fund _____% _____% and ______%
PBHG Advisor High Yield Fund _____% _____% and ______%
PBHG Advisor Cash Reserves Fund _____% _____% and ______%
</TABLE>
(2) The Adviser has agreed to waive or limit its Advisory Fees or assume
Other Expenses in an amount that operates to limit annual operating
expenses (excluding transfer agency and distribution expenses) 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 Large Cap Concentrated, PBHG Advisor Growth II, PBHG
Advisor New Opportunities and PBHG Advisor Global Technology &
Communications Funds to no more than 1.50% of each such Fund; of the
PBHG Advisor Master Fixed Income and PBHG Advisor High Yield Funds to no
more than 1.30% of each such Fund, and; of the PBHG Advisor Cash
Reserves Fund to no more than .70% of such Fund. "Other Expenses" as
shown in the table above includes transfer agency expenses and "Total
Operating Expenses" includes transfer agency and distribution expenses.
Each waiver of Advisory Fees or assumption of Other Expenses by the
Adviser is subject to a possible reimbursement by each such Fund in
future years if such reimbursement can be achieved 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.
================================================================================
1 Year 3 Years
- --------------------------------------------------------------------------------
PBHG Advisor Core Value Fund $77 $110
- --------------------------------------------------------------------------------
PBHG Advisor Value Opportunities Fund $77 $110
- --------------------------------------------------------------------------------
PBHG Advisor New Contrarian Fund $77 $110
- --------------------------------------------------------------------------------
PBHG Advisor REIT Fund
- --------------------------------------------------------------------------------
PBHG Advisor Blue Chip Growth Fund $77 $110
- --------------------------------------------------------------------------------
PBHG Advisor Growth Opportunities Fund $77 $110
- --------------------------------------------------------------------------------
PBHG Advisor Enhanced Equity Fund $77 $110
- --------------------------------------------------------------------------------
PBHG Advisor Trend Fund $77 $110
- --------------------------------------------------------------------------------
PBHG Advisor Large Cap Concentrated Fund $77 $110
- --------------------------------------------------------------------------------
PBHG Advisor Growth II Fund $77 $110
- --------------------------------------------------------------------------------
PBHG Advisor New Opportunities Fund $77 $110
- --------------------------------------------------------------------------------
PBHG Advisor Global Technology & Communications Fund $77 $110
- --------------------------------------------------------------------------------
PBHG Advisor Master Fixed Income Fund $75 $104
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
PBHG Advisor High Yield Fund $75 $104
- --------------------------------------------------------------------------------
PBHG Advisor Cash Reserves Fund $69 $87
================================================================================
You would pay the following expenses on the same investment, assuming no
redemption:
================================================================================
1 Year 3 Years
- --------------------------------------------------------------------------------
PBHG Advisor Core Value Fund $25 $78
- --------------------------------------------------------------------------------
PBHG Advisor Value Opportunities Fund $25 $78
- --------------------------------------------------------------------------------
PBHG Advisor New Contrarian Fund $25 $78
- --------------------------------------------------------------------------------
PBHG Advisor REIT Fund
- --------------------------------------------------------------------------------
PBHG Advisor Blue Chip Growth Fund $25 $78
- --------------------------------------------------------------------------------
PBHG Advisor Growth Opportunities Fund $25 $78
- --------------------------------------------------------------------------------
PBHG Advisor Enhanced Equity Fund $25 $78
- --------------------------------------------------------------------------------
PBHG Advisor Trend Fund $25 $78
- --------------------------------------------------------------------------------
PBHG Advisor Large Cap Concentrated Fund $25 $78
- --------------------------------------------------------------------------------
PBHG Advisor Growth II Fund $25 $78
- --------------------------------------------------------------------------------
PBHG Advisor New Opportunities Fund $25 $78
- --------------------------------------------------------------------------------
PBHG Advisor Global Technology & Communications Fund $25 $78
- --------------------------------------------------------------------------------
PBHG Advisor Master Fixed Income Fund $23 $72
- --------------------------------------------------------------------------------
PBHG Advisor High Yield Fund $23 $72
- --------------------------------------------------------------------------------
PBHG Advisor Cash Reserves Fund $17 $54
================================================================================
The example is based upon estimated 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 "The Adviser" and "The Administrator and
Sub-Administrator" under the caption "General Information."
14
<PAGE>
Annual Operating Expenses (Class I Shares)
(as a percentage of average net assets after applicable fee waivers)
<TABLE>
<CAPTION>
===================================================================================================================================
Total Operating
Expenses (net of
fee waiver or
expense
Advisory 12b-1 Other reimbursement, if
Fees(1) Fees Expenses(1)(2) any)(1)(3)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PBHG Advisor Core Value Fund 0.70% None 0.80% 1.50%
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Value Opportunities 0.40% None 1.10% 1.50%
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor New Contrarian Fund 0.00% None 1.50% 1.50%
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor REIT Fund None
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Blue Chip Growth 0.40% None 1.10% 1.50%
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Growth Opportunities 0.60% None 0.90% 1.50%
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Enhanced Equity 0.00% None 1.50% 1.50%
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Trend Fund 0.66% None 0.84% 1.50%
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Large Cap 0.70% None 0.80% 1.50%
Concentrated Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Growth II Fund 0.73% None 0.77% 1.50%
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor New Opportunities 0.00% None 1.50% 1.50%
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Global Technology & 0.48% None 1.02% 1.50%
Communications Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Master Fixed Income 0.00% None 1.30% 1.30%
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor High Yield Fund 0.00% None 1.30% 1.30%
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Advisor Cash Reserves Fund 0.00% None 0.70% 0.70%
===================================================================================================================================
</TABLE>
- ---------------
(1) Because the PBHG Advisor Funds had not yet commenced operations prior to
the date of this Prospectus, "Advisory Fees" and "Other Expenses" are
based on estimated amounts, net of any fee waiver or expense
reimbursement. Absent any fee waiver or expense reimbursement
arrangement, "Advisor Fees," "Other
15
<PAGE>
Expenses" and "Total Operating Expenses," respectively, as a percentage
of average net assets of each Fund are estimated as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
PBHG Advisor Core Value Fund _____% _____% and ______%
PBHG Advisor Value Opportunities Fund _____% _____% and ______%
PBHG Advisor New Contrarian Fund _____% _____% and ______%
PBHG Advisor REIT Fund _____% _____% and ______%
PBHG Advisor Blue Chip Growth Fund _____% _____% and ______%
PBHG Advisor Growth Opportunities Fund _____% _____% and ______%
PBHG Advisor Enhanced Equity Fund _____% _____% and ______%
PBHG Advisor Trend Fund _____% _____% and ______%
PBHG Advisor Large Cap Concentrated Fund _____% _____% and ______%
PBHG Advisor Growth II Fund _____% _____% and ______%
PBHG Advisor New Opportunities Fund _____% _____% and ______%
PBHG Advisor Global Technology & Communications Fund _____% _____% and ______%
PBHG Advisor Master Fixed Income Fund _____% _____% and ______%
PBHG Advisor High Yield Fund _____% _____% and ______%
PBHG Advisor Cash Reserves Fund _____% _____% and ______%
</TABLE>
(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.
(3) The Adviser has agreed to waive or limit its Advisory Fees or assume
Other Expenses in an amount that operates to limit annual operating
expenses (excluding transfer agency and distribution expenses) 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 Large Cap Concentrated, PBHG Advisor Growth II, PBHG
Advisor New Opportunities and PBHG Advisor Global Technology &
Communications Funds to no more than 1.50% of each such Fund; of the
PBHG Advisor Master Fixed Income and PBHG Advisor High Yield Funds to no
more than 1.30% of each such Fund, and; of the PBHG Advisor Cash
Reserves Fund to no more than .70% of such Fund. Each such waiver of
Advisory Fees or assumption of Other Expenses by the Adviser is subject
to a possible reimbursement by each PBHG Advisor Fund in future years if
such reimbursement can be achieved within the foregoing annual expense
limits.
Example An investor in Class I 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 $15 $47
- --------------------------------------------------------------------------------
PBHG Advisor Value Opportunities Fund $15 $47
- --------------------------------------------------------------------------------
PBHG Advisor New Contrarian Fund $15 $47
16
<PAGE>
- --------------------------------------------------------------------------------
PBHG Advisor REIT Fund
- --------------------------------------------------------------------------------
PBHG Advisor Blue Chip Growth Fund $15 $47
- --------------------------------------------------------------------------------
PBHG Advisor Growth Opportunities Fund $15 $47
- --------------------------------------------------------------------------------
PBHG Advisor Enhanced Equity Fund $15 $47
- --------------------------------------------------------------------------------
PBHG Advisor Trend Fund $15 $47
- --------------------------------------------------------------------------------
PBHG Advisor Large Cap Concentrated Fund $15 $47
- --------------------------------------------------------------------------------
PBHG Advisor Growth II Fund $15 $47
- --------------------------------------------------------------------------------
PBHG Advisor New Opportunities Fund $15 $47
- --------------------------------------------------------------------------------
PBHG Advisor Global Technology & Communications Fund $15 $47
- --------------------------------------------------------------------------------
PBHG Advisor Master Fixed Income Fund $13 $41
- --------------------------------------------------------------------------------
PBHG Advisor High Yield Fund $13 $41
- --------------------------------------------------------------------------------
PBHG Advisor Cash Reserves Fund $7 $22
================================================================================
17
<PAGE>
FINANCIAL HIGHLIGHTS
Because the PBHG Advisor Funds had not yet commenced operations prior
to the date of this Prospectus, there is no information available on which to
base any Financial Highlights.
THE COMPANY AND THE FUNDS
The Company is an open-end management investment company that offers by means of
this Prospectus shares in 15 separate series:
PBHG ADVISOR VALUE FUNDS
o PBHG ADVISOR CORE VALUE FUND
o PBHG ADVISOR VALUE OPPORTUNITIES
FUND
o PBHG ADVISOR NEW CONTRARIAN FUND
o PBHG ADVISOR REIT FUND
PBHG ADVISOR GROWTH FUNDS
o PBHG ADVISOR BLUE CHIP GROWTH
FUND
o PBHG ADVISOR GROWTH OPPORTUNITIES
FUND
o PBHG ADVISOR ENHANCED EQUITY FUND
o PBHG ADVISOR TREND FUND
PBHG ADVISOR AGGRESSIVE
GROWTH FUNDS
o PBHG ADVISOR LARGE CAP
CONCENTRATED FUND
o PBHG ADVISOR GROWTH II FUND
o PBHG ADVISOR NEW OPPORTUNITIES
FUND
o PBHG ADVISOR GLOBAL TECHNOLOGY &
COMMUNICATIONS FUND
PBHG ADVISOR FIXED INCOME
FUNDS
o PBHG ADVISOR MASTER FIXED INCOME
FUND
o PBHG ADVISOR HIGH YIELD 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. Additional information
pertaining to the Company may be obtained in writing from the PBHG Advisor
Funds, [_______________________________________________] or by calling
1-800-XXX- XXXX.
INVESTMENT OBJECTIVES AND POLICIES
The following sections describe the investment objectives and primary investment
policies of each of the PBHG Advisor Funds. For additional information, see
"Portfolio Turnover," "Temporary Defensive Positions," and "Common Investment
Policies" under the caption
18
<PAGE>
"General Investment Policies and Strategies," "Risk Factors," and the Statement
of Additional Information.
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 which are considered to be
relatively undervalued based on certain proprietary measures of value. "Equity
Securities" as used herein 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 Value Opportunities Fund
The PBHG Advisor Value Opportunities 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 companies with market
19
<PAGE>
capitalizations in the range of companies represented in the Standard & Poor's
Mid-Cap 400 Index ("S&P 400"), which are considered to be relatively undervalued
based on certain proprietary measures of value.
The current market capitalization of companies represented in the S&P 400 is
typically between $200 million and over $5 billion. It is expected that
securities purchased by the PBHG Advisor Value Opportunities Fund will typically
exhibit lower price/earnings ratios than the average of those in the S&P 400.
Under normal circumstances, the Fund will be structured taking into account the
economic sector weightings of the S&P 400 with the Fund's sector weightings
normally within 5% of the sector weightings of that Index.
In selecting investments for the PBHG Advisor Value Opportunities 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 Value Opportunities Fund will
invest at least 65% of its total assets in Equity Securities of undervalued
medium capitalization 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 New Contrarian Fund
The PBHG Advisor New Contrarian Fund, a non-diversified portfolio, seeks
long-term capital appreciation. The Fund will invest at least 65% of its net
assets in Equity Securities. To select securities, the Adviser and Value
Investors will seek out domestic, multinational and foreign companies that are
little-known or overlooked, out-of favor due to a prior decline in value, or
have been oversold or undiscovered by other investors. The Fund may purchase
domestic and foreign securities issued by companies of all sizes, industries and
geographical markets. The
20
<PAGE>
Fund may invest up to 100% of its assets in securities of foreign issuers but
will not invest more than 40% of its assets in any one foreign country. In
pursuing its investment objective, the Fund may sell securities short, buy put
and call options, write covered call options, and buy and sell index futures.
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 Internal Revenue Code of
1986, as amended (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 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 REIT Fund
The PBHG Advisor REIT Fund, a nondiversified portfolio, seeks to achieve maximum
long-term total return. Capital appreciation is a secondary objective. The Fund
seeks to achieve its objectives by investing in securities of companies
principally engaged in the real estate industry. Under normal circumstances, at
least 65% of the Fund's total assets will be invested in equity securities of
real estate investment trusts ("REITs").
The PBHG Advisor REIT Fund invests in Equity Securities of REITs and other real
estate industry operating companies ("REOCs"). For purposes of the Fund's
investments, a REOC is a company that derives at least 50% of its gross revenues
or net profits from either (1) the ownership, development, construction,
financing, management or sale of commercial, industrial or residential real
estate, or (2) products or services related to the real estate industry, such as
building supplies or mortgage servicing. The Fund's investments in equity
securities of REITs and REOCs may include, from time to time, sponsored or
unsponsored American Depositary Receipts ("ADRs") actively traded in the United
States.
REITs are pooled investment vehicles which invest primarily in income-producing
real estate or real estate related loans or interests. REITs are generally
classified as equity REITs, mortgage REITs or a combination of equity and
mortgage REITs. Equity REITs invest the majority of their assets directly in
real property and derive income primarily from the collection of rents. Equity
REITs can also realize capital gains by selling properties that have appreciated
in value. Mortgage REITs invest the majority of their assets in real estate
mortgages and derive income from the collection of interest payments. Like
investment companies such as the Fund, REITs are not taxed on income distributed
to shareholders provided they comply with several requirements in the Code.
REITs are subject to substantial cash flow dependency, defaults by
21
<PAGE>
borrowers, self-liquidation, and the risk of failing to qualify for tax-free
pass-through of income under the Code, and/or to maintain exemptions from the
1940 Act. By investing in REITs indirectly through the Fund, a shareholder bears
not only a proportionate share of the expenses of the Fund, but also,
indirectly, similar expenses of the REITs.
The PBHG Advisor REIT Fund may hold cash or invest in short-term debt securities
and other money market instruments when, in the Adviser's opinion, such holdings
are prudent given then prevailing market conditions. All these short-term
investments will be of the highest quality as determined by a nationally
recognized statistical rating organization ("NRSRO") (e.g. AAA by S&P or Aaa by
Moody's) or be of comparable quality as determined by the Adviser.
Although the PBHG Advisor REIT Fund does not invest directly in real estate, the
Fund concentrates its investments in the real estate industry, and an investment
in the Fund may be subject to certain risks associated with direct ownership of
real estate and with the real estate industry in general. These risks include,
among others: possible declines in the value of real estate; risks related to
general and local economic conditions; possible lack of availability of mortgage
funds; overbuilding; extended vacancies of properties; increases in competition;
property taxes and operating expenses; changes in zoning laws; costs resulting
from the clean-up of, and liability to third parties resulting from,
environmental problems; casualty for condemnation losses, uninsured damages from
floods, earthquakes or other natural disasters; limitations on and variations in
rents; and changes in interest rates.
While the PBHG Advisor REIT Fund does not intend to invest directly in real
estate, the Fund could, under certain circumstances, own real estate directly as
a result of a default on securities that it owns. In addition, if the Fund has
rental income or income from the direct disposition of real property, the
receipt of such income may adversely affect the Fund's ability to retain its tax
status as a regulated investment company.
The Adviser does not normally intend to respond to short-term market
fluctuations or to acquire securities for the purpose of short-term trading;
however, the Adviser may take advantage of short-term opportunities that are
consistent with the PBHG Adviser REIT Fund's investment objectives.
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 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).
22
<PAGE>
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 $1 billion
if not included in either index.
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
23
<PAGE>
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
Companies that demonstrate the potential to become blue chip companies in the
future may also be selected by the Adviser for the PBHG Advisor Blue Chip Growth
Fund's investments.
PBHG Advisor Growth Opportunities Fund
The PBHG Advisor Growth Opportunities Fund, a diversified portfolio, seeks long
term capital growth through investments in Equity Securities. In selecting its
equity investments, the Adviser seeks to identify companies which exhibit high
earnings growth relative to their current price to earnings ratio or other
valuation measures or whose fundamental value or growth potential is not yet
reflected in their current market price.
In addition, the Adviser seeks to invest in securities of companies which have
one or more of the following attributes:
o Own proprietary technology or products
o Have a high return on equity
o Are well positioned to increase market share and or improve
profitability relative to their competitors
o Are able to sustain above average growth rates of earnings and
sales.
PBHG Advisor Enhanced Equity Fund
The PBHG Advisor Enhanced Equity Fund, a diversified portfolio, seeks above
average total returns through investments in Equity Securities. The Fund will
invest in a diversified equity portfolio consisting 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.
The PBHG Advisor Enhanced Equity Fund seeks to achieve its objective by
investing primarily in the publicly traded Equity Securities of U.S. domiciled
corporations and options and futures that relate to such stocks. While the Fund
may invest in stocks of any market capitalization, it
24
<PAGE>
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 Trend Fund
The PBHG Advisor Trend Fund, a diversified portfolio, seeks long term growth of
capital. The Fund will invest primarily in companies that the Adviser believes
will be future beneficiaries of social and economic trends and change. The
Adviser will examine social attitudes, legislative actions, product innovation,
demographics and other relevant factors to determine the underlying trends
shaping or expected to shape the marketplace. The Adviser will identify key
industries and companies that are expected to benefit based upon its
determination of these trends. The Adviser will then analyze the fundamental
merits of these investment candidates. The Fund seeks capital appreciation by
investing mainly in equity securities of domestic and foreign issuers.
The Adviser favors companies that show the potential for stronger than expected
earnings or growth. The Adviser also emphasizes industries that are undervalued
or out-of-favor. In following its strategy, the PBHG Advisor Trend Fund may
invest in small and medium sized companies, which carry more risk than larger
ones. Generally, these companies, especially small sized ones, rely on limited
product lines and markets, financial resources, or other factors. This may make
them more susceptible to setbacks or downturns.
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 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
25
<PAGE>
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 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 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 Growth II Fund
The PBHG Advisor Growth II Fund, a diversified portfolio, seeks capital
appreciation. The Fund normally will be substantially invested in Equity
Securities but also may limit its investment in warrants and rights to purchase
common stocks to 5% of its total assets. Under normal market conditions, the
Fund will invest at least 65% of its total assets in Equity Securities of small
and medium sized growth companies (market capitalization or annual revenues up
to $4 billion). The average market capitalizations of holdings in the Fund may,
however, fluctuate over time as a result of market valuation levels and the
availability of specific investment opportunities. Normally, the PBHG Advisor
Growth II Fund intends to purchase securities traded in the United States or
Canada on registered exchanges or in the over-the-counter market. There may be
times when, in the opinion of the Adviser, the shareholders' interests are best
served and the investment objective is more likely to be achieved by having
varying amounts of the Fund's assets invested in convertible securities. In
addition, the Fund may continue to hold securities of companies whose market
capitalizations or annual revenues grow above $4 billion subsequent to purchase,
if the company continues to satisfy the other investment policies of the Fund.
The PBHG Advisor Growth II Fund will seek to achieve its objective by investing
in companies believed by the Adviser to have an outlook for strong earnings
growth and the potential for significant capital appreciation. Securities will
be sold when the Adviser believes that anticipated appreciation is no longer
probable, alternative investments offer superior appreciation prospects, or the
risk of a decline in market price is too great. Because of its policy with
respect to the sales of investments, the Fund may from time to time realize
short-term gains or losses. The
26
<PAGE>
Fund will likely have somewhat greater volatility than the stock market in
general, as measured by the S&P 500. Because the investment techniques employed
by the Adviser are responsive to near-term earnings trends of the companies
whose securities are owned by the Fund, portfolio turnover can be expected to be
fairly high.
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;
27
<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 more than 25% of
its 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.
At times the Adviser may judge that conditions in the securities markets make
pursuing the PBHG Advisor New Opportunities Fund's basic investment strategy
inconsistent with the best interests of its shareholders. At such times the
Advisers may temporarily use alternative strategies that are primarily designed
to reduce fluctuations in the value of Fund assets. In implementing these
defensive strategies, the Fund may invest without limit in debt securities or
preferred stock of companies in any sector of the economy, engage in index
futures and options
28
<PAGE>
transactions, increase the portion of its assets held in cash or money market
instruments, or in any other securities the Adviser considers consistent with
such defensive strategies. It is impossible to predict when, or for how long,
these alternatives strategies will be used.
PBHG Advisor Global Technology & Communications Fund
The PBHG Advisor Global Technology & Communications Fund, a diversified
portfolio, seeks long-term growth of capital. Current income is incidental to
the Fund's objective. Under normal market conditions, the Fund will invest at
least 65% of its total assets in equity securities of companies, both foreign
and domestic, which rely extensively on technology or communications in their
product development or operations, or which are expected to benefit from
technological advances and improvements, and that may be experiencing
exceptional growth in sales and earnings driven by technology-related or
communication-related products and services. As a Fund investing in global
markets, at least 65% of the Fund's investments will be made in at least three
different countries. The Fund may invest up to 100% of its assets in securities
of foreign issuers.
Such technology and communications companies may be in many different industries
or fields, including computer software and hardware, electronic components and
systems, network and cable broadcasting, telecommunications, multimedia, mobile
communications, satellite communications, defense and aerospace, transportation
systems, data storage and retrieval, biotechnology and medical, and
environmental. As a result of this focus, the PBHG Advisor Global Technology &
Communications Fund hopes to participate in the significant growth potential of
companies that may be responsible for breakthrough products or technologies or
that are positioned to take advantage of cutting-edge developments.
The PBHG Advisor Global Technology & Communications Fund will normally be fully
invested in Equity Securities (including ADRs) of such technology and
communications companies. Stock selections will not be based on company size,
but rather on an assessment of a company's fundamental prospects. As a result,
the Fund's stock holdings can range from small companies developing new
technologies or pursuing scientific breakthroughs to large, established firms
with track records in developing and marketing such scientific advances.
PBHG ADVISOR FIXED INCOME FUNDS
PBHG Advisor Master Fixed Income Fund
The PBHG Advisor Master Fixed Income Fund, a diversified portfolio, seeks above
average total returns. The Fund will invest in a diversified bond portfolio
consisting primarily of U.S. Government, corporate, and mortgage-related fixed
income securities. For this purpose, "above average total returns" means returns
above the average long-term total returns of other mutual funds with similar
investment policies and risk characteristics.
29
<PAGE>
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 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 High Yield Fund
The PBHG Advisor High Yield 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 high yield corporate
fixed-income securities (including bonds rated below investment grade, commonly
referred to as junk bonds). Normally, at least 65% of the PBHG Advisor High
Yield Fund's total assets will be invested in high yield securities. Derivatives
relating to fixed income securities and indexes may be used to pursue the Fund's
portfolio strategy. The Fund may also invest in U.S. Government securities,
mortgage-backed securities, investment grade corporate bonds and short-term
fixed-income securities, such as certificates of deposit, treasury bills, and
commercial paper. The Fund expects to achieve its objective by earning a high
rate of current income, although the Fund may seek capital growth opportunities
when consistent with its objective. The Fund's average weighted maturity will
ordinarily be greater than five years.
The Adviser uses equity and fixed-income valuation techniques and analyses of
economic and industry trends to determine portfolio structure. Individual
securities are selected, and monitored, by the Adviser's fixed-income portfolio
managers who specialize in corporate bonds and use in-depth financial analysis
to uncover opportunities in undervalued issues.
30
<PAGE>
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 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 is subject to approval or
ratification by the Board of Directors.
The PBHG Advisor Cash Reserves Fund intends to maintain a constant net asset
value of $1.00 per share. There can be no assurance that the Fund will be able
to maintain a net asset value of $1.00 per share on a continuing basis. The Fund
may invest up to 10% of its net assets in illiquid securities. However,
restricted securities, including Rule 144A securities and Section 4(2)
commercial paper, that meet the criteria established by the Board of Directors
of the Company will be considered liquid. In addition, the Fund may invest in
U.S. Treasury STRIPS.
THERE CAN BE NO ASSURANCE THAT ANY PBHG ADVISOR FUND WILL BE ABLE TO ACHIEVE ITS
INVESTMENT OBJECTIVE.
31
<PAGE>
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 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,
32
<PAGE>
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 TSA
Since 1996, Analytic TSA 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 TSA 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 TSA believes that the statistical modeling process
developed by Professor Haugen enables it to assemble a portfolio of securities
that in the aggregate has the desired characteristics (a portfolio with an
overall profile that Professor Haugen has called the profile of a "super
stock").
Analytic TSA believes that this approach, which has been discussed in leading
academic journals, has significant ability to identify portfolios of attractive
stocks. Analytic TSA 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 TSA
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
33
<PAGE>
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 Portfolio'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 TSA's periodic rebalancing of the
portfolio does not significantly impact the price of the security.
Analytic TSA 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 TSA 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 TSA 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.
34
<PAGE>
Analytic TSA 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, ___%; PBHG Advisor Value
Opportunities Fund, ___%; PBHG Advisor New Contrarian Fund, ___%; PBHG Advisor
REIT Fund, 100%; 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 Master Fixed Income Fund,
___%; and PBHG Advisor High Yield Fund, ___%. High rates of portfolio turnover
necessarily result in correspondingly greater brokerage and portfolio trading
costs, which are paid by a Fund. Trading in over-the-counter and fixed-income
securities does not generally involve the payment of brokerage commissions, but
does involve indirect transaction costs. In addition to portfolio trading costs,
higher rates of portfolio turnover may result in the realization of capital
gains. To the extent net short-term capital gains are realized, any
distributions resulting from such gains are considered ordinary income for
federal income tax purposes.
Temporary Defensive Positions
Under normal market conditions, each PBHG Advisor Fund expects to be fully
invested in its primary investments, as described above. However, for temporary
defensive purposes, when the Adviser or the applicable sub-adviser, as
appropriate, determines that market conditions warrant, each Fund may invest up
to 100% of its assets in investment grade debt securities, cash and money market
instruments (consisting of securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; certificates of deposit, time
deposits and bankers' acceptances issued by banks or savings and loan
associations having net assets of at least $500 million as stated on their most
recently published financial statements; commercial paper rated in one of the
two highest rating categories by at least one NRSRO; repurchase agreements
involving such securities; and, to the extent permitted by applicable law and
each Fund's investment restrictions, shares of other investment companies
investing solely in money market securities). To the extent a Fund is invested
in temporary defensive instruments, it will not be pursuing its investment
objective. See the Statement of Additional Information for additional
information.
35
<PAGE>
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 High Yield Fund, PBHG Advisor Master Fixed Income 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.
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 Value Opportunities Fund, The PBHG Advisor New
Contrarian Fund, the PBHG Advisor Trend Fund, the PBHG Advisor Growth
Opportunities Fund, the PBHG Advisor Enhanced Equity Fund, the PBHG Advisor
Growth II Fund, the PBHG Advisor New Opportunities Fund, and the PBHG Advisor
Global Technology & Communications Fund may invest in securities of issuers with
small or medium market capitalizations. While the Adviser and Value Investors
intend to invest in small and medium capitalization companies that have strong
balance sheets and favorable business prospects, any investment in small and
medium capitalization companies involves greater risk and price volatility than
that customarily associated with investments in larger, more established
companies. This increased risk may be due to the greater business risks of their
small or medium size, limited markets and financial resources, narrow product
lines and frequent lack of management depth. The securities of small and medium
capitalization companies are often traded in the over-the-counter market and
might not be traded in volumes typical of securities traded on a national
securities exchange. Thus, the
36
<PAGE>
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 High Yield 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.
The PBHG Advisor Global Technology & Communications Fund's investments in
emerging markets may be considered speculative, and therefore may offer higher
potential for gains and losses than investments in developed markets of the
world. With respect to any emerging country, there may be greater potential for
nationalization, expropriation or confiscatory taxation, political changes,
government regulation, social instability or diplomatic developments (including
war) which could affect adversely the economies of such countries or the value
of the PBHG Advisor Global Technology & Communications Fund's investments in
those countries.
37
<PAGE>
In addition, it may be difficult to obtain and enforce a judgment in the courts
of such countries. Further, the economies of developing countries generally are
heavily dependent upon international trade and, accordingly, have been and may
continue to be adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures imposed
or negotiated by the countries with which they trade.
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 (e.g., the PBHG Global Technology
& Communications Fund which invests primarily in such securities), the greater
will be its exposure to these risks.
Options and Futures Contracts
The PBHG Advisor Funds (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, future 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.
38
<PAGE>
A financial futures contract is a commitment by both the buyer and the seller of
the contract to trade the underlying financial instrument at a price and time
agreed upon when the contract is executed. The financial instrument may be a
stock index, bond index, interest rate, foreign currency exchange rate, or other
similar instrument. The contract may include an option held by the seller with
regard to the specific underlying instrument to be delivered from a class of
instruments and the specific day of delivery within a delivery month. Options on
futures contracts are similar to options on securities, with the futures
contract playing the role of the underlying security.
Options on indexes and currencies, and futures on indexes, are similar to
options and futures on securities, with the underlying index or currency playing
the role of the underlying security, and with the difference that at the end of
the option or future period there is generally a cash settlement between buyers
and sellers instead of delivery of the underlying security.
Options may be traded on an exchange ("exchange traded options") or may be
customized agreements between a PBHG Advisor Fund and a counter-party, often a
brokerage firm, bank, or other financial institution. These customized
agreements are also known as "over-the-counter" or OTC options. Futures
contracts are normally traded as standardized contracts on exchanges. When firm
commitment type agreements similar to futures are traded over-the-counter they
are usually known as forward contracts. Exchange-traded options and futures have
the additional financial backing of an intermediary known as a clearing
corporation, whereas OTC options and forwards have no such intermediary and are
subject to the credit risk that the counter-party will not fulfill its
obligations under the contract. While each Fund, to the extent that it utilizes
derivative securities, intends to primarily utilize exchange-traded options and
futures, it may also utilize OTC options, currency forward contracts, and other
OTC derivative securities. No Fund will invest, at the time of purchase, more
than 5% of its net assets in the purchase of OTC options or invest more than 5%
of its net assets in the purchase of forward contracts.
Although options on securities and financial futures by their terms call for
actual delivery and acceptance of securities, in many cases the contracts are
closed out before the expiration date by selling contracts that are owned or by
buying contracts that have been sold or written. Like any security 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.
39
<PAGE>
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) 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 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
40
<PAGE>
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.
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
41
<PAGE>
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
crease synthetic convertible positions only out of high grade fixed income
securities, the credit rating associated with a Fund's synthetic convertible
investments is generally expected to be higher than that of the average
convertible security, many of which are rated below high grade. However, because
the options used to create synthetic convertible positions will generally have
expirations between one month and three years of the time of purchase, the
maturity of these positions will generally be shorter than average for
convertible securities. Since the option component of a convertible security or
synthetic convertible position is a wasting asset (in the sense of losing "time
value" as maturity approaches), a synthetic convertible position may lose such
value more rapidly than a convertible security of longer maturity; however, the
gain in option value due to appreciation of the underlying stock may exceed such
time value loss, the market price of the option component generally reflects
these differences in maturities, and the Adviser and applicable sub-adviser take
such differences into account when evaluating such positions. When a synthetic
convertible position "matures" because of the expiration of the associated
option, the Fund may extend the maturity by investing in a new option with
longer maturity on the common stock of the same or different issuer. If the Fund
does not so extend the maturity of a position, it may continue to hold the
associated fixed income security.
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.
Future 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:
42
<PAGE>
(i) When a Fund sells a futures contract, the value of that contract will not
exceed the total market value of the portfolio securities being hedged;
(ii) A Fund will write only covered call and put options on futures;
(iii) When a Fund purchases a futures contract it will maintain the market value
of the contract in liquid high-grade segregated debt securities as described
above.
(iv) A Fund will not enter into futures and options on futures contracts which
would cause the aggregate sum of the initial margins for such contracts and
related option premiums to exceed 5% of the Fund's net assets; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in computing such 5%.
Certain Risk Factors Associated with Hedging Strategies
When a PBHG Advisor Fund utilizes futures or options to hedge the price
fluctuations of securities it may own or want to purchase, the Fund is exposed
to the risk of imperfect correlation between the futures or options and the
securities being hedged. That is, the prices of the securities being hedged may
not move in the same amount, or even in the same direction, as the hedging
instrument. The Adviser or applicable sub-adviser will attempt to minimize this
risk by investing only in those contracts whose behavior is expected to resemble
the Fund securities being hedged. However, if the Adviser's or applicable
sub-adviser's judgment about the general direction of interest rates, market
value, volatility, and other economic factors is incorrect, the Fund would have
been better off without the use of such hedging techniques. In addition, there
is the risk of a possible lack of a liquid secondary market and the resultant
inability to close a futures or option position prior to its maturity or
expiration date. If the Adviser or applicable sub-adviser determines that the
ability to close such a position early is important to its investment strategy,
it will only enter such positions on an exchange with a secondary market that it
judges to be appropriately active.
Investments in Non-Investment Grade Debt Securities
The PBHG Advisor High Yield Fund intends to invest a significant portion of its
assets in non-investment grade debt securities, commonly known as "junk bonds."
Such securities have ratings from S&P and/or Moody's or another NRSRO which are
lower than the ratings for investment grade securities (or are unrated but
determined by the Adviser to be of comparable quality). Although these
securities generally offer higher yields than investment grade securities with
similar maturities, non-investment grade securities involve greater risks,
including the possibility of default or bankruptcy of the issuer. In general,
they are considered to be predominantly speculative with respect to the issuer's
capacity to pay interest and principal. Other potential risks associated with
investing in non-investment grade securities include:
43
<PAGE>
o Greater market price volatility resulting from changes in or
uncertainty about economic conditions, and changes in the actual
or perceived ability of the issuer to meet its obligations;
o Greater sensitivity of highly leveraged issuers to adverse
economic changes and individual issuer developments; and
o Liquidity may be affected by adverse publicity and changing
investor perceptions about these securities in general and/or a
particular issuer's credit quality.
As with any other asset held by the PBHG Advisor High Yield Fund, any
reduction in market value of such securities as a result of the above factors
would be reflected in the Fund's net asset value. In addition, because the Fund
invests in non-investment grade securities it may incur additional expenses to
the extent it is required to seek recovery upon a default in the payment of
principal and interest on its holdings. Due to such risks, successful
investments in non-investment grade securities will be more dependent on the
Adviser's credit analysis than generally would be the case for investment in
securities which are investment grade.
It is uncertain how the market for non-investment grade securities will
perform during a prolonged period of rising interest rates. A prolonged economic
downturn or a prolonged period of rising interest rates could adversely affect
the market for these securities, increase their volatility, and reduce their
value and liquidity. Moreover, lower quality securities tend to be less liquid
than higher rated securities because the market for them is not as broad or
active. If market quotations are not available, these securities will be valued
in accordance with procedures established by the Company's Board of Directors.
Judgment may therefore play a greater role in valuing non-investment grade
securities.
In the event the PBHG Advisor High Yield Fund experiences an unexpected
level of net redemptions, it could be forced to sell its non-investment grade
securities without regard to their investment merits, thereby decreasing the
asset base upon which the Fund's expenses can be spread and possibly reducing
the Fund's rate of return.
For additional information regarding permitted investments for each PBHG Advisor
Fund and other risks, see 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
44
<PAGE>
are fundamental policies of each Fund. A Fund's fundamental policies cannot be
changed without the consent of the holders of a majority of the 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 New Contrarian Fund, PBHG Advisor REIT Fund, and
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. This restriction applies to 75% of each Fund's total
assets.
2. Except for the PBHG Advisor REIT Fund and the PBHG Advisor Global Technology
& Communications Fund, 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.
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 (or
10% of the value of the PBHG Advisor Large Cap Concentrated 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 a Fund's total assets
will be repaid before making additional investments.
The foregoing percentages 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.
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
45
<PAGE>
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 reserve 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 foregoing percentages 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").
However, shares of the PBHG Advisor Cash Reserves Fund cannot be purchased by
Federal Reserve wire on federal holidays restricting wire transfers. 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 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 or IRA
account 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 in Class I shares is $1 million for all PBHG
Advisor Funds in the aggregate.
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
46
<PAGE>
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 and Class I 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 such 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 Advisors Fund offers three classes of shares - Classes A, B and I -
which are described below. Class I shares are only available to certain
institutional purchasers and Class
47
<PAGE>
B Shares of 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 three groups.
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 Global Technology &
Communications Fund, PBHG Advisor Growth II Fund, PBHG Advisor Growth
Opportunities Fund, PBHG Advisor Enhanced Equity Fund, PBHG Advisor Large Cap
Concentrated Fund, PBHG Advisor New Contrarian Fund, PBHG Advisor REIT Fund,
PBHG Advisor Value Opportunities Fund, PBHG Advisor Trend 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>
Fixed Income Funds (except PBHG Advisor Cash Reserves Fund)
Class A shares of the following PBHG Advisor Funds (the "Fixed Income Funds")
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: the PBHG Advisor Master
Fixed Income Fund and the PBHG Advisor High Yield Fund.
48
<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 - 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>
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
49
<PAGE>
price of the shares sold. Any such bonus or incentive programs will not change
the price paid by investors for the purchase of the applicable Fund's shares or
the amount that any particular Fund will receive as proceeds from such sales.
Dealers may not use sales of the Funds' shares to qualify for any incentives to
the extent that such incentives may be prohibited by applicable law.
The Distributor may make payments to dealers and institutions who are dealers of
record for purchases of $1 million or more of Class A, shares which are sold at
net asset value and are subject to a limited contingent deferred sales charge,
for each PBHG Advisor Fund other than the PBHG Advisor 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 $22 million of such
purchases, plus 0.25% of amounts in excess of $50 million of such purchases. 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 and Class I 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;
50
<PAGE>
b. each transmittal must be accompanied by a single check
or wire transfer; and
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 SARSEP 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
51
<PAGE>
charge. The offering price may be reduced further as described under "Rights of
Accumulation" if the PBHG Advisor Funds are advised of all other accounts at the
time of the investment. Shares acquired through reinvestment of dividends and
capital gains distributions will not be applied to the LOI. At any time during
the 13-month period after meeting the original obligation, a purchaser may
revise his intended investment amount upward by submitting a written and signed
request. Such a revision will not change the original expiration date. By
signing an LOI, a purchaser is not making a binding commitment to purchase
additional shares, but if purchases made within the 13-month period do not total
the amount specified, the investor will pay the increased amount of sales charge
as described below. Purchases made within 90 days before signing an LOI will be
applied toward completion of the LOI. The LOI effective date will be the date of
the first purchase within the 90-day period. The Transfer Agent will process
necessary adjustments upon the expiration or completion date of the LOI.
Purchases made more than 90 days before signing an LOI will be applied toward
completion of the LOI based on the value of the shares purchased calculated at
the public offering price on the effective date of the LOI.
To assure compliance with the provisions of the 1940 Act, out of the initial
purchase (or subsequent purchases if necessary) the 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
attorney 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
52
<PAGE>
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 (i) Class A shares of the PBHG
Advisor Cash Reserves Fund) owned by such purchaser, calculated at their then
current public offering price. If a purchaser so 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 - Dividend and Distributors"); (b) exchanges of shares of
certain other PBHG Advisor Funds (see "Exchange Privileges" under the caption
"Shareholder Services"); (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
53
<PAGE>
certain standards established by the PBHG Advisor Funds that provide asset
allocation, 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,
and (i) clients of registered representatives of an authorized investment dealer
if such purchase is funded by proceeds from an investment where a front-end
sales charge, contingent deferred sales charge, or other sales charge has been
assessed.
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 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 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, approximately eight years after purchase. Class B
shares of the PBHG Advisor Cash Reserve 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."
54
<PAGE>
Class I Shares
Class I shares are sold without an initial sales charge, are not subject to a
contingent deferred sales charge, and are not subject to a 12b-1 plan. Class I
shares are available only to certain institutional investors, such as defined
benefit plans and defined contribution plans, managed account programs, and
trusts or custodial accounts at banks or trust companies, in each case where the
institution does not receive any payment from the Company for administrative,
record keeping or transfer agency related services performed by such institution
and where the financial institution has entered into a participation agreement
with the Distributor.
All Classes of Shares
For any PBHG Advisor Fund offered by this Prospectus, the Distributor and its
agents reserve the right at any time (1) to withdraw all or any part of the
offering made by this Prospectus; (2) to reject any purchase or exchange order
or to cancel any purchase due to nonpayment of the purchase price; (3) to
increase, waive or lower the minimum investment requirements; or (4) to modify
any of the terms or conditions of purchase of shares of such Fund. The
Distributor and its agents will use their best efforts to provide notice of any
such actions through correspondence with broker-dealers and existing
shareholders, supplements to the PBHG Advisor Funds' prospectuses, or other
appropriate means, and will provide notice to the extent required by law in the
case of termination or material modification to the exchange privilege discussed
under "Shareholder Services - Exchange Privileges."
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
55
<PAGE>
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 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 beginning 15 days
after purchase, except as noted below.
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
Global Technology & Communications Fund, PBHG Advisor Growth II Fund, PBHG
Advisor Growth Opportunities Fund, PBHG Advisor Enhanced Equity Fund, PBHG
Advisor Large Cap Concentrated Fund, PBHG Advisor New Contrarian Fund, PBHG
Advisor REIT Fund, PBHG Advisor Value Opportunities Fund, PBHG Advisor Trend
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 charge.
The Fixed Income Funds are the PBHG Advisor High Yield and PBHG Advisor Master
Fixed Income Fund. Class A shares of the Fixed Income Funds and the PBHG Advisor
Cash Reserve Fund may be exchanged for Class A shares of any PBHG Advisor Fund
and the exchange will be made at: the public offering price if the Fixed Income
Fund or PBHG Cash Reserves Fund shares were directly purchased; net asset value
if such shares were acquired upon an exchange of an Equity Fund's shares; and
the difference in sales charge will apply if the Fixed Income Fund shares were
acquired upon exchange of Fixed Income Fund shares.
56
<PAGE>
Class A Large Purchases and Class B Shares. If you exchange shares that
are subject to a contingent deferred sales charge, the exchange transaction will
not be subject to the contingent deferred sales charge. However, when you redeem
the shares acquired through the exchange, the redemption may be subject to the
contingent deferred sales charge, depending upon when you originally purchased
the shares. For purposes of computing the contingent deferred sales charge, the
length of time you have owned your shares will be measured from the date of
original purchase and will not be affected by any exchange.
For federal income tax purposes, an exchange is treated as a sale of shares and
generally results in a capital gain or loss.
The exchange privilege is not intended as a vehicle for short-term trading.
Excessive exchange activity may interfere with portfolio management and have an
adverse effect on all shareholders. In order to limit excessive exchange
activity and in other circumstances where the Adviser or the Board of Directors
believe doing so would be in the best interests of a PBHG Advisor Fund, each
Fund reserves the right to revise or terminate the exchange privilege, limit the
amount or number of exchanges or reject any exchange. The exchange privilege is
not an option or right to purchase shares but is permitted under the respective
policies of the participating PBHG Advisor Funds, and may be modified or
discontinued by any of such Funds or by the Distributor at any time, and to the
extent permitted by applicable law, without notice.
Shares of any PBHG Advisor Fund (other than the PBHG Advisor Cash Reserves Fund)
to be exchanged are redeemed at their net asset value as determined at the close
of the NYSE, which is normally 4:00 p.m. Eastern Time ("NYSE Close") on the day
that an exchange request in proper form (described below) is received. Exchange
requests received after the NYSE Close will result in the redemption of shares
at their net asset value at the NYSE Close on the next business day. Normally,
shares of a Fund to be acquired by exchange are purchased at their net asset
value or applicable offering price, as the case may be, determined on the date
that such request is received, but under unusual market conditions such
purchases may be delayed for up to five business days if it is determined that
such Fund would be materially disadvantaged by an immediate transfer of the
proceeds of the exchange. Shares purchased by check may not be exchanged until
it is determined that the check has cleared, which may take up to fifteen
business days from the date that the check is received.
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."
57
<PAGE>
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
1-800-XXX-XXXX. 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.
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.
Individual Retirement Accounts ("IRAs"). You may save for your
retirement and shelter your investment income from current taxes by either: (a)
establishing a new IRA; or (b) "rolling-over" to a PBHG Advisor Fund monies from
other IRA accounts or lump sum distributions from a qualified retirement plan.
If you are between 18 and 70 1/2 years of age, you can use an 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 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.
58
<PAGE>
SEP-IRAs. If you are a self-employed person, you can establish a
Simplified Employee Pension Plan ("SEP-IRA"). A SEP-IRA is designed to provide
persons with self-employed income (and their eligible employees) with many of
the same tax advantages as a Keogh, but with fewer administrative requirements.
401(a) Keogh and Corporate Retirement Plans. Both a prototype money
purchase pension plan and a profit sharing plan, which may be used alone or in
combination, are available for self-employed individuals and their partners, and
corporations to provide tax-sheltered retirement benefits for individuals and
employees.
401(k) Plans. Through the establishment of a 401(k) plan by a
corporation of any size, employees can invest a portion of their wages in the
PBHG Advisor Funds on a tax-deferred basis in order to help them meet their
retirement needs.
403(b) Plans. Section 403(b) plans are custodial accounts which are
available to employees of most non-profit organizations and public schools.
Other Special Accounts. The PBHG Advisor Funds also offer the following
special accounts to meet your needs:
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 professional.
HOW TO REDEEM FUND SHARES
General
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
59
<PAGE>
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 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 may take up to 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
60
<PAGE>
of record on the account within the preceding 60 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 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 advisors, 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 at that item of 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.
61
<PAGE>
Redemptions by Check (PBHG Advisor Cash Reserves Fund only)
After completing the appropriate authorization form, shareholders may use checks
to effect redemptions from the PBHG Advisor Cash Reserves Fund. This privilege
does not apply to retirement accounts or qualified plans. Checks may be drawn in
any amount of $250 or more. Checks drawn against insufficient shares in the
account, against shares held less than fifteen business days, or in amounts of
less than the applicable minimum will be returned to the payee. The payee of the
check may cash or deposit it in the same way as an ordinary bank check. When a
check is presented to the Transfer Agent for payment, the Transfer Agent will
cause a sufficient number of shares of such Fund to be redeemed to cover the
amount of the check. Shareholders are entitled to dividends on the shares
redeemed through the day on which the check is presented to the Transfer Agent
for payment.
Check writing service is offered free of charge to shareholders of the PBHG
Advisor Cash Reserves Fund. If you have an account balance of $5,000 or more,
you may redeem shares by writing checks on your account for $250 or more. To
establish this privilege, please call 1-800-XXX-XXX 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 60 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
62
<PAGE>
current Signature Guarantee Standards and Procedures, such as certain domestic
banks, credit unions, securities dealers, or securities exchanges. The Transfer
Agent will also accept signatures with either: (1) a signature guaranteed with a
medallion stamp of the STAMP Program, or (2) a signature guaranteed with a
medallion stamp of the NYSE Medallion Signature Program, provided that in either
event, the amount of the transaction involved does not exceed the surety
coverage amount indicated on the medallion. For information regarding whether a
particular institution or organization qualifies as an "eligible guarantor
institution," an investor should contact your investment dealer. The PBHG
Advisor Funds do not accept guarantees from notaries public or organizations
that do not provide reimbursement in the case of fraud.
Minimum Account Size
Due to the relatively high cost of maintaining smaller accounts, each PBHG
Advisor Fund 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" and "Systematic
Investment 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.
63
<PAGE>
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 lesser of the current market
value of shares redeemed or their original cost.
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 is 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 investment 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:
64
<PAGE>
(i) required minimum distributions to plan participants or
beneficiaries who are age 70 1/2 or older, and only with respect to that portion
of such distributions which does not exceed 12% annually of the participant's or
beneficiary's account value;
(ii) in kind transfers of assets where the participant or beneficiary
notifies the PBHG Advisor Funds of such transfer no later than the time such
transfer occurs;
(iii) tax-free rollovers or transfers of assets to another Retirement
Plan invested in Class B shares of one or more of the PBHG Advisor Funds;
(iv) tax-free returns of excess contributions or returns of excess
deferral amounts; and
(v) distributions upon the death or disability (as defined in the Code)
of the participant or beneficiary.
Contingent Deferred Sales Charge Program for Large Purchases
A contingent deferred sales charge of 1% applies to purchases of $1 million or
more of Class A shares that are redeemed within 12 months of the date of
purchase. This charge will be 1% of the lesser of the value of the shares
redeemed (excluding reinvested dividends and capital gain distributions) or the
total original cost of such shares. In determining whether a contingent deferred
sales charge is payable, and the amount of any such charge, shares not subject
to the contingent deferred sales charge are redeemed first (including shares
purchased by reinvested dividends and capital gains distributions and amounts
representing increases from capital appreciation), and then other shares are
redeemed in the order of purchase. No such charge will be imposed upon exchanges
unless the shares acquired by exchange are redeemed within 12 months of the date
the shares were originally purchased. The charge will be waived in the following
circumstances: (1) redemptions of shares by employee benefit plans ("Plans")
qualified under Sections 401 or 457 of the Code, or Plans created under Section
403(b) of the Code and sponsored by nonprofit organizations as defined under
Section 501(c)(3) of the Code, where shares are being redeemed in connection
with employee terminations or withdrawals, and (a) the total amount invested in
a Plan is at least $1 million; (b) the sponsor of a Plan signs a Letter of
Intent to invest at least $1 million in one or more of the PBHG Advisor Funds,
or (c) the shares being redeemed were purchased by an employer-sponsored Plan
with at least 100 eligible employees; provided, however, that Plans created
under Section 403(b) of the Code which are sponsored by public educational
institutions shall qualify under (a), (b) or (c) above on the basis of the value
of each Plan participant's aggregate investment in the PBHG Advisor Funds, and
not on the aggregate investment made by the Plan or on the number of eligible
employees; (2) redemptions of shares following the death or post-purchase
disability, as defined in Section 72(m)(7) of the Code, of a shareholder or a
settlor of a living trust; (3) redemptions of shares purchased at net asset
value by private foundations or endowment funds where the initial amount
invested was at least $1 million; (4) redemptions of shares purchased by an
investor in amounts
65
<PAGE>
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.
Class I Shares
Class I shares may be redeemed on any business day at the net asset value per
share next determined following receipt of the redemption order. No contingent
deferred sales charge will be imposed on redemption of Class I shares.
Reinstatement Privilege (Class A shares only)
Within 90 days of a redemption, a shareholder may invest 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 Funds to be reinvested. The
shareholder must ask for such privilege at the time of reinvestment. A realized
gain on the redemption is taxable, and reinvestment may alter any capital gains
payable. If there has been a loss on the redemption and shares of the same Fund
are repurchased, all of the loss may not be tax deductible, depending on the
timing and amount reinvested. Under the Code, if the redemption proceeds of Fund
shares on which a sales charge was paid are reinvested in (or exchanged for)
shares of another PBHG Advisor Fund at a reduced sales charge within 90 days of
the payment of the sales charge, the shareholder's basis in the Fund shares
redeemed may not include the amount of the sales charge paid, thereby reducing
the loss or increasing the gain recognized from the redemption; however, the
shareholder's basis in the Fund shares purchased will include the sales charge.
Each PBHG Advisor Fund may amend, suspend or cease offering this privilege at
any time as to shares redeemed after the date of such amendment, suspension or
cessation. This privilege may only be exercised once each year by a shareholder
with respect to each Fund.
Shareholders who are assessed a contingent deferred sales charge in connection
with the redemption of Class A shares and who subsequently reinvest a portion or
all of the value of the redeemed shares in Class A shares of any PBHG Advisor
Fund within 90 days after such redemption may do so at net asset value if such
privilege is claimed at the time of reinvestment. Such reinvested proceeds will
not be subject to either a front-end sales charge at the time of reinvestment or
an additional contingent deferred sales charge upon subsequent redemption. In
order to exercise this reinvestment privilege, the shareholder must notify the
PBHG Advisor Funds of his or her intent to do so at the time of reinvestment.
This reinvestment privilege does not apply to Class B shares.
66
<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each PBHG Advisor Fund, other than the PBHG
Advisor Cash Reserves Fund, is determined by dividing the total market value of
such Fund's investments and other assets, less any liabilities, by the total
outstanding shares of the Fund. Net asset value per share is determined daily as
of the NYSE Close on any Business Day. The net asset value per share of each
PBHG Advisor Fund, other than the PBHG Advisor Cash Reserves Fund, is listed
under PBHG Advisor in the mutual fund section of most major daily newspapers,
including the Wall Street Journal.
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 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" (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 total return of each PBHG Advisor Fund other than the PBHG Advisor Cash
Reserves Fund refers to the average compounded rate of return on a hypothetical
investment for designated time periods (including but not limited to the period
from which the applicable Fund commenced operations through the specified date),
assuming that the entire investment is redeemed at the end of each period and
assuming the reinvestment of all dividend and capital gain distributions.
67
<PAGE>
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.
Parallel Performance
The PBHG Advisor Funds had not yet commenced operations as of the date of this
Prospectus. Consequently, the Funds have not yet established their own
performance records. However, the PBHG Advisor Value Opportunities Fund, PBHG
Advisor Large Cap Concentrated Fund, and PBHG Advisor Growth II Fund have the
same investment objectives and follow substantially the same investment
strategies as three portfolio whose shares are currently sold to the public and
which are managed by the Adviser.
The PBHG Advisor Value Opportunities Fund has the same objectives and follows
the same investment strategies as the PBHG Mid-Cap Value Fund (the "Mid-Cap
Value Fund"), a series of the PBHG Funds, Inc. Set forth below is the historical
performance of the Mid-Cap Value Fund.
[Performance to be inserted]
The PBHG Large Cap Concentrated Fund has the same objectives and follows the
same investment strategies as the PBHG Large Cap 20 Fund (the "Large Cap 20
Fund"), a series of The PBHG Funds, Inc. Set forth below is the historical
performance of the Large Cap 20 Fund.
[Performance to be inserted]
68
<PAGE>
The PBHG Growth II Fund has the same objectives and follows the same investment
strategies as the PBHG Growth II Portfolio (the "Growth II Portfolio"), a series
of PBHG Insurance Series Fund, Inc. Set forth below is the historical
performance of the Growth II Portfolio.
[Performance to be inserted]
The performance data shown above reflect the deduction of historical fees and
expenses paid by the series corresponding to the applicable PBHG Advisor Funds,
and not those expected to be paid by such PBHG Advisor Funds. The data also do
not reflect the sales load borne by investors in Class A shares of the PBHG
Advisor Funds, expenses paid under the Rule 12b-1 plans for Class A and Class B
shares of such Funds, or the contingent deferred sales charge applicable to
Class B shares. 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 advisors 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.
69
<PAGE>
Tax Status of Distributions
Each PBHG Advisor Fund will distribute all of its net investment income
(including, for this purpose, net short-term capital gain) to shareholders.
Dividends from net investment income will be taxable to shareholders as ordinary
income whether received in cash or in additional shares. Dividends from net
investment income will qualify for the dividends-received deduction for
corporate shareholders only to the extent such distributions are derived from
dividends paid by domestic corporations. It can be expected that only certain
dividends of a Fund will qualify for that deduction. Any net capital gains will
be distributed annually and will be taxed to shareholders as long-term capital
gains, regardless of how long the shareholder has held shares and regardless of
whether the distributions are received in cash or in additional shares. The PBHG
Advisor Funds will make annual reports to shareholders of the federal income tax
status of all distributions, including the amount of dividends eligible for the
dividends-received deduction.
Certain securities purchased by the PBHG Advisor Funds (such as U.S. Treasury
STRIPS, defined in "Glossary of Permitted Investments" below) 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 advisor 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.
70
<PAGE>
Each PBHG Advisor Fund intends to make sufficient distributions prior to the end
of each calendar year to avoid liability for the federal excise tax applicable
to regulated investment companies.
Tax Treatment of Transactions
Each sale, exchange or redemption of a PBHG Advisor Fund's shares is a taxable
event to the shareholder.
Income derived by a PBHG Advisor Fund from securities of foreign issuers may be
subject to foreign withholding taxes. The PBHG Advisor Funds may be able to
treat shareholders as having paid their proportionate share of such foreign
taxes.
GENERAL INFORMATION
The Company
PBHG Advisor Funds, Inc., an open-end management investment company, was
incorporated in Maryland on January 9, 1998. The Company reserves the right to
create and issue shares of additional portfolios. Each PBHG Advisor Fund pays
its respective expenses relating to its operation, including fees of its service
providers, audit and legal expenses, expenses of preparing prospectuses, proxy
solicitation material and reports to shareholders, costs of custodial services
and registering the shares of the Funds under federal and state securities laws,
pricing and insurance expenses and pays additional expenses including litigation
and other extraordinary expenses, brokerage costs, interest charges, taxes and
organization expenses.
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 $12 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
71
<PAGE>
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: 0.65% for the PBHG Advisor Core Value
Fund; 0.85% for the PBHG Advisor Value Opportunities Fund; 0.75% for the PBHG
Advisor New Contrarian Fund; [___]% for the PBHG Advisor REIT Fund; 0.65% for
the PBHG Advisor Blue Chip Growth Fund; 0.65% for the PBHG Advisor Growth
Opportunities Fund; 0.60% for the PBHG Advisor Enhanced Equity Fund; 0.65% for
the PBHG Advisor Trend Fund; 0.85% for the PBHG Large Cap Concentrated Fund;
0.85% for the PBHG Advisor Growth II Fund; 0.75% for the PBHG Advisor New
Opportunities Fund; 0.85% for the PBHG Advisor Global Technology &
Communications Fund; 0.45% for the PBHG Advisor Master Fixed Income Fund; 0.55%
for the PBHG Advisor High Yield 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 expense limitation agreements with each Fund ("Expense
Limitation Agreements") pursuant to which the Adviser has agreed to waive or
limit a portion of its fee and to assume other expenses in an amount necessary
to limit total annual operating expenses (other than transfer agency and
distribution expenses) 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 Large Cap Concentrated, PBHG Advisor Growth II,
PBHG Advisor New Opportunities and PBHG Advisor Global Technology &
Communications Funds to no more than 1.50% of each such Fund; of the PBHG
Advisor Master Fixed Income and PBHG Advisor High Yield Funds to no more than
1.30% of each such Fund, and; of the PBHG Advisor Cash Reserves Fund to no more
than .70% of such Fund. Reimbursement by the Funds of the advisory fees waived
or limited and other expenses paid by the Adviser pursuant to the Expense
Limitation Agreements 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
the preceding sentence. 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 Growth
II Fund. Mr. Pilgrim has served as the Chief Investment Officer for the Adviser
for the past six years, and has been its President since 1993. James D. McCall,
CFA, manages the PBHG Advisor Large Cap Concentrated Fund. Mr. McCall has been a
portfolio manager with the Adviser since 1994. Prior to joining the Adviser, Mr.
McCall was a portfolio manager with First National Bank of Maryland. John F.
Force, CFA, manages the PBHG Advisor Global Technology & Communications Fund.
Mr. Force joined the Adviser in 1993, and is a portfolio
72
<PAGE>
manager/analyst. Prior to joining the Adviser, Mr. Force was Vice President/Fund
Manager at Fiduciary Management Associates from July 1987 to September 1992.
___________ Urqhart manages the PBHG Advisor Blue Chip Growth Fund.
Value Investors
Pilgrim Baxter Value Investors, 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, PBHG Advisor Value
Opportunities and PBHG Advisor New Contrarian Funds pursuant to a sub-advisory
agreement with the Company, on behalf of such Funds, and the Adviser (the
"Sub-Advisory Agreement"). Under the Sub-Advisory Agreement, Value Investors
manages the investments of each of those Funds, selects investments, and places
all orders for purchases and sales of each such Funds' 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, PBHG Advisor Value Opportunities and
PBHG Advisor New Contrarian Funds, 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
_______%, _______% and _______%, respectively.
James H. Farrell, CFA, manages the PBHG Advisor New Contrarian Fund. Mr. Farrell
joined Value Investors in September 1996 and is its Chief Investment Officer.
Mr. Farrell also manages another mutual fund advised by Value Investors and,
until recently, served as President of Farrell Seiwell, Inc., a registered
investment adviser. Prior to joining Value Investors, he was an Investment
Counselor in a sole proprietorship for two years. From 1983 to 1994, he was a
partner at Cashman, Farrell and Associates, an investment advisory firm.
Gary D. Haubold, CFA, manages the PBHG Advisor Core Value Fund and PBHG Advisor
Value Opportunities 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.
73
<PAGE>
Analytic TSA
Analytic TSA Global Asset Management, Inc., 700 South Flower Street, Suite 2400,
Los Angeles, CA 90017 is a wholly owned subsidiary of United Asset Management
Corporation, the parent company of the Adviser.
Analytic TSA 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 TSA 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 TSA 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 Advisory Agreement with the Company, on behalf of the
PBHG Advisor Enhanced Equity Fund and the PBHG Advisor Master Fixed Income Fund,
Analytic TSA, subject to the control and direction of the Company's 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 Portfolio. 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 Zontech, 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 of 1976 as a
portfolio manager. Mr. Bannon is a managing director of Analytic TSA
specializing in the fixed income area. He initially 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. The portfolio managers are subject to
the supervision of Analytic TSA's investment management committee.
Dennis M. Bein, Harindra de Silva and Charles L. Dobson 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 TSA 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 is the President of
the Analytic Optioned Equity Fund and serves as a managing director of Analytic
TSA, which he joined in May of 1995. He concurrently serves
74
<PAGE>
as a principal of Analysis Group, Inc., which he joined in March 1986. Mr.
Dobson is the Executive Vice President of Analytic Optioned Equity Fund and has
been a portfolio manager of Analytic TSA since 1978. The portfolio managers are
subject to the supervision of Analytic TSA'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 pay Analytic TSA an annual fee based on the average daily
net assets of each Fund as follows:
PBHG Advisor Master Fixed Income Fund [____%]
PBHG Advisor Enhanced Equity Fund [____%]
Wellington
Wellington Management Company, LLP serves as the investment sub-adviser for the
Cash Reserves Fund pursuant to a sub-advisory agreement with the Company, on
behalf of the PBHG Advisor Cash Reserves Fund, and the Adviser. Under the
sub-advisory agreement, Wellington 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 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 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 [_____________],
Wellington had discretionary management authority with respect to approximately
$[___] billion of assets. Wellington and its predecessor organizations have
provided investment advisory services to investment companies since 1933 and to
investment counseling clients since 1960. Wellington, 75 State Street, Boston,
Massachusetts 02109, is a Massachusetts general partnership, of which the
following persons are managing partners: Robert W. Doran, Duncan M. McFarland
and John R. Ryan.
The Administrator and Sub-Administrator
PBHG Fund Services, a wholly-owned subsidiary of the Adviser, 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
75
<PAGE>
assets of the Company. The principal place of business of the Administrator is
825 Duportail Road, Wayne, PA 19087.
SEI Fund Resources, 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 a fee at the annual rate of 0.07% of the average daily net
assets of each PBHG Advisor Fund with respect to $2.5 billion of the total
average daily net assets of the Company, The PBHG Funds, Inc., and PBHG
Insurance Series Fund, Inc., taken together, and a fee at the annual rate of
0.025% of the average daily net assets of each PBHG Advisor Fund with respect to
the total average daily net assets of the Company, The PBHG Funds, Inc., and
PBHG Insurance Series Fund, Inc., taken together, in excess of $2.5 billion.
The Transfer Agent
[Name and address of Transfer Agent] 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
Shareholder Services Center, Inc., an affiliate of the Adviser, 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 __________ __,1998, with
PBHG Fund Distributors (the "Distributor"), a registered broker-dealer and a
wholly owned subsidiary of the Advisor, pursuant to which the Distributor acts
as the distributor of Class A, Class B and Class I 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.
76
<PAGE>
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 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.
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 plan will be limited to .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
77
<PAGE>
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
The PBHG Advisor Funds also have adopted a Distribution Plan applicable to Class
B shares of the Funds (the "Class B Plan"). Under the Class B Plan, each Fund
pays at an annual rate of 1.00% of the average daily net assets attributable to
such Fund's Class B shares. Of such amount, the Fund pays a service fee of 0.25%
of the average daily net assets attributable to such Fund's Class B shares to
selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own Class B shares of
the Fund. Any amounts not paid as a service fee would constitute an asset based
sales charge. Amounts paid in accordance with the Class B Plan with respect to
any Fund may be used to finance any activity primarily intended to result in the
sale of Class B shares of such Fund.
Class A and Class B Plans
Activities that may be financed under the Class A Plan and the Class B Plan
(collectively, the "Plans") include, but are not limited to: printing of
prospectuses and statements of additional information and reports for other than
existing shareholders, overhead, preparation and distribution of advertising
material and sales literature, supplemental payments to dealers and other
institutions such as asset-based sales charges or payments of service fees under
shareholder service arrangements, and the cost of administering the Plans. These
amounts payable by a PBHG Advisor Fund under the Plans need not be directly
related to the expenses actually incurred by the Distributor on behalf of each
Fund. Thus, even if the Distributor's actual expenses exceed the fee payable to
the Distributor thereunder at any given time, the Company will not be obligated
to pay more than that fee, and if the Distributor's expenses are less than the
fee it receives, the Distributor will retain the full amount of the fee.
Payments pursuant to the Plans are subject to any applicable limitations imposed
by the rules of the National Association of Securities Dealers, 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 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.
78
<PAGE>
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 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.
Shareholder Inquiries
You may direct inquiries to the Company by writing to
[_____________________________].
79
<PAGE>
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 High Yield 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 High Yield 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.
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 serves as counsel to the Company.
________________________ 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.
80
<PAGE>
LOGO
PBHG ADVISOR FUNDS, INC.
PROSPECTUS
______________, 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)
Toopen an account, receive information,
make inquiries or request literature:
1-800-XXX-XXXX
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
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 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 __________. The Prospectus for the
Funds may be obtained by calling 1-800-XXX-XXXX.
TABLE OF CONTENTS
Page
THE COMPANY............................................................. S-2
DESCRIPTION OF PERMITTED INVESTMENTS.................................... S-2
INVESTMENT LIMITATIONS.................................................. S-11
THE ADVISER............................................................. S-13
THE SUB-ADVISERS........................................................ S-14
THE ADMINISTRATOR AND SUB-ADMINISTRATOR................................. S-16
THE DISTRIBUTION PLANS.................................................. S-17
THE DISTRIBUTOR......................................................... S-20
HOW TO PURCHASE AND REDEEM SHARES....................................... S-20
THE CUSTODIANS.......................................................... S-21
DIRECTORS AND OFFICERS OF THE COMPANY................................... S-21
COMPUTATION OF YIELD.................................................... S-23
CALCULATION OF TOTAL RETURN............................................. S-24
PURCHASE AND REDEMPTION OF SHARES....................................... S-24
DETERMINATION OF NET ASSET VALUE........................................ S-25
TAXES................................................................... S-26
PORTFOLIO TRANSACTIONS.................................................. S-31
DESCRIPTION OF SHARES................................................... S-33
5% AND 25% SHAREHOLDERS................................................. S-33
FINANCIAL STATEMENTS.................................................... S-33
________________, 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 articles of incorporation permit 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
S-2
<PAGE>
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 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, 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
S-3
<PAGE>
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.
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.
S-4
<PAGE>
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
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
S-5
<PAGE>
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 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, and the PBHG Master Fixed Income 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, and the PBHG Master Fixed Income 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
S-6
<PAGE>
transaction 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, and not for speculation. The PBHG Advisor Value
Opportunities Fund, PBHG Advisor New Contrarian Fund, PBHG Enhanced Equity Fund,
and the PBHG Master Fixed 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, and PBHG Master Fixed Income 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 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
S-7
<PAGE>
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 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
S-8
<PAGE>
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 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
S-9
<PAGE>
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 purchase transaction, that Fund will not sell the underlying security
until the option expires or the Fund delivers the underlying security upon
exercise.
S-10
<PAGE>
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. The 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.
Each Fund 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, 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
S-11
<PAGE>
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 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 permitted borrowing 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.
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 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.
S-12
<PAGE>
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.
The foregoing percentages will apply at the time of each purchase of a security.
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 expense limitation agreements with each Fund ("Expense
Limitation Agreements") pursuant to which the Adviser has agreed to waive or
limit a portion of its fee and to assume other expenses in an amount necessary
to limit total annual operating expenses (other than transfer agency and
distribution expenses) 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 Large Cap Concentrated, PBHG Advisor Growth II,
PBHG Advisor New Opportunities and PBHG Advisor Global Technology &
Communications Funds to no more than 1.50% of each such Fund; of the PBHG
Advisor Master Fixed Income and PBHG Advisor High Yield Funds to no more than
1.30% of each Fund, and; of the PBHG Advisor Cash Reserves Fund to no more than
.70% of such Fund. Reimbursement by the Funds of the advisory fees waived or
limited and other expenses paid by the Adviser pursuant to the Expense
Limitation Agreements 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
the preceding sentence. 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 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
S-13
<PAGE>
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, and PBHG Advisor Value Opportunities 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"). The
Value Investors Sub-Advisory Agreement provides certain limitations on Value
Investors' liability, but also provides that the 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 investment 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).
S-14
<PAGE>
Analytic TSA Global Asset Management, Inc.
The Company, on behalf of the PBHG Advisor Enhanced Equity Fund and the PBHG
Master Fixed Income Fund, and the Adviser have entered into a sub-advisory
agreement (the "Analytic Sub-Advisory Agreement") with Analytic 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 and Value Investors.
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 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,
foundation, 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, and the PBHG Advisor Master Fixed Income
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 with 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 Analytics since 1978. They are
subject to the supervision of Analytic's investment management committee.
PBHG Advisor Master Fixed Income Fund
Scott Barker, Greg McMurran and Bob Bannon are the portfolio managers for the
PBHG Advisor Master Fixed Income 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 Analytic. He was formerly a managing director with TSA
since
S-15
<PAGE>
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"). The
Wellington Sub-Advisory Agreement provides certain limitations on Wellington's
liability, but also provides that Wellington 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 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 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.
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
S-16
<PAGE>
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 __________, 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 on __________ pursuant to
which the Sub-Administrator assists the Administrator in connection with the
administration of the business and affairs of the Company. The Sub-Administrator
is an indirect wholly-owned subsidiary of SEI Investments Company ("SEI"). 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 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 Agreement shall remain in
effect until __________, 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 Sub-Administrator is
entitled to a fee from the Administrator, which is calculated daily and paid
monthly, at (i) an annual rate of 0.07% of the average daily net assets of each
PBHG Advisor Fund with respect to the first $2.5 billion of the total average
daily net assets of the Company, The PBHG Funds, Inc. and PBHG Insurance Series
Fund, Inc. taken together and (ii) an annual rate of .025% of the average daily
net assets of each PBHG Advisor Fund with respect to the total average daily net
assets in excess of $2.5 billion of the Company, The PBHG Funds, Inc. and PBHG
Insurance Series Fund, Inc. taken together.
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 the PBHG Advisor
Funds (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
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 the Funds (the
"Class B Plan", and collectively with the
S-17
<PAGE>
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 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.
S-18
<PAGE>
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, the
Plans continue in effect until March 1, 2000, and thereafter, 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 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 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.
S-19
<PAGE>
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 Funds and Class C shares was approved by the Board of Directors
on [__________, 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
[__________, 1998]. Both 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.
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."
S-20
<PAGE>
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. 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, 1-800-XXX-XXXX, 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.
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
S-21
<PAGE>
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.
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 and Chief Executive Officer,
Value Investors, 825 Duportail Road, Wayne, PA 19087, since June 1996. Trustee,
the Distributor since January 1998.
GARY L. PILGRIM (57) - President - 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
of Value Investors since January 1998. Trustee, the Distributor since January
1998. President and Chief Executive Officer, Fidelity Investments Retail Group
since 1990.
SANDRA K. ORLOW (44) - Vice President - Vice President and Assistant Secretary
of SEI, and the Sub-Administrator since 1983.
KATHRYN L. STANTON (39) - Vice President, Assistant Secretary - Vice President,
Assistant Secretary of SEI and, the Sub-Administrator since 1994. Associate,
Morgan, Lewis & Bockius LLP (law firm), 1989-1994.
TODD CIPPERMAN (32) - Vice President, Assistant Secretary - Vice President,
Assistant Secretary of SEI and the Sub-Administrator since 1995. Associate,
Dewey Ballantine (law firm) 1994-1995, Associate, Winston & Strawn (law firm)
1991-1994.
BARBARA A. NUGENT (41) - Vice President, Assistant Secretary - Vice President
and Assistant Secretary, SEI since April 1996. Associate, Drinker, Biddle &
Reath (law firm), 1994-1996. Assistant Vice President, Delaware Service Company,
Inc. (transfer agent), 1988-1993.
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 1998. Investment Accounting Officer, Delaware Group of Funds, 1994-1996.
Vice President, Fund/Plan Services, Inc., 1992-1994.
- -----------------
* 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.
S-22
<PAGE>
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.
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 "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) 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 such net change by the value of the account at the beginning of the
same 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 PBHG Advisor Cash
Reserves Fund is determined by computing the net change, exclusive of capital
changes, 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
S-23
<PAGE>
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, 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, 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 alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Funds in
lieu of cash. Shareholders may incur brokerage charges on the sale of any such
securities so 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.
S-24
<PAGE>
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.
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
S-25
<PAGE>
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 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
S-26
<PAGE>
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 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,
S-27
<PAGE>
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 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.
S-28
<PAGE>
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 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
S-29
<PAGE>
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, including
(in particular) the Short--Short Gain Test, 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.
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
S-30
<PAGE>
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.
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
S-31
<PAGE>
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, 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.
S-32
<PAGE>
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 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 __________, the following persons were the only persons who were record
owners (or to the knowledge of the Fund, beneficial owners) of 5% or more of the
shares of the PBHG Advisor Funds. The Company believes that most of the shares
referred to below were held by the persons indicated in accounts for their
fiduciary, agency or custodial clients.
FINANCIAL STATEMENTS
__________________________________________________________________ serves as the
independent accountants for the Company.
S-33
<PAGE>
Appendix A
GLOSSARY OF PERMITTED INVESTMENTS
The following is a description of permitted investments for certain of the PBHG
Advisor Funds:
American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs") --
ADRs are securities, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. ADRs
include American Depositary Shares and New York Shares. GDRs, which are
sometimes referred to as Continental Depositary Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, GDRs and CDRs may be available for investment
through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt and a
depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depositary receipt generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through to the holders of the
receipts voting rights with respect to the deposited securities.
Bankers' Acceptance -- A bill of exchange or time draft drawn on and accepted by
a commercial bank. It is used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
Certificate of Deposit -- A negotiable interest bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit
generally carry penalties for early withdrawal.
Commercial Paper -- The term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues
typically vary from a few days to nine months.
Convertible Securities -- Securities such as rights, bonds, notes and preferred
stocks which are convertible into or exchangeable for common stocks. Convertible
securities have characteristics similar to both fixed income and equity
securities. Because of the conversion feature, the market value of convertible
securities tends to move together with the market value of the underlying common
stock. As a result, a Fund's selection of convertible securities is based, to a
great extent, on the potential for capital appreciation that may exist in the
underlying stock. The value of convertible securities is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions.
A-1
<PAGE>
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 -- Investments in common stocks are subject to market risks
which may cause their prices to fluctuate over time. Changes in the value of
portfolio securities will not necessarily affect cash income derived from these
securities but will affect a Fund's net asset value.
Forward Foreign Currency Contracts -- Foreign currency exchange transactions may
be conducted on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or through entering into forward currency
contracts to protect against uncertainty in the level of future exchange rates
between a particular foreign currency and the U.S. dollar, or between foreign
currencies in which a Fund's portfolio securities are or may be denominated. A
forward foreign currency contract involves an obligation to purchase or sell a
specific currency amount at a future date, which may be any fixed number of days
from the date of the contract, agreed upon by the parties, at a price set at the
time of the contract. Under normal circumstances, consideration of the prospect
for changes in currency exchange rates will be incorporated into each PBHG
Advisor Fund's long-term investment strategies. However, the Adviser and the
sub-advisers believe that it is important to have the flexibility to enter into
forward foreign currency contracts when they determine that the best interests
of any Fund will be served. The Funds will convert currency on a spot basis, and
investors should be aware of the costs of currency conversion.
When the Adviser or a sub-adviser believes that the currency of a particular
country may suffer a significant decline against the U.S. dollar or against
another currency, the Fund in question may enter into a forward foreign currency
contract to sell, for a fixed amount of U.S. dollars or other appropriate
currency, the amount of foreign currency approximating the value of some or all
of the Fund's securities denominated in such foreign currency.
At the maturity of a forward foreign currency contract, a Fund may either sell a
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader,
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. A Fund may realize a gain or loss from currency transactions.
Generally, a PBHG Advisor Fund will enter into forward foreign currency
contracts only as a hedge against foreign currency exposure affecting the Fund
or to hedge a specific security transaction or portfolio position. If a Fund
enters into forward foreign currency contracts to cover activities which
A-2
<PAGE>
are essentially speculative, the Fund will segregate cash or readily marketable
securities with its custodian, or a designated sub-custodian, in an amount at
all times equal to or exceeding the Fund's commitment with respect to such
contracts.
Futures Contracts and Options on Futures Contracts -- The PBHG Advisor Funds may
enter into futures contracts for the purchase or sale of securities, including,
for the Fund, index contracts on foreign currencies. A purchase of a futures
contract means the acquisition of a contractual right to obtain delivery of the
securities or foreign currency, called for by the contract at a specified price
during a specified future month. When a futures contract is sold, the Fund
incurs a contractual 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 -- Securities that cannot be disposed of in the ordinary
course of business within seven days at approximately the price at which a Fund
has valued the security.
Mortgage-Backed Securities -- Securities that include interests in pools of
lower-rated debt securities, or consumer loans or mortgages, or complex
instruments such as collateralized mortgage obligations and stripped
mortgage-backed securities. The value of these securities may be significantly
affected by changes in interest rates, the market's perception of the issuers,
and the creditworthiness of the parties involved. Some securities may have a
structure that makes their reaction to interest rates and other factors
difficult to predict, making their value highly volatile. These securities may
also be subject to prepayment risk.
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
A-3
<PAGE>
purposes. The aggregate value of option positions may not exceed 10% of a Fund's
net assets as of the time a Fund enters into such options.
A put option gives the purchaser of the option the right to sell, and the writer
the obligation to buy, the underlying security at any time during the option
period. A call option gives the purchaser of the option the right to buy, and
the writer of the option the obligation to sell, the underlying security at any
time during the option period. The premium paid to the writer is the
consideration for undertaking the obligations under the option contract.
Although the Funds will engage in option transactions only as hedging
transactions and not for speculative purposes, there are risks associated with
such investment including the following: (i) the success of a hedging strategy
may depend on the ability of the Adviser or the Sub-Adviser to predict movements
in the prices of the individual securities, fluctuations in markets and
movements in interest rates; (ii) there may be an imperfect correlation between
the changes in market value of the stocks held by the Funds and the prices of
options; (iii) there may not be a liquid secondary market for options; and (iv)
while the Funds will receive a premium when it writes covered call options, it
may not participate fully in a rise in the market value of the underlying
security. When writing options (other than covered call options), the Funds must
establish and maintain a segregated account with the Fund's Custodian containing
cash or other liquid assets in an amount at least equal to the market value of
the option.
Receipts -- Separately traded interest and principal component parts of U.S.
Treasury obligations that are issued by banks or brokerage firms and are created
by depositing U.S. Treasury obligations into a special account at a custodian
bank. The custodian bank holds the interest and principal payments for the
benefit of the registered owners of the receipts. The custodian bank arranges
for the issuance of the receipts evidencing ownership and maintains the
register.
Repurchase Agreements -- Agreements by which a person obtains a security and
simultaneously commits to return it to the seller at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days from the date of purchase. The PBHG Advisor Funds' Custodians or their
agents will hold the security as collateral for the repurchase agreement.
Collateral must be maintained at a value at least equal to 102% of the purchase
price. Each Fund bears a risk of loss in the event the other party defaults on
its obligations and the Fund is delayed or prevented from its right to dispose
of the collateral securities or if the Fund realizes a loss on the sale of the
collateral securities. The Adviser or a sub-adviser will enter into repurchase
agreements on behalf of a Fund only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
guidelines established and periodically reviewed by the Directors. Repurchase
agreements are considered loans under the 1940 Act, as well as for federal and
state income tax purposes.
Restraints on Investments by Money Market Funds -- Investments by the PBHG
Advisor Cash Reserves Fund are subject to limitations imposed under regulations
adopted by the SEC. These regulations generally require the PBHG Advisor Cash
Reserves Fund to acquire only U.S. dollar obligations maturing in 397 days or
less and to maintain a dollar-weighted average portfolio maturity of 90 days or
less. In addition, the PBHG Advisor Cash Reserves Fund may acquire only
obligations that present minimal credit risks and that are "eligible
securities."
A-4
<PAGE>
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. 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,
the Fund may enter into interest rate swaps, currency swaps and other types of
swap agreements such as caps, collars and floors. In a typical interest rate
swap, one party agrees to make regular payments equal to a floating interest
rate times a "notional principal amount" in return for payments equal to a fixed
rate times the same amount, for a specific period of time. If a swap agreement
provides for payment in different currencies, the parties might agree to
exchange the notional principal amount as well. Swaps may also depend on other
prices or rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specific interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift a Fund's investments exposure from one type
of investment to another. For example, if the Fund agrees to exchange payments
in dollars for payments in foreign currency, the swap agreement would tend to
decrease the Fund's exposure to U.S. interest rates and increase its exposure to
foreign currency and interest rates. Caps and floors have an effect similar to
A-5
<PAGE>
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., Federal
National Mortgage Association securities).
U.S. Government Securities -- Bills, notes and bonds issued by the U.S.
Government and backed by the full faith and credit of the United States.
U.S. Treasury Obligations -- Bills, notes and bonds issued by the U.S. Treasury,
and separately traded interest and principal component parts of such obligations
that are transferable through the Federal book-entry system known as Separately
Traded Registered Interest and Principal Securities ("STRIPS"). STRIPS are
usually structured with two classes that receive different proportions of the
interest and principal distributions on a pool of mortgage assets. One type of
STRIPS will have one class receiving all of the interest ("interest only" or "IO
class"), while the other class will receive all of the principal
("principal-only" or "PO class"). The yield to maturity on IO classes and PO
classes is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the portfolio yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, a Fund may fail to fully recoup its initial investment
in these securities, even if the security is in one of the highest rating
categories.
Variable and Floating Rate Instruments -- Certain of the obligations purchased
by the Fund may carry variable or floating rates of interest, may involve a
conditional or unconditional demand feature and may include variable amount
master demand notes. Such instruments bear interest at rates which are not
fixed, but which vary with changes in specified market rates or indices, such as
a Federal
A-6
<PAGE>
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.
A-7
<PAGE>
Appendix B
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.
B-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 issues 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.
B-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.
B-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.
B-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.
B-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+."
B-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.
B-7
<PAGE>
PART C: OTHER INFORMATION
<TABLE>
<S> <C> <C>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
To be filed by amendment
(b) Exhibits:
1 Articles of Incorporation
2 By-Laws
3 Voting trust agreement - none
4 Not Applicable
5(a) Form of Investment Advisory Agreement between the
Registrant and Pilgrim Baxter & Associates, Ltd. (to be
filed by amendment)
5(b) Form of Investment Sub-Advisory Agreement between and
among the Registrant and Analytic TSA Global Asset
Management, Inc. (to be filed by amendment)
5(c) Form of Investment Sub-Advisory Agreement between and
among the Registrant and Wellington Management
Company LLP (to be filed by amendment)
6 Form of Distribution Agreement between the Registrant and
PBHG Fund Distributors (to be filed by amendment)
7 Bonus, profit sharing or pension plans - none
8 Form of Custodian Agreement between the Registrant
and CoreStates Bank, N.A. (to be filed by amendment)
9(a) Form of Transfer Agency Agreement between the Registrant and
________________________ (to be filed by amendment)
9(b) Form of Administrative Services Agreement between the Registrant and PBHG
Fund Services (to be filed by amendment)
9(c) Form of Sub-Administrative Services Agreement between the Registrant and SEI
Fund Resources (to be filed by amendment)
9(d) Form of Expense Limitation Agreement between the Registrant and Pilgrim
Baxter & Associates, Ltd. (to be filed by amendment)
9(e) Form of Shareholder Service Agreement (to be filed by amendment)
<PAGE>
10 Opinion of Counsel and Consent of Ballard Spahr Andrews & Ingersoll
11 None
12 Not Applicable
13 Letter from ____________________ to the Registrant
with respect to the initial capitalization of
Registrant (to be filed by amendment)
14 Not Applicable
15 Not Applicable
16 Schedule for computation of Performance Quotation (to be filed by amendment)
17 Not Applicable
18 Not Applicable
27 Not Applicable
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
There are no persons that are controlled by or under common control
with the Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
None
ITEM 27. INDEMNIFICATION
The Articles of Incorporation of the Registrant include the following:
ARTICLE VII
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 1940 Act. 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
C-2
<PAGE>
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.
The By-Laws of the Registrant include the following:
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 or such further indemnification arrangements as may be permitted
by law."
Insofar as indemnification for liability arising under the Securities Act of
1933 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, suite 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
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 of 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 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
C-3
<PAGE>
Other business, profession, vocation, or employment of a substantial nature in
which each director or principal officer of Pilgrim Baxter & Associates, Ltd.,
Pilgrim Baxter Value Investors, Inc., AnalyticoTSA Global Asset Management,
Inc., and Wellington Management Company, LLP, is or has been, at any time during
the last two fiscal years, engaged for his own account or in the capacity of
director, officer, employee, partner or trustee are as follows:
<TABLE>
<CAPTION>
Name and Position with Pilgrim
Baxter & Associates, Ltd. Name of Other Company Connection with Other Company
- ------------------------------ --------------------- -----------------------------
<S> <C> <C>
Harold J. Baxter Pilgrim Baxter Value Investors, Inc. Director, Chairman and Chief
Director, Chairman & Executive Officer
Chief Executive Officer PBHG Fund Services Trustee
PBHG Fund Distributors Trustee
825 Duportail Road
Wayne, PA 19087
United Asset Management Director
Corporation
Gary L. Pilgrim PBHG Fund Services Trustee
Director, President, 825 Duportail Road
Treasurer & Chief Investment Wayne, PA 19087
Officer
Paul J. Hondros Pilgrim Baxter Value Investors, Inc. President & Chief Operating Officer
President & Chief Operating
Officer PBHG Fund Distributors Trustee
825 Duportail Road
Wayne, PA 19087
Brian F. Bereznak Pilgrim Baxter Value Investors, Inc. Director
Chief Operating Officer
(from 1989 through 1996) PBHG Fund Services President and Trustee
PBHG Fund Distributors President
825 Duportail Road
Wayne, PA 19087
Eric C. Schneider Pilgrim Baxter Value Investors, Inc. Chief Financial Officer & Treasurer
Chief Financial Officer
PBHG Fund Services Chief Financial Officer
PBHG Fund Distributors Trustee, Chief Financial Officer
825 Duportail Road
Wayne, PA 19087
John M. Zerr Pilgrim Baxter Value Investors, Inc. General Counsel and Secretary
General Counsel and Secretary
PBHG Fund Distributors General Counsel and Secretary
825 Duportail Road
Wayne, PA 19087
C-4
<PAGE>
Name and Position with Pilgrim
Baxter Value Investors, Inc. Name of Other Company Connection with Other Company
- ------------------------------ --------------------- ------------------------------
Harold J. Baxter Pilgrim Baxter & Associates, Ltd. Director, Chairman & Chief Executive
Director, Chairman and Chief Officer
Executive Officer PBHG Fund Services Trustee
PBHG Fund Distributors Trustee
825 Duportail Road
Wayne, PA 19087
United Asset Management Corporation Director
Brian F. Bereznak Pilgrim Baxter & Associates, Ltd. Chief Operating Officer (1989 - 1996)
Director
PBHG Fund Services President and Trustee
PBHG Fund Distributors President
825 Duportail Road
Wayne, PA 19087
Gary L. Pilgrim Pilgrim Baxter & Associates, Ltd. Director, Chief Investment Officer,
Director President, (4/95 - 10/97), Secretary
(4/95 - 11/96)
PBHG Fund Services Trustee
825 Duportail Road
Wayne, PA 19087
Paul J. Hondros Pilgrim Baxter & Associates, Ltd President & Chief Executive Officer
President & Chief Executive
Officer PBHG Fund Distributors Trustee
825 Duportail Road
Wayne, PA 19087
David W. Jennings Pilgrim Baxter & Associates, Ltd. Director of Client
Director, President & Chief 825 Duportail Road Service
Executive Officer (6/96 - 12/97) Wayne, PA 19087
Eric C. Schneider Pilgrim Baxter & Associates, Ltd. Chief Financial Officer and Treasurer
Chief Financial Officer and
Treasurer PBHG Fund Services Chief Financial Officer
PBHG Fund Distributors Trustee, Chief Financial Officer
825 Duportail Road
Wayne, PA 19087
John M. Zerr Pilgrim Baxter & Associates, Ltd. General Counsel and Secretary
General Counsel and Secretary
PBHG Fund Distributors General Counsel and Secretary
825 Duportail Road
Wayne, PA 19087
C-5
<PAGE>
Name and Position with Analytic TSA
Global Asset Management, Inc. Name of Other Company Connection with Other Company
- ----------------------------------- --------------------- -----------------------------
TBA TBA TBA
Name and Position with Wellington
Management Company, LLP Name of Other Company Connection with Other Company
TBA TBA TBA
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Furnish the name of each investment company (other than the Registrant) for
which each principal underwriter currently distributing the securities of the
Registrant also acts as a principal underwriter, distributor or investment
adviser.
Registrant's distributor, PBHG Fund Distributors, acts as distributor for:
Class A, Class B and Class I Shares of the PBHG Advisor Funds
(b) Furnish the information required by the following table with respect to each
director, officer or partner of each principal underwriter named in the answer
to Item 21 of Part B.
The principal business address and each person named in the table below is PBHG
Fund Distributors, 825 Duportail Road, Wayne, Pennsylvania 19087.
<TABLE>
<CAPTION>
Positions and Offices with
Name Positions and Offices with Underwriter Registrant
---- -------------------------------------- ---------------------------
<S> <C> <C>
Harold J. Baxter Trustee Director and Chairman
Paul J. Hondros Trustee Executive Vice President
Eric C. Schneider Trustee, Chief Financial Officer None
Brian F. Bereznak President Vice President
Lee T. Cummings Vice President Treasurer, Chief Financial Officer and
Controller
Michael J. Harrington Vice President Vice President
John M. Zerr General Counsel & Secretary Vice President and Secretary
</TABLE>
C-6
<PAGE>
(c) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the Rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1), (2)(a) and (b), (3), (6), (8),
(12); and 31a-1(d), the required books and records are maintained at the offices
of Registrant's Custodian:
CoreStates Bank, N.A.
Broad and Chestnut Streets
P.O. Box 7618
Philadelphia, PA 19101
(b) With respect to Rules 31a-1(a); 31a-1(b)(1),(4); (2)(C) and (D); (4); (5);
(6); (8); (9); (10); (11) and 31a-1(f), the required books and records are
currently maintained at the offices of Registrant's Sub-Administrator:
SEI Fund Resources
One Freedom Valley Road
Oaks, PA 19456
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the
required books and records are maintained at the principal offices of the
Registrant's Adviser or Sub-Advisers:
Pilgrim Baxter & Associates, Ltd.
825 Duportail Road
Wayne, PA 19087
Pilgrim Baxter Value Investors, Inc.
825 Duportail Road
Wayne, PA 19087
Wellington Management Company, LLP
Wellington, 75 State Street
Boston, MA 02109
Analytic TSA Global Asset Management, Inc.
700 South Flower Street, Suite 2400
Los Angeles, CA 90017
ITEM 31. MANAGEMENT SERVICES
None
ITEM 32. UNDERTAKINGS
C-7
<PAGE>
Registrant hereby undertakes to file a post-effective amendment, including
financial statements which need not be audited, within 4-6 months from the later
of the commencement of operations of the Registrant or the effective date of the
Registrant's 1933 Act Registration Statement.
C-8
<PAGE>
SIGNATURES
Pursuant to the Securities Act of 1933 and the Investment Company Act of 1940,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereto duly authorized, in the City of Wayne, and
Commonwealth of Pennsylvania, on the 13th day of January, 1998.
PBHG ADVISOR FUNDS, INC.
Registrant
By: /s/ Harold J. Baxter
--------------------------
Harold J. Baxter
Director
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons on the 13th day of
January, 1998 in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE AND TITLE
- -------------------
<S> <C>
/s/ Harold J. Baxter Director
Director
Harold J. Baxter
</TABLE>
<PAGE>
EXHIBIT LIST
Exhibit Sequentially
Number Description Numbered Pages
- ------ ----------- --------------
Ex. 99.B1 Articles of Incorporation
Ex. 99.B2 By-Laws
Ex. 99.B10 Opinion of Counsel and Consent of
Ballard Spahr Andrews & Ingersoll
ARTICLES OF INCORPORATION
OF
PBHG ADVISOR FUNDS, INC.
ARTICLE I
INCORPORATOR
THE UNDERSIGNED, John M. Zerr, whose address is 825 Duportail Road, Wayne,
Pennsylvania 19087, being more than 18 years of age, does under and by virtue of
the general laws of the State of Maryland, act as incorporator to form a
corporation.
ARTICLE II
NAME OF CORPORATION
The name of the corporation is PBHG ADVISOR FUNDS, INC. (hereinafter called the
"Corporation").
ARTICLE III
PURPOSE OF CORPORATION
The purpose or purposes for which the Corporation is formed are as follows:
(1) To hold, invest and reinvest its funds, and in connection
therewith, to hold part or all of its funds in cash, and to purchase or
otherwise acquire, hold for investment or otherwise sell, assign, negotiate,
transfer, exchange or otherwise dispose of or turn to account or realize upon,
securities (which term "securities" shall for the purposes of these Articles of
Incorporation, without limitation of the generality thereof, be deemed to
include any stocks, shares, bonds, debentures, notes, mortgages or other
obligations, and any options, certificates, receipts, warrants or other
instruments representing rights to receive, purchase, sell or subscribe for the
same, or evidencing or representing any other rights or interests therein, or in
any property or assets) created or issued by any issuer (which term "issuer"
shall for the purpose of these Articles of Incorporation, without limitation of
the generality thereof, be deemed to include any persons, firms, associations,
corporations, syndicates, combinations, organizations, governments, or
subdivisions thereof), or commodities (which term "commodities" shall for the
purposes of these Articles of Incorporation, without limitation of the
generality thereof, be deemed to include any tangible or intangible asset which
is, or contracts relating to which are, traded on any commodities exchange, and
any contract, certificate, receipt or other instruments representing rights to
receive, purchase, sell or subscribe for the same, or evidencing or representing
any other
<PAGE>
rights or interests therein) or put and call options relating to securities or
commodities; and to exercise as owner or holder of any securities, commodities
or put and call options, all rights, powers and privileges in respect thereof;
and to do any and all acts and things for the preservation, protection,
improvement and enhancement in value of any or all such securities, commodities
or options.
(2) To borrow money and pledge assets in connection with any of the
objects or purposes of the Corporation, and to issue notes or other obligations
evidencing such borrowing, to the extent permitted by the 1940 Act (which term,
the "1940 Act," shall for the purposes of these Articles of Incorporation mean
the Investment Company Act of 1940, as from time to time amended, and any rule,
regulation or order thereunder).
(3) To issue and sell shares of its own capital stock in such amounts
and on such terms and conditions, or for such purposes and for such amount or
kind or consideration (including, without limitation thereto, securities) now or
hereafter permitted by the laws of Maryland and by these Articles of
Incorporation, as its Board of Directors may determine.
(4) To purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel (all without the vote or consent of the stockholders
of the Corporation) shares of its capital stock, in any manner and to the extent
now or hereafter permitted by the laws of Maryland and by these Articles of
Incorporation.
(5) To conduct its business in all its branches at one or more offices
in Maryland and elsewhere in any part of the world, without restriction or limit
as to extent.
(6) To carry out all or any of the foregoing objects and purposes as
principal or agent, and alone or with associates, or to the extent now or
hereafter permitted by the laws of Maryland, as a member of, or as the owner or
holder of any securities of any issuer, and in connection therewith to make or
enter into such deeds or contracts with any issuer and to do such acts and
things and to exercise such powers, as a natural person could lawfully make,
enter into, do or exercise.
(7) To do any and all such further acts and things and to exercise any
and all such further powers as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of all or any of the foregoing purposes or objects.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference from
the terms of any other clause of this or any other Article of these Articles of
Incorporation, and shall be regarded as independent, and construed as powers as
well as objects and purposes, and the enumeration of specific purposes, objects
and powers shall not be construed to limit or restrict in any manner the meaning
of general terms or the general powers of the Corporation now or
2
<PAGE>
hereafter conferred by the laws of the State of Maryland, nor shall the
expression of one thing be deemed to exclude another, though it be of like
nature, not expressed; provided, however, that the Corporation shall not have
power to carry on any business, or exercise any powers, in any other state,
territory, district or country except to the extent that the same may lawfully
be carried on or exercised under the laws thereof.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in
the State of Maryland is c/o Corporation Trust Incorporated, 300 Lombard Street,
Baltimore, Maryland 21202. The name of the Corporation's resident agent in the
State of Maryland is Corporation Trust Incorporated, a corporation of the State
of Maryland, and the post office address of the resident agent is 300 Lombard
Street, Baltimore, Maryland 21202.
ARTICLE V
CAPITAL STOCK
5.1 Authorized Stock. The total number of shares of capital stock which the
Corporation shall have authority to issue is Five Billion (5,000,000,000) shares
of the par value of one tenth of one cent ($0.001) per share and of the
aggregate par value of Five Million Dollars ($5,000,000), all of which shares
are designated Common Stock and which shares shall be classified in the
following series (portfolios): 300,000,000 shares of the PBHG Advisor Core Value
Fund series (of which 100,000,000 shares shall be classified as Class A Shares;
100,000,000 as Class B Shares; and 100,000,000 as Class I Shares); 300,000,000
shares of the PBHG Advisor Blue Chip Growth Fund series (of which 100,000,000
shares shall be classified as Class A Shares; 100,000,000 as Class B Shares; and
100,000,000 as Class I Shares); 300,000,000 shares of the PBHG Advisor Cash
Reserves Fund series (of which 100,000,000 shares shall be classified as Class A
Shares; 100,000,000 as Class B Shares; and 100,000,000 as Class I Shares);
300,000,000 shares of the PBHG Advisor High Yield Fund series (of which
100,000,000 shares shall be classified as Class A Shares; 100,000,000 as Class B
Shares; and 100,000,000 as Class I Shares); 300,000,000 shares of the PBHG
Advisor Enhanced Equity Fund series (of which 100,000,000 shares shall be
classified as Class A Shares; 100,000,000 as Class B Shares; and 100,000,000 as
Class I Shares); 300,000,000 shares of the PBHG Advisor Growth II Fund series
(of which 100,000,000 shares shall be classified as Class A Shares; 100,000,000
as Class B Shares; and 100,000,000 as Class I Shares); 300,000,000 shares of the
PBHG Advisor Large Cap Concentrated Fund series (of which 100,000,000 shares
shall be classified as Class A Shares; 100,000,000 as Class B Shares; and
100,000,000 as Class I Shares); 300,000,000 shares of the PBHG Advisor Trend
Fund series (of which 100,000,000 shares shall be classified as Class A Shares;
100,000,000 as Class B Shares; and 100,000,000 as Class I Shares);
3
<PAGE>
300,000,000 shares of the PBHG Advisor Value Opportunities Fund series (of which
100,000,000 shares shall be classified as Class A Shares; 100,000,000 as Class B
Shares; and 100,000,000 as Class I Shares); 300,000,000 shares of the PBHG
Advisor Global Technology & Communications Fund series (of which 100,000,000
shares shall be classified as Class A Shares; 100,000,000 as Class B Shares; and
100,000,000 as Class I Shares); 300,000,000 shares of the PBHG Advisor Growth
Opportunities Fund series (of which 100,000,000 shares shall be classified as
Class A Shares; 100,000,000 as Class B Shares; and 100,000,000 as Class I
Shares); 300,000,000 shares of the PBHG Advisor New Contrarian Fund series (of
which 100,000,000 shares shall be classified as Class A Shares; 100,000,000 as
Class B Shares; and 100,000,000 as Class I Shares); 300,000,000 shares of the
PBHG Advisor New Opportunities Fund series (of which 100,000,000 shall be
classified as Class A Shares; 100,000,000 as Class B Shares; and 100,000,000 as
Class I); 300,000,000 shares of the PBHG Advisor REIT Fund series (of which
100,000,000 shares shall be classified as Class A Shares; 100,000,000 as Class B
shares; and 100,000,000 as Class I); and 300,000,000 shares of the PBHG Advisor
Master Fixed Income Fund series (of which 100,000,000 shall be classified as
Class A Shares; 100,000,000 as Class B; and 100,000,000 as Class I).
The remaining 500,000,000 shares are shares of Common Stock without
further designation or classification.
5.2 Authorization of Stock Issuance. The Board of Directors may classify any
unissued shares of Common Stock from time to time in one or more classes or
series of stock. The Board of Directors may reclassify any previously classified
but unissued shares of any class or series of stock from time to time in one or
more classes or series of stock. The Board of Directors may authorize the
issuance and sale of capital stock of the Corporation, from time to time in such
amounts and on such terms and conditions, for such purposes and for such amount
or kind of consideration as the Board of Directors shall determine, subject to
any limits required by then applicable law. All shares shall be issued on a
fully paid and non-assessable basis.
5.3 Fractional Shares. The Corporation may issue fractional shares. Any
fractional share shall carry proportionately the rights of a whole share,
excepting the right to receive a certificate evidencing such fractional share,
but including, without limitation, the right to vote and the right to receive
dividends.
5.4 Description of Stock. The voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption of the
Corporation's stock shall be as follows, unless otherwise provided in Articles
Supplementary hereto:
(a) Income. The Board of Directors shall have full discretion, to the
extent not inconsistent with the General Laws of the State of Maryland
and the 1940 Act, to
4
<PAGE>
determine which items shall be treated as income and which items shall
be treated as capital. Each such determination shall be conclusive and
binding.
(b) Dividends and Distributions. The holders of the Corporation's
capital stock of record as of a date determined by the Board of
Directors from time to time shall be entitled, from funds or other
assets legally available therefor, to dividends and distributions,
including distributions of capital gains, in such amounts and at such
times as may be determined by the Board of Directors. Any such
dividends or distributions may be declared payable in cash, property or
shares of the Corporation's stock, as determined by the Board of
Directors or pursuant to a standing resolution or program adopted or
approved by the Board of Directors. Dividends and distributions may be
declared with such frequency, including daily, as the Board of
Directors may determine and in any reasonable manner, including by
standing resolution, by resolutions adopted only once or with such
frequency as the Board of Directors may determine, or by formula or
other similar method of determination, whether or not the amount of the
dividend or distribution so declared can be calculated at the time of
such declaration. The Board of Directors may establish payment dates
for such dividends and distributions on any basis, inducing payment
that is less frequent than the effectiveness of such declarations. The
Board of Directors shall have the discretion to designate for such
dividends and distributions amounts sufficient to enable the
Corporation to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986 or any successor or comparable statute,
and regulations promulgated thereunder (collectively, the "IRC"), and
to avoid liability of the Corporation for Federal income tax in respect
of a given year and to make other appropriate adjustments in connection
therewith. Nothing in the foregoing sentence shall limit the authority
of the Board of Directors to designate greater or lesser amounts for
such dividends or distributions.
(c) Tax Elections. The Board of Directors shall have the power, in its
discretion, to make such elections as to the tax status of the
Corporation as may be permitted or required by the IRC without the vote
of stockholders of the Corporation.
(d) Liquidation. At any time there are not shares of stock of the
Corporation outstanding, the Board of Directors may liquidate the
Corporation, in accordance with applicable law. In the event of the
liquidation or dissolution of the Corporation when there are shares
outstanding, the stockholders of the Corporation shall be entitled to
receive, when and as declared by the Board of Directors, the excess of
the assets of the Corporation over the liabilities of the Corporation.
Any such excess amounts will be distributed to each stockholder of the
Corporation in proportion to the number of outstanding shares held by
that stockholder and recorded on the books of the Corporation.
5
<PAGE>
Subject to the requirements of applicable law, dissolution of the
Corporation may be accomplished by distribution of assets to
stockholders as provided herein, or in any other legal manner.
(e) Voting Rights. Each share of stock shall entitle the holder thereof
to one vote for each dollar (and each fractional dollar thereof) of net
asset value (number of shares owned times net asset value per share) of
shares of stock outstanding in such holder's name on the books of the
Corporation, irrespective of the class or series thereof, and all
shares of stock shall be voted in the aggregate and not by class;
provided, however, that to the extent class or series voting is
required by the 1940 Act or Maryland law, or otherwise directed by the
Board of Directors, as to any such matter, shares of stock shall be
voted by individual class or series. No holder of shares of any class
or series of stock shall be entitled to vote on any acquisition of
assets of another corporation with and into the Corporation if the
consideration for such acquisition consists solely of the shares of
another class or series of stock of the Corporation. The net asset
value of a share of any class or series of stock of the Corporation
shall be determined by or in accordance with the determination of the
Board of Directors, which is authorized to determine the methods to be
used to value the assets of a class or series, the amount and
allocation of liabilities of the Corporation to each class or series,
and all other matters in connection therewith.
(f) Quorum. The presence in person or by proxy at a meeting of the
stockholders of the holders of one-third of the shares of stock of the
Corporation entitled to vote thereat shall constitute a quorum at any
meeting of the stockholders. If at any meeting of the stockholders
there shall be less than a quorum present, the stockholders present at
such meeting may, without further notice, adjourn the same from time to
time until a quorum shall be present.
(g) Class B Shares. Except as set forth below, the preferences,
conversion and other rights, voting powers, restrictions, limitations
as to dividends, qualifications, and terms and conditions of redemption
of the Class B Shares of Common Stock are those set forth in this
ARTICLE V, and in the provisions relating to stock of the Corporation
generally. In addition, all such Class B Shares shall have the
following preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms
and conditions of redemption:
(1) Subject to the provisions of paragraph (3) below, all
Class B Shares other than those purchased through the
reinvestment of dividends and distributions shall
automatically convert to Class A Shares eight (8) years after
the end of the calendar month in which a shareholder's order
to purchase such shares was accepted.
6
<PAGE>
(2) Subject to the provisions of paragraph (3) below, Class B
Shares purchased through the reinvestment of dividends and
distributions paid in respect of Class B Shares will be
considered held in a separate sub-account, and will
automatically convert to Class A Shares in the same proportion
as any Class B Shares (other than those in the sub-account)
convert to Class A Shares. Other than this conversion feature,
the Class B Shares purchased through the reinvestment of
dividends and distributions paid in respect of Class B Shares
hall have all the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of Class
B Shares generally.
(3) If a series of the Corporation implements any amendment to
a Rule 12b-1 Plan (or, if presented to shareholders, adopts or
implements a non-Rule 12b-1 shareholder services plan) that
the Board of Directors determines would materially increase
the charges that may be borne by the holders of Class A Shares
under such plan, the Class B Shares will stop converting to
the Class A Shares unless the Class B Shares, voting
separately, approve the amendment or adoption. The Board of
Directors shall have sole discretion in determining whether
such amendment or adoption is submitted to a vote of the
holders of Class B Shares. Should such amendment or adoption
not be submitted to a vote of the holders of Class B shares
or, if submitted, should the holders of Class B Shares fail to
approve such amendment or adoption, the Board of Directors
shall take such action as is necessary to: (A) create a new
class (the "New Class A Shares") which shall be identical in
all material respects to the Class A Shares as they existed
prior to the implementation of the amendment or adoptions; and
(B) ensure that the existing Class B Shares will be exchanged
or converted into New Class A Shares no later than the date
such Class B Shares were scheduled to convert to Class A
Shares. If deemed advisable by the Board of Directors to
implement the foregoing, and at the sole discretion of the
Board of Directors, such action may include the exchange or
conversion of all Class B Shares for or into a new class (the
"New Class B Shares"), identical in all respects to the Class
B Shares except that the New Class B Shares will automatically
convert into the New Class A Shares. Such exchanges or
conversions shall be effected in a manner that the Board of
Directors reasonably believes will not be subject to federal
taxation.
5.5 Authorizing Vote. Notwithstanding any provision of the General Laws of the
State of Maryland requiring for any purpose a proportion greater than a majority
of the votes of the shares of the Corporation, the affirmative vote of the
holders of a majority of the total number of shares of the Corporation,
outstanding and entitled to vote under such circumstances pursuant to these
Articles of Incorporation and the By-Laws of the Corporation shall be effective
for such purpose; provided that, to the extent consistent with the General Laws
of the State of Maryland and other applicable law, the By-Laws may provide for
7
<PAGE>
authorization to be by the vote of a proportion less than a majority of the
votes of the Corporation.
5.6 Preemptive Rights. No stockholder of the Corporation shall be entitled as of
right to subscribe for, purchase, or otherwise acquire any shares or any other
securities of the Corporation which the Corporation proposes to issue or sell;
and any or all of such shares or securities of the Corporation, whether now or
hereafter authorized or created, may be issued, or may be reissued or
transferred if the same have been reacquired, and sold to such persons, firms,
corporations and associations, and for such lawful consideration, and on such
terms as the Board of Directors in its discretion may determine, without first
offering the same, or any thereof, to any said stockholder.
5.7 Redemption.
(a) The Board of Directors shall authorize the Corporation, to the
extent it has funds or other property legally available therefor and
subject to such reasonable conditions as the directors may determine,
to permit each holder of shares of capital stock of the Corporation to
require the Corporation to redeem all or any part of the shares
standing in the name of such holder on the books of the Corporation, at
the applicable redemption price of such shares (which may reflect such
fees and charges as the Board of Directors may establish from time to
time) determined in accordance with procedures established by the Board
of Directors of the Corporation from time to time in accordance with
applicable law.
(b) Without limiting the generality of the foregoing, the Board of
Directors may authorize the Corporation, at its option and to the
extent permitted by and in accordance with the conditions of applicable
law, to redeem stock of the Corporation owned by any stockholder under
circumstances deemed appropriate by the Board of Directors in its sole
discretion from time to time, such circumstances including but not
limited to (1) failure to provide the Corporation with a tax
identification number, (2) failure to maintain ownership of a specified
minimum number or value of shares of any class or series of stock of
the Corporation, and (3) failure to maintain the characteristics or
qualifications established by the Board of Directors for a particular
class or series, such redemption to be effected at such price, at such
time and subject to such conditions as may be required or permitted by
applicable law.
(c) Payment for redeemed stock shall be made in cash unless, in the
opinion of the Board of Directors, which shall be conclusive,
conditions exist which make it advisable for the Corporation to make
payment wholly or partially in securities or other property or assets
of the Corporation. Payment made wholly or partially in securities or
other property or assets may be delayed to such reasonable extent, not
inconsistent with applicable law, as is reasonably necessary under the
circumstances.
8
<PAGE>
No stockholder shall have the right, except as determined by the Board
of Directors, to have his shares redeemed in such securities, property
or other assets.
(d) All rights of a stockholder with respect to a share redeemed,
including the right to receive dividends and distributions with respect
to such share, shall cease and determine as of the time as of which the
redemption price to be paid for such shares shall be fixed, in
accordance with applicable law, except the right of such stockholder to
receive payment for such shares as provided herein.
(e) Notwithstanding any other provision of this Article 5.7, the Board
of Directors may suspend the right of stockholders to require the
Corporation to redeem shares held by them for such periods and to the
extent permitted by, or in accordance with, the 1940 Act. The Board of
Directors may, in the absence of a ruling by a responsible regulatory
official, terminate such suspension at such time as the Board of
Directors, in its discretion, shall deem reasonable, such determination
to be conclusive.
(f) Shares which have been redeemed shall constitute authorized but
unissued shares of such class and series redeemed.
5.8 Repurchase of Shares. The Board of Directors may by resolution from time to
time authorize the Corporation to purchase or otherwise acquire, directly or
through an agent, shares of its outstanding stock upon such terms and conditions
and for such consideration as permitted by applicable law and determined to be
reasonable by the Board of Directors and to take all other steps deemed
necessary in connection therewith. Shares so purchased or acquired shall have
the status of authorized but unissued shares of such class and series acquired.
5.9 Valuation. Subject to the requirements of applicable law, the Board of
Directors may, in its absolute discretion, establish the basis or method, timing
and frequency for determining the value of assets belonging to the Corporation
and for determining the net asset value of shares of the Corporation for
purposes of sales, redemptions, repurchases or otherwise. Without limiting the
foregoing, the Board of Directors may determine that the net asset value per
share should be maintained at a designated constant value and may establish
procedures, not inconsistent with applicable law, to accomplish that result.
Such procedures may include a requirement, in the event of a net loss with
respect to shares of the Corporation from time to time, for automatic pro rata
capital contributions from each stockholder in amounts sufficient to maintain
the designated constant share value.
5.10 Certificates. Subject to the requirements of the Maryland General
Corporation Law, the Board of Directors may authorize the issuance of some or
all of the shares without certificates and may establish such conditions as it
may determine in connection with the
9
<PAGE>
issuance of certificates. The Corporation is not obligated to issue stock
certificates evidencing fractional shares.
5.11 Shares Subject to Articles and By-Laws. All persons who shall acquire
shares of capital stock in the Corporation shall acquire the same subject to the
provisions of these Articles of Incorporation and the By-Laws of the
Corporation, as each may be amended, supplemented and/or restated from time to
time.
ARTICLE VI
BOARD OF DIRECTORS
6.1 Number of Directors. Prior to the issuance of stock, the number of directors
of the Corporation may be one (1) and after the issuance of stock shall be as
provided in the By Laws, provided that the By-Laws may, subject to the
limitations of the Maryland General Corporation Law, fix a different number of
directors and may authorize a majority of the directors to increase or decrease
the number of directors set by these Articles or the By-Laws within limits set
by the By-Laws and to fill vacancies created by an increase in the number of
directors. Unless otherwise provided by the By-Laws, the directors of the
Corporation need not be stockholders of the Corporation. The name of the initial
director who will serve until his successor is designated and qualified is:
Harold J. Baxter
6.2 Removal of Directors. Subject to the limits of the 1940 Act and unless
otherwise provided by the By-Laws, a director may be removed, with or without
cause, by the affirmative vote of a majority of (a) the Board of Directors, (b)
a committee of the Board of Directors appointed for such purpose, or (c) the
stockholders by vote of a majority of the outstanding shares of the Corporation.
6.3 Liability of Directors and Officers.
(a) To the fullest extent permitted by the Maryland General Corporation
Law and the 1940 Act, no director or officer of the Corporation shall
be liable to the Corporation or to its stockholders for money damages.
No amendment to these Articles of Incorporation or repeal of any of its
provisions shall limit or eliminate the benefits provided to directors
and officers under this provision with respect to any act or omission
which occurred prior to such amendment or repeal.
(b) In performance of its duties, a director is entitled to rely on any
information, opinion, report, or statement, including any financial
statement or other financial data, prepared by others, to the extent
not inconsistent with the General Laws of the State of Maryland. A
person who performs his duties in accordance with the standards of
10
<PAGE>
Article 2-405.1 of the Maryland General Corporation Law or otherwise in
accordance with applicable law shall have no liability by reason of
being or having been a director of the Corporation.
6.4 Powers of Directors. In addition to any powers conferred herein or in the
By-Laws, the Board of Directors may, subject to any express limitations
contained in these Articles of Incorporation or in the By-Laws, exercise the
full extent of powers conferred by the General Laws of the State of Maryland or
other applicable law upon corporations or directors thereof and the enumeration
and definition of particular powers herein or in the By-Laws shall in no way be
deemed to restrict or otherwise limit those lawfully conferred powers. In
furtherance and without limitation of the foregoing, the Board of Directors
shall have power:
(a) to make, alter, amend or repeal from time to time the By-Laws of
the Corporation except as otherwise provided by the By-Laws;
(b) subject to requirements of the 1940 Act and the General Laws of the
State of Maryland, to authorize the Corporation to enter into contracts
with any person, including any firm, corporation, trust or association
in which a director, officer, employee or stockholder of the
Corporation may be interested. Such contracts may be for any lawful
purpose, whether or not such purpose involves delegating functions
nominally performed by the board of directors or officers of a
corporation, including, but not limited to, the provision of investment
management for the Corporation's investment portfolio, the distribution
of securities issued by the Corporation, the administration of the
Corporation's affairs, the provision of transfer agent services with
respect to the Corporation's shares of capital stock, and the custody
of the Corporation's assets. Any person (including its affiliates) may
be retained in multiple capacities pursuant to one or more contracts
and may also perform services, including similar or identical services,
for others, including other investment companies. Subject to the
requirements of applicable law, such contracts may provide for
compensation to be paid by the Corporation in such amounts, including
payments of multiple amounts for persons (inducing their affiliates)
acting in multiple capacities, as the Board of Directors shall
determine in its discretion to be proper and reasonable.
(c) to authorize from time to time the payment of compensation to the
Directors for services to the Corporation, including fees for
attendance at the meetings of the Board of Directors and committees
thereof.
6.5 Determinations by Board of Directors. Any determination made by or pursuant
to the direction of the Board of Directors and in accordance with the standards
set by the General Laws of the State of Maryland shall be final and conclusive
and shall be binding upon the Corporation and upon all stockholders, past,
present and future, of the Corporation.
11
<PAGE>
6.6 Independent and Disinterested Directors. A director of the Corporation who
is not an interested person, as defined in the 1940 Act, shall be deemed to be
independent and disinterested for purposes of making any determination or taking
any action within the powers of the directors of the Corporation.
ARTICLE VII
PROVISIONS FOR DEFINING, LIMITING AND REGULATING THE POWERS
OF THE CORPORATION AND THE DIRECTORS AND STOCKHOLDERS
7.1 Location of Meetings, Offices and Books. Both directors and stockholders may
hold meetings within or without the State of Maryland and abroad, and the
Corporation may have one or more offices and may keep its books within or
without the State of Maryland and abroad at such places as the directors shall
determine.
7.2 Meetings of Stockholders. Except as otherwise provided in the By-Laws, in
accordance with applicable law, the Corporation shall not be required to hold an
annual meeting of stockholders in any year unless required by applicable law.
Election of directors, whether by the directors or by stockholders, need not be
by ballot unless the By-Laws so provide.
7.3 Inspection of Records. Stockholders of the Corporation shall have only such
rights to inspect and copy the records, documents, accounts and books of the
Corporation and to request statements regarding its affairs as are provided by
the Maryland General Corporation Law, subject to such reasonable regulations,
not contrary to the General Laws of the State of Maryland, as the Board of
Directors may from time to time adopt regarding the conditions and limits of
such rights.
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 1940 Act. 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
12
<PAGE>
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.
13
<PAGE>
7.5 Wholly-Owned Subsidiaries. The Corporation may own all or any portion of the
securities of, make loans to, or contribute to the costs or other financial
requirements of any company which is wholly owned by the Corporation or owned by
the Corporation and one or more other investment companies and is primarily
engaged in the business of providing, at cost, management, administrative or
related services to the Corporation or to the Corporation and other investment
companies.
7.6 Amendments. The Corporation reserves the right to amend, alter, change or
repeal any provision of these Articles of Incorporation, and all rights
conferred upon stockholders herein are granted subject to this reservation.
7.7 Reference to Statutes, Articles and By-Laws. All references herein to
statutes, to these Articles of Incorporation or to the By-Laws shall be deemed
to refer to those statutes, Articles or By-Laws as they are amended and in
effect from time to time.
IN WITNESS WHEREOF, the undersigned Incorporator of PBHG ADVISOR FUNDS, INC.
hereby executes the foregoing Articles of Incorporation and acknowledges the
same to be his act.
Dated this 8th day of January, 1998.
/s/ John M. Zerr
------------------------------
John M. Zerr, Incorporator
14
BY-LAWS
FOR
PBHG ADVISOR FUNDS, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the Corporation in
the State of Maryland shall be in the City of Baltimore.
Section 2. Other Offices. The Corporation may have such other offices
in such places as the Board of Directors may from time to time determine.
ARTICLE II
Meetings of Stockholders
Section 1. Annual Meeting. Subject to this Article II, an annual
meeting of stockholders for the election of Directors and the transaction of
such other business as may properly come before the meeting shall be held at
such time and place as the Board of Directors shall select. The Corporation
shall not be required to hold an annual meeting of its stockholders in any year
in which the election of Directors is not required to be acted upon under the
Investment Company Act of 1940.
<PAGE>
Section 2. Special Meetings. Special meetings of stockholders may be
called at any time by the President, the Secretary or by a majority of the Board
of Directors and shall be held at such time and place as may be stated in the
notice of the meeting.
Special meetings of the stockholders shall be called by the Secretary
upon receipt of written request of the holders of shares entitled to cast not
less than 10% of the votes entitled to be cast at such meeting, provided that
(1) such request shall state the purposes of such meeting and the matters
proposed to be acted on, and (2) the stockholders requesting such meeting shall
have paid to the Corporation the reasonably estimated cost of preparing and
mailing the notice thereof, which the Secretary shall determine and specify to
such stockholders. No special meeting shall be called upon the request of
stockholders to consider any matter which is substantially the same as a matter
voted upon at any special meeting of the stockholders held during the preceding
12 months, unless requested by the holders of a majority of all shares entitled
to be voted at such meeting.
Section 3. Place of Meetings. Meetings of stockholders shall be held at
such place within the United States as the Board of Directors may from time to
time determine.
2
<PAGE>
Section 4. Notice of Meetings; Waiver of Notice. Notice of the place,
date and time of the holding of each stockholders' meeting and, if the meeting
is a special meeting, the purpose or purposes of the meeting, shall be given
personally or by mail, not less than ten nor more than ninety days before the
date of such meeting, to each stockholder entitled to vote at such meeting and
to each other stockholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting.
Section 5. Quorum Adjournment of Meetings. The presence at any
stockholders' meeting, in person or by proxy, of stockholders of one third of
the shares of the stock of the Corporation thereat shall be necessary and
sufficient to constitute a quorum for the transaction of business, except for
any matter which, under applicable statutes or regulatory requirements, requires
approval by a separate vote of one or more classes of stock, in which case the
presence in person or by
3
<PAGE>
proxy of stockholders of one third of the shares of stock of each class required
to vote as a class on the matter shall constitute a quorum. The holders of a
majority of shares entitled to vote at the meeting and present in person or by
proxy, whether or not sufficient to constitute a quorum, or, any officer present
entitled to preside or act as Secretary of such meeting may adjourn the meeting
without determining the date of the new meeting or from time to time without
further notice to a date not more than 120 days after the original record date.
Any business that might have been transacted at the meeting originally called
may be transacted at any such adjourned meeting at which a quorum is present.
Section 6. Organization. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Senior Vice President or a
Vice President, shall act as chairman of the meeting; provided, however, that if
no such officer is present or able to act, a chairman of the meeting shall be
elected at the meeting. The Secretary, or in his absence or inability to act,
any person appointed by the chairman of the meeting, shall act as secretary of
the meeting and keep the minutes thereof.
4
<PAGE>
Section 7. Order of Business. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute or the
Articles of Incorporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for each dollar (and each fractional dollar thereof) of
net asset value (number of shares owned times net asset value per share) of
shares of stock outstanding in such holder's name on the record of stockholders
of the Corporation as of the record date determined pursuant to Section 9 of
this Article or if such record date shall not have been so fixed, then at the
later of (i) the close of business on the day on which notice of the meeting is
mailed or (ii) the thirtieth day before the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by such
stockholder or his attorney-in-fact. A stockholder may duly authorize such
attorney-in-fact through written, electronic, telephonic, computerized,
facsimile, telecommunications, telex or oral communication or by any other form
of communication. No proxy shall be valid after the expiration of eleven months
from the date thereof, unless otherwise provided in the proxy. Every
5
<PAGE>
proxy shall be revocable at the pleasure of the stockholder executing it, except
in those cases where such proxy states that it is irrevocable and where an
irrevocable proxy is permitted by law. Except as otherwise provided by statute,
the Articles of Incorporation or these By-Laws, any corporate action to be taken
by vote of the stockholders shall be authorized by a majority of the total votes
validly cast at a meeting of stockholders at which a quorum is present.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
Section 9. Fixing of Record Date. The Board of Directors may fix a time
not less than 10 nor more than 90 days prior to the date of any meeting of
stockholders or prior to the last day on which the consent or dissent of
stockholders may be effectively expressed for any purpose without a meeting, as
the time as of which stockholders entitled to notice of and to vote at such a
meeting or whose consent or dissent is required or may be expressed for any
purpose, as the case may be, shall be determined; and all persons who were
holders of record of voting
6
<PAGE>
stock at such time and no other shall be entitled to notice of and to vote at
such meeting or to express their consent or dissent, as the case may be. If no
record date has been fixed, the record date for the determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be the later of the close of business on the day on which notice of the meeting
is mailed or the thirtieth day before the meeting, or, if notice is waived by
all stockholders, at the close of business on the tenth day next preceding the
day on which the meeting is held. The Board of Directors may fix a record date
for determining stockholders entitled to receive payment of a dividend or an
allotment of any rights, but such date shall be not more than 90 days before the
date on which such payment or allotment is made. If no record date has been
fixed, the record date for determining stockholders entitled to receive
dividends or an allotment of rights shall be the close of business on the day on
which the resolution of the Board of Directors declaring the dividend or an
allotment of rights is adopted, but the payment or allotment shall not be made
more than 60 days after the date on which the resolution is adopted.
Section 10. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or the Articles of Incorporation, any action
required to be taken at any meeting of stockholders, or any action which may be
taken at any meeting of such stockholders, may be taken without a meeting,
without
7
<PAGE>
prior notice and without a vote, if the following are filed with the records of
stockholders meetings: (i) a unanimous written consent which sets forth the
action and is signed by each stockholder entitled to vote on the matter and (ii)
a written waiver of any right to dissent signed by each stockholder entitled to
notice of the meeting but not entitled to vote thereat.
ARTICLE III
Board of Directors
Section 1. General Powers. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors and all powers of
the Corporation may be exercised by or under authority of the Board of
Directors.
Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the Directors then in office; provided, however, that the number of Directors
shall in no event be less than three (3) nor more than fifteen (15) except that
the Corporation shall have at least one (1) Director if there is no stock
outstanding, and, if there is stock outstanding and so long as there are less
than three stockholders, the number of Directors may be less than three (3) but
not less than the number of stockholders. Any vacancy created by an increase in
8
<PAGE>
Directors may be filled in accordance with Section 6 of this Article III. No
reduction in the number of Directors shall have the effect of removing any
Director from office prior to the expiration of his term unless such Director is
specifically removed pursuant to Section 5 of this Article III at the time of
such decrease. Directors need not be stockholders.
Section 3. Election and Term of Directors. Directors shall be elected
annually, by written ballot at the annual meeting of stockholders or a special
meeting held for that purpose; provided, however, that if no annual meeting of
the stockholders of the Corporation is required to be held in a particular year
pursuant to Section 1 of Article II of these By-Laws, Directors shall be elected
at the next annual meeting held. The term of office of each Director shall be
elected at the next annual meeting held. The term of office of each Director
shall be from time to time of his election and qualification until the election
of Directors next succeeding his election and until his successor shall have
been elected and shall have qualified.
Section 4. Resignation. A Director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it
9
<PAGE>
shall become effective shall not be specified therein, immediately upon its
receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5. Removal of Directors. Any Director of the Corporation may be
removed in accordance with the Articles of Incorporation.
Section 6. Vacancies. If any vacancies shall occur in the Board of
Directors (i) by reason of death, resignation, removal or otherwise, the
remaining Directors shall continue to act, and such vacancies (if not previously
filled by the stockholders) may be filled by a majority of the remaining
Directors, although less than a quorum, and (ii) by reason of an increase in the
authorized number of Directors, such vacancies (if not previously filled by the
stockholders) may be filled only by a majority vote of the entire Board of
Directors.
Section 7. Place of Meeting. The Directors may hold their meetings,
have one or more offices, and keep the books of the Corporation, outside the
State of Maryland, and within or without the United States of America, at any
office or offices of the Corporation or at any other place as they may from time
to time by resolution determine, or in the case of meetings, as they may from
time to time by resolution determine or as shall be
10
<PAGE>
specified or fixed in the respective notices or waivers of notice thereof.
Section 8. Regular Meetings. The Board of Directors from time to time
may provide by resolution for the holding of regular meetings and fix their time
and place as the Board of Directors may determine. Notice of such regular
meetings need not be in writing, provided that notice of any change in the time
or place or such fixed regular meetings shall be communicated promptly to each
Director not present at the meeting at which such change was made in the manner
provided in Section 9 of this Article III for notice of special meetings.
Members of the Board of Directors or any committee designated thereby may
participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting.
Section 9. Special Meetings. Special meetings of the Board of Directors
may be held at any time or place and for any purpose when called by the Chairman
of the Board, the President, the Secretary or two or more of the Directors.
Notice of special meetings, stating the time and place, shall be communicated to
each Director personally by telephone or
11
<PAGE>
transmitted to him by telegraph, telefax, telex, cable or wireless at least one
day before the meeting.
Section 10. Waiver of Notice. No notice of any meeting of the Board of
Directors or a committee of the Board need be given to any Director who is
present at the meeting or who waives notice of such meeting in writing (which
waiver shall be filed with the records of such meeting), either before or after
the time of the meeting.
Section 11. Quorum and Voting. At all meetings of the Board of
Directors, the presence of one third of the entire Board of Directors shall
constitute a quorum unless there are only two or three Directors, in which case
two Directors shall constitute a quorum. If there is only one Director, the sole
Director shall constitute a quorum. At any adjourned meeting at which a quorum
is present, any business may be transacted which might have been transacted at
the meeting as originally called.
Section 12. Organization. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President, or, in his absence
or inability to act, another Director chosen by a majority of the Directors
present, shall act as chairman of the meeting and
12
<PAGE>
preside thereat. The Secretary (or, in his absence or inability to act, any
person appointed by the Chairman) shall act as secretary of the meeting and keep
the minutes thereof.
Section 13. Written Consent of Directors in Lieu of a Meeting. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee.
Section 14. Compensation. Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board.
ARTICLE IV
Committees
Section 1. Organization. By resolution adopted by the Board of
Directors, the board may designate one or more committees, including an
Executive Committee, composed of two or more Directors. The Chairmen of such
committees shall be elected by the Board of Directors. The Board of Directors
shall have the power at any time to change the members of such committees and to
13
<PAGE>
fill vacancies in the committees. The Board may delegate to these committees any
of its powers, except the power to authorize the issuance of stock, declare a
dividend or distribution on stock, recommend to stockholders any action
requiring stockholder approval, amend these By-Laws, or approve any merger or
share exchange which does not require stockholder approval. If the Board of
Directors has given general authorization for the issuance of stock, a committee
of the Board, in accordance with a general formula or method specified by the
Board by resolution or by adoption of a stock option or other plan, may fix the
terms of stock subject to classification or reclassification and the terms on
which any stock may be issued, including all terms and conditions required or
permitted to be established or authorized by the Board of Directors.
Section 2. Proceedings and Quorum. In the absence of an appropriate
resolution of the Board of Directors, each committee may adopt such rules and
regulations governing its proceedings, quorum and manner of acting as it shall
deem proper and desirable. In the event any member of any committee is absent
from any meeting, the members thereof present at the meeting, whether or not
they constitute a quorum, may appoint a member of the Board of Directors to act
in the place of such absent member.
14
<PAGE>
ARTICLE V
Officers, Agents and Employees
Section 1. General. The officers of the Corporation shall be a
President, a Secretary and a Treasurer, and may include one or more Executive
Vice Presidents, Senior Vice Presidents, Vice Presidents, or Assistant
Treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 8 of this Article V.
Section 2. Election Tenure and Qualifications. The officers of the
Corporation, except those appointed as provided in Section 8 of this Article V,
shall be elected by the Board of Directors at its first meeting and thereafter
annually at an annual meeting. If any officers are not chosen at any annual
meeting, such officers may be chosen at any subsequent regular or special
meeting of the Board. Except as otherwise provided in this Article V, each
officer chosen by the Board of Directors shall hold office until the next annual
meeting of the Board of Directors and until his successor shall have been
elected and qualified. Any person may hold one or more offices of the
Corporation except the offices of President and Vice President.
Section 3. Removal and Resignation. Whenever in the judgment of the
Board of Directors the best interest of the Corporation will be served thereby,
any officer may be removed
15
<PAGE>
from office by the vote of a majority of the members of the Board of Directors
at any regular meeting or at a special meeting called for such purpose. Any
officer may resign his office at any time by delivering a written resignation to
the Board of Directors, the President, the Secretary, or any Assistant
Secretary. Unless otherwise specified therein, such resignation shall take
effect upon delivery.
Section 4. President. The President shall be the chief executive
officer of the Corporation. Subject to the supervision of the Board of
Directors, he shall have general charge of the business, affairs and property of
the Corporation and general supervision over its officers, employees and agents.
Except as the Board of Directors may otherwise order, he may sign in the name
and on behalf of the Corporation all deeds, bonds, contracts, or agreements. He
shall exercise such other powers and perform such other duties as from time to
time may be assigned to him by the Board of Directors.
Section 5. Executive Vice President, Senior Vice President and Vice
President. The Board of Directors may from time to time elect one or more
Executive Vice Presidents who shall have such powers and perform such duties as
from time to time may be assigned to them by the Board of Directors or the
President. At the request or in the absence or disability of the President, the
Executive Vice President (or, if there are two or
16
<PAGE>
more Executive Vice Presidents, then the more senior of such officers present
and able to act) may perform all the duties of the President and, when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. Any Senior Vice President and Vice President may perform such
duties as the Board of Directors may assign.
Section 6. Treasurer and Assistant Treasurer. The Treasurer shall be
the principal financial and accounting officer of the Corporation and shall have
general charge of the finances and books of account of the Corporation. Except
as otherwise provided by the Board of Directors, he shall have general
supervision of the funds and property of the Corporation and of the performance
by the Custodian of its duties with respect thereto. He shall render to the
Board of Directors, whenever directed by the Board, an account of the financial
condition of the Corporation and of all his transactions as Treasurer. He shall
perform all acts incidental to the Office of Treasurer, subject to the control
of the Board of Directors.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Treasurer or the Board of Directors may assign, and, in the absence of the
Treasurer, the Assistant Treasurer (or if there are two or more Assistant
Treasurers, then the more senior of such officers present and able to act) may
perform all of the duties of the Treasurer.
17
<PAGE>
Section 7. Secretary and Assistant Secretaries. The Secretary shall
attend to the giving and serving of all notices of the Corporation and shall
record all proceedings of the meetings of the stockholders and Directors in
books to be kept for that purpose. He shall keep in safe custody the seal of the
Corporation, and shall have charge of the records of the Corporation, including
such books and papers as the Board of Directors may direct and such books,
reports, certificates and other documents required by law to be kept, all of
which shall at all reasonable times be open to inspection by any Director. He
shall perform such other duties as appertain to his office or as may be required
by the Board of Directors.
Any Assistant Secretary may perform such duties of the Secretary as the
Secretary of the Board of Directors may assign, and, in the absence of the
Secretary, he may perform all the duties of the Secretary.
Section 8. Subordinate Officers. The Board of Directors from time to
time may appoint such other officers or agents as it may deem advisable, each of
whom shall have such title, hold office for such period, have such authority and
perform such duties as the Board of Directors may determine. The Board of
Directors from time to time may delegate to one or more officers or agents the
power to appoint any such subordinate
18
<PAGE>
officers or agents and to prescribe their rights, terms of office, authorities
and duties.
Section 9. Remuneration. The salaries or other compensation, if any, of
the officers of the Corporation shall be fixed from time to time by resolution
of the Board of Directors, except that the Board of Directors may by resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any subordinate officers or agents appointed in accordance
with the provisions of Section 8 of this Article V.
Section 10. Surety Bonds. The Board of Directors may require any
officer or agent of the Corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940, as amended,
and the rules and regulations of the Securities and Exchange Commission) to the
Corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his duties
to the Corporation, including responsibility for negligence and for the
accounting of any of the Corporation's property, funds or securities that may
come into his hands.
19
<PAGE>
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 or such further indemnification arrangements as may be permitted
by law.
ARTICLE VII
Capital Stock
Section 1. Stock Certificates. The interest of each stockholder of the
Corporation may be evidenced by certificates for shares of stock in such form as
the Board of
20
<PAGE>
Directors may from time to time prescribe. The certificates representing shares
of stock shall be signed by or in the name of the Corporation by the President,
an Executive Vice President or a Vice President and countersigned by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer.
Certificates may be sealed with the actual corporate seal or a facsimile of it
or in any other form. Any or all of the signatures or the seal on the
certificate may be manual or a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were still
in office at the date of issue unless written instructions of the Corporation to
the contrary are delivered to such officer, transfer agent or registrar.
Section 2. Stock Ledgers. The stock ledgers of the Corporation,
containing the names and addresses of the stockholders and the number of shares
held by them respectively, shall be kept at the principal offices of the
Corporation or, if the Corporation employs a transfer agent, at the office of
the transfer agent of the Corporation.
21
<PAGE>
Section 3. Transfer of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and on surrender of the certificate or certificates, if issued,
for such shares properly endorsed or accompanied by proper evidence or
succession, assignment or authority to transfer, with such proof of the
authenticity of the signature as the Corporation or its agents may reasonably
require and the payment of all taxes thereon. Except as otherwise provided by
law, the Corporation shall be entitled to recognize the exclusive right of a
person in whose name any share or shares stand on the record of stockholders as
the owner of such share or shares for all purposes, including, without
limitation, the rights to receive dividends or other distributions, and to vote
as such owner, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in any such share or shares on the part of any
other person. The Board may make such additional rules and regulations, not
inconsistent with these By-Laws, as it may deem expedient concerning the issue,
transfer and registration of certificates for shares of stock of the
Corporation.
Section 4. Transfer Agents and Registrars. The Board of Directors may
from time to time appoint or remove
22
<PAGE>
transfer agents and/or registrars of transfers of shares of stock of the
Corporation, and it may appoint the same person as both transfer agent and
registrar. Upon any such appointment being made all certificates representing
shares of capital stock thereafter issued shall be countersigned by one of such
transfer agents or by one of such registrars of transfers or by both and shall
not be valid unless so countersigned. If the same person shall be both transfer
agent and registrar, only one countersignature by such person shall be required.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificates representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost or destroyed or which shall have been mutilated, and
the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding,
23
<PAGE>
the Board, in its absolute discretion, may refuse to issue any such new
certificate, except pursuant to legal proceedings under the laws of the State of
Maryland.
ARTICLE VIII
Seal
The seal of the Corporation shall be circular in form and shall bear,
in addition to any other emblem or device approved by the Board of Directors,
the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Maryland". The form of the seal may be altered by the
Board of Directors. Said seal may be used by causing it or a facsimile thereof
to be impressed or affixed or in any other manner reproduced. Any Officer or
Director of the Corporation shall have the authority to affix the corporate seal
of the Corporation to any document requiring the same.
ARTICLE IX
Fiscal Year
The fiscal year of the Company shall be determined by resolution of the
Board of Directors.
24
<PAGE>
ARTICLE X
Depositories and Custodian
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
deposited in the safe keeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safe keeping of the
securities and investments of the Corporation shall contain provisions complying
with the Investment Company Act of 1940, as amended, and the general rules and
regulations thereunder.
ARTICLE XI
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate or as these
By-Laws provide.
25
<PAGE>
Section 2. Sale or Transfer of Securities. Stock certificates, bonds or
other securities at any time owned by the Corporation may be held on behalf of
the Corporation or so transferred or otherwise disposed of subject to any limits
imposed by these By-Laws and pursuant to authorization by the Board and, when so
authorized to be held on behalf of the Corporation or sold, transferred or
otherwise disposed of, may be transferred from the name of the Corporation by
the signature of the President, any Executive Vice President, any Vice President
or the Treasurer or pursuant to any procedure approved by the Board of
Directors, subject to applicable law.
ARTICLE XII
Independent Public Accountants
The Corporation shall employ an independent public-accountant or a firm
of independent public accountants as its accountants to examine the accounts of
the Corporation and to sign and certify financial statements filed by the
Corporation.
ARTICLE XIII
Amendments
These By-Laws or any of them may be amended, altered or repealed at any
regular meeting of the stockholders or at any special meeting of the
stockholders at which a quorum is present
26
<PAGE>
or represented, provided that notice of the proposed amendment, alteration or
repeal be contained in the notice of such special meeting. These By-Laws may
also be amended, altered or repealed by the affirmative vote of a majority of
the Board of Directors at any regular or special meeting of the Board of
Directors, except any particular By-Law which is specified as not subject to
alteration or repeal by the Board of Directors, subject to the requirements of
the Investment Company Act of 1940, as amended.
27
[LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL]
January 13, 1998
PBHG Advisor Funds, Inc.
825 Duportail Road
Wayne, PA 19087
Re: PBHG Advisor Funds, Inc.
Registration Statement on Form N1-A
------------------------------------
Gentlemen:
We understand that PBHG Advisor Funds, Inc. (the "Company"), a
corporation organized under the laws of the State of Maryland, is registering
its shares of common stock with the Securities and Exchange Commission under the
Securities Act of 1933 (the "1933 Act"), and is also registering under the
Investment Company Act of 1940 ("1940 Act") as an open-end series management
investment company. We have acted as counsel to the Company in connection with
such registration.
This opinion is given in connection with the filing by the Company of
its Registration Statement on Form N-1A ("Registration Statement") under the
1933 Act and under the 1940 Act relating to the registration of an indefinite
number of Class A, Class B and Class I shares of common stock, par value $.001
per share (the "Shares"), representing interests in the PBHG Advisor Core Value
Fund, PBHG Advisor Value Opportunities Fund, PBHG Advisor New Contrarian Fund,
PBHG Advisor REIT 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 Blue Chip Growth Fund, PBHG
Advisor Growth Opportunities Fund, PBHG Advisor Enhanced Equity Fund, PBHG
Advisor Trend Fund, PBHG Advisor Master Fixed Income Fund, PBHG Advisor High
Yield Fund, and PBHG Advisor Cash Reserves Fund, each a series portfolio of the
Company.
<PAGE>
PBHG Advisor Funds, Inc.
January 13, 1997
Page 2
In connection with our giving this opinion, we have examined a copy of
the Charter of the Company, and originals or copies, certified or otherwise
identified to our satisfaction, of such other documents, corporate records and
other instruments as we have deemed necessary or advisable for purposes of this
opinion. We have also examined the prospectus included in the Registration
Statement substantially in the form in which it is to become effective (the
"Prospectus"). As to various questions of fact material to our opinion, we have
relied upon information provided by officers of the Company.
Based on the foregoing, we are of the opinion that the Shares to be
offered for sale pursuant to the Prospectus are, to the extent of the number of
Shares authorized to be issued by the Company in its Charter, duly authorized
and, when sold, issued and paid for as described in the Prospectus, will have
been legally issued, fully paid and non-assessable.
We express no opinion concerning the laws of any jurisdiction other
than the federal law of the United States of America, and the State of Maryland.
This opinion may be relied upon by you only in connection with
the filing of the Registration Statement and may not be used or relied upon by
you or any other person without in each instance our prior written consent.
This opinion is limited to the matters expressly stated herein. No
implied opinion may be inferred to extend this opinion beyond the matters
expressly stated herein. We do not undertake to advise you or anyone else of any
changes in the opinions expressed herein resulting from changes in law, changes
in facts or any other matters that hereafter might occur or be brought to our
attention.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to our firm under the caption
"General Information - Counsel and Independent Accountants" in the Prospectus
included in the Registration Statement.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll
---------------------------------------
