PBHG ADVISOR FUNDS, INC.
PBHG
[GRAPHIC OF PILLAR OMITTED]
ANNUAL REPORT
DECEMBER 31, 1998
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PBHG ADVISOR FUNDS, INC.
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PBHG Advisor New Opportunities Fund
PBHG Advisor Core Value Fund
1
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PBHG ADVISOR FUNDS, INC.
TABLE OF CONTENTS
Management Discussion and Analysis
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PBHG Advisor New Opportunities Fund 3
PBHG Advisor Core Value Fund 5
Report of Independent Accountants 7
Schedules of Investments 8
Statements of Asset and Liabilities 13
Statements of Operations 14
Statements of Changes in Net Assets 15
Financial Highlights 16
Notes to Financial Statements 17
2
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PBHG ADVISOR FUNDS, INC.
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PBHG ADVISOR NEW OPPORTUNITIES FUND
Portfolio Profile
OBJECTIVE: The PBHG Advisor New Opportunities Fund, a diversified portfolio,
seeks long-term capital appreciation.
INVESTS IN: Primarily equity securities of companies in sectors of the economy
which Pilgrim Baxter & Associates, Ltd. believes possess above average long-term
growth potential.
STRATEGY: The 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.
Performance
For the period from June 30, 1998 (commencement of operations) to December 31,
1998, the Fund returned 38.20% (30.25% after payment of the maximum front-end
sales charge). This compares quite favorably with the Fund's benchmark, the
Russell 2000 Growth Index, which returned -3.99% during the same period. Most of
the outperformance was generated in the fourth quarter when the Fund benefited
greatly from its heavy weighting in the technology sector, specifically stocks
of Internet and Internet-related companies.
The six-month period ended December 31, 1998 was an extremely volatile time for
the world's equity markets. In particular, in the fourth quarter, the world
witnessed wide swings in major market averages and investor sentiment. Early in
the quarter, investors saw a large drop in stock prices in response to perceived
international economic crisis, political turmoil and concerns over the fate of
financial institutions, notably hedge funds. The sell off didn't last long,
however, as investors became very bullish in response to the Federal Reserve's
announcement of an interest rate cut in response to those events.
Heading into year-end, the portfolio was positioned in the sectors and companies
that we felt provided excellent growth opportunities. On December 30, 1998, the
Fund received a significant cash inflow that more than doubled the Fund's assets
from $4.4 million to $9.6 million. Although we were unable to fully deploy all
of the new cash by year-end, we reacted quickly and put much of that cash to
work within the constraints of maintaining a diversified portfolio. Since
year-end we have purchased additional stocks for the portfolio and are fully
invested.
We thank you for your confidence in Pilgrim Baxter & Associates, Ltd. and the
PBHG Advisor New Opportunities Fund.
3
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PBHG ADVISOR FUNDS, INC.
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COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG ADVISOR
NEW OPPORTUNITIES FUND, VERSUS THE RUSSELL 2000 GROWTH INDEX AND THE LIPPER
CAPITAL APPRECIATION FUNDS AVERAGE.
[GRAPH OMITTED]
In the printed version there is a line graph
with the following plot points depicted:
PBHG RUSSELL LIPPER CAPITAL
ADVISOR NEW 2000 GROWTH APPRECIATION FUNDS
OPPORTUNITIES FUND INDEX(3) AVERAGE(4)
6/30/98 $9,425 $10,000 $10,000
7/98 9,020 9,165 9,688
8/98 7,116 7,050 8,072
11/98 8,727 7,765 8,616
10/98 9,067 8,170 9,049
11/98 10,763 8,804 9,654
12/98 13,026 9,601 10,542
Effective October 26, 1998 and until further notice, Class A shares of the PBHG
Advisor New Opportunities Fund will be sold without an initial sales charge. The
chart above assumes the deduction of a 5.75% sales charge from the $10,000
initial investment in the PBHG Advisor New Opportunities Fund made on June 30,
1998. A $10,000 investment in the Fund would have grown to $13,820 without the
deduction of the 5.75% sales charge.
1 Performance is historical and not indicative of future results. The
investment return and principal value of an investment will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than their
original cost.
2 The PBHG Advisor New Opportunities Fund commenced operations on June 30,
1998.
3 The Russell 2000 Growth Index is an unmanaged index comprised of those
securities in the Russell 2000 Index with a greater-than-average growth
orientation. The Index reflects the reinvestment of income dividends and
capital gains distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
4 The Lipper Capital Appreciation Funds Average is an equally weighted
benchmark composed of mutual funds, with the investment objective of maximum
capital appreciation. The performance figures are based on changes in net
asset value of the funds in the category with all capital gains
distributions and income dividends reinvested.
5 Class A shares of the PBHG Advisor Fund bear a maximum front-end sales
charge of 5.75% of the amount invested.
Average Annual Total Return (1)
As of December 31, 1998
Cumulative
Inception
to Date (2)
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PBHG Advisor New Opportunities Fund 30.25%
Without payment of a sales charge 38.20%5
Sector Weightings at December 31, 1998
[PIE CHART OMITTED]
In the printed version there is a pie chart
with the following plot points depicted:
CONSUMER (1%)
HEALTH (9%)
SERVICE (7%)
TECHNOLOGY (38%)
CASH EQUIVALENT (45%)
4
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PBHG ADVISOR FUNDS, INC.
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PBHG ADVISOR CORE VALUE FUND
Portfolio Profile
OBJECTIVE: 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.
INVESTS IN: The Fund intends to invest a majority of its assets in equity
securities of undervalued issuers. The use of a valuation approach may result in
investment selections that may be out of favor or counter to those of other
investors. The Fund may invest in securities of companies that are considered to
be financially sound and attractive 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.
STRATEGY: We take a unique approach to value investing. When screening the
universe of stocks, we disregard the 25% most expensive stocks (as most value
investors would), but we also disregard the 25% of the universe that have the
poorest business fundamentals, regardless of valuation. Thus, while most value
investors love the cheapest stocks, we will only buy cheap stocks that have good
profit prospects. Using this unique approach, we attempt to balance a potential
investment's valuation against its growth prospects.
Our goal is to achieve market beating returns on as consistent a basis as
possible. Our process reflects this goal by focusing our efforts on the most
promising investment candidates within each sector, industry and capitalization
range. Our process relies heavily on both quantitative and fundamental research
to aid in the purchase and sale of investment candidates. In building the
portfolio, we attempt to balance a company's long-term growth potential and
near-term business results with the valuation it commands in the market place.
The Fund is typically fully invested across a diversified portfolio of
companies. In addition, we strive to have an aggregate P/E ratio below the
Fund's benchmark, the S&P 500 Index, as well as significantly stronger current
business trends and comparable long-term growth trends to those of the Index.
Performance
For the quarter ended December 31, 1998, the PBHG Advisor Core Value Fund
returned 28.85% without a sales charge (21.42% taking into account the impact of
the sales charge), compared to its benchmark, the S&P 500 Index, which returned
21.30%. Since inception on June 30, 1998, the Fund has returned 17.90% without a
sales charge (11.12% taking into account the impact of the sales charge),
compared to 9.26% for the S&P 500 Index.
The Fed easing sparked a sharp rally in the fourth quarter. Federal Reserve
easings have historically been a strong positive influence on stock market
returns, and there is no reason to expect this cycle to depart from past norms.
While the Fed lowered rates three times last fall, the cumulative reduction only
amounted to 75 basis points. As a result, the yield curve has not (yet) shifted
to a steep positive slope as we initially anticipated. Fortunately, with Fed
Funds at 4.75% and inflation currently running around 1%-2%, Alan Greenspan has
ample room to lower short rates further over the course of 1999. Although
current Federal Reserve pronouncements suggest that lower short-rates are
unlikely over the near-term, we are optimistic that ongoing global imbalances
such as Brazil's recent currency crisis will eventually prompt the Fed to ease
more assertively. Until then, however, we would expect the market to trade
sideways in volatile fashion.
Finally, no stock market commentary is complete today without a remark about the
Internet. In the past 20 years, we have watched a number of manias come and go
- -- most notably, video games, biotechnology, home shopping and physicians
practice management companies -- but we have never seen a boom on as large a
scale as the Internet craze. At its recent price of $130, Internet bookseller
Amazon.com has appreciated 13-fold over the past twelve months, and now sports a
market capitalization of approximately $20 billion, on par with blue-chip giants
Eastman Kodak and Dow Chemical. Though Amazon.com enjoys sales of $1 billion, it
will lose money for the foreseeable future. Even stranger, the company's market
cap is more than quadruple the combined market cap of the two largest book
retailers, Barnes & Noble and Borders Group!
With that said, we should note that while the highly-visible Internet stocks
have wildly exceeded any rational valuation parameters, the impact of the
Internet on business and life around the world will quite possibly be the
defining event of the 21st Century. Furthermore, companies that benefit from the
Internet boom do not all have names ending in ".com". For example, the Fund's
fourth quarter results were helped by its holdings of regional telephone
companies, which profit from the proliferation of new telephone lines dedicated
to Internet access. Therefore, while we would never take a serious look at any
speculative Internet stock, we are continually on the lookout for mainstream
investment ideas whose current business trend is accelerated by the e-commerce
phenomena.
5
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PBHG ADVISOR FUNDS, INC.
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COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG ADVISOR
CORE VALUE FUND, VERSUS THE S&P 500 INDEX AND THE LIPPER GROWTH & INCOME FUNDS
AVERAGE.
[GRAPH OMITTED]
In the printed version there is a line graph
with the following plot points depicted:
PBHG ADVISOR CORE S&P 500 LIPPER GROWTH & INCOME
VALUE FUND INDEX(3) FUNDS AVERAGE (4)
6/30/98 $9,425 $10,000 $10,000
7/98 9,265 9,894 9,739
8/98 7,860 8,465 8,309
9/98 8,623 9,008 8,751
10/98 9,745 9,740 9,388
11/98 10,330 10,331 9,864
12/98 11,112 10,926 10,304
Effective October 26, 1998 and until further notice, Class A shares of the PBHG
Advisor Core Value Fund will be sold without an initial sales charge. The chart
above assumes the deduction of a 5.75% sales charge from the $10,000 initial
investment in the PBHG Advisor Core Value Fund made on June 30, 1998. A $10,000
investment in the Fund would have grown to $11,790 without the deduction of the
5.75% sales charge.
1 Performance is historical and not indicative of future results. The
investment return and principal value of an investment will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than their
original cost.
2 The PBHG Advisor Core Value Fund commenced operations on June 30, 1998.
3 The S&P 500 Index is a capitalization-weighted index of 500 stocks. The index
is designed to measure performance of the broad domestic economy through
changes in the aggregate market value of 500 stocks representing all major
industries.
4 The Lipper Growth & Income Funds Average is an equally weighted benchmark
composed of mutual funds, each of which combines growth of earnings with an
income requirement for level and/or rising dividends. The performance figures
are based on changes in net asset value of the funds in the category with all
capital gains distributions and income dividends reinvested.
5 Class A shares of the PBHG Advisor Core Value Fund bear a maximum front-end
sales charge of 5.75% of the amount invested.
Total Return(1)
As of December 31, 1998
Cumulative
Inception
to Date (2)
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PBHG Advisor Core Value Fund 11.12% (5)
Without payment of a sales charge 17.90%
Sector Weightings at December 31, 1998
[PIE CHART OMITTED]
In the printed version there is a pie chart
with the following plot points depicted:
COMMERCIAL SERVICES (1%)
CONSUMER DURABLES (4%)
CONSUMER NON-DURABLES (5%)
CONSUMER SERVICES (4%)
ELECTRONIC TECHNOLOGY (17%)
ENERGY MINERALS (1%)
FINANCE (17%)
HEATLH SERVICES (1%)
HEALTH TECHNOLOGY (12%)
INDUSTRIAL SERVICES (1%)
NON-ENERGY MATERIALS (1%)
PRODUCER MANUFACTURING (6%)
RETAIL TRADE (1%)
TECHNOLOGY SERVICES (14%)
TRANSPORTATION (3%)
UTILITIES (10%)
CASH EQUIVALENT (2%)
% of Total Portfolio Investments
6
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PBHG ADVISOR FUNDS, INC.
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REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF PBHG ADVISORS FUNDS, INC.:
In our opinion, the accompanying statements of assets and liabilities, including
the schedule of investments of the PBHG Advisor Funds, Inc., consisting of the
PBHG Advisor Core Value Fund and PBHG Advisor New Opportunities Fund (the
"Funds") and the related statements of operations and of changes in net assets,
and the financial highlights, present fairly, in all material respects, the
financial position of the Funds at December 31, 1998, and the results of their
operations, the changes in their net assets and the financial highlights for the
period June 30, 1998 (commencement of operations) to December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers L.L.P.
Philadelphia, Pennsylvania
February 5, 1999
7
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PBHG ADVISOR FUNDS, INC.
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SCHEDULE OF INVESTMENTS
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As of December 31, 1998
PBHG ADVISOR NEW OPPORTUNITIES FUND
Market
Description Shares Value
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COMMON STOCK -- 46.8%
CONSUMER -- 0.6%
RETAIL-DISCOUNT STORES -- 0.6%
School Specialty* 2,700 $ 57,713
----------
57,713
----------
TOTAL CONSUMER (COST $52,540) 57,713
----------
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HEALTH -- 7.3%
BIOTECHNOLOGY -- 0.7%
Biomatrix* 1,100 64,075
----------
64,075
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CONTRACT RESEARCH -- 0.9%
Icon ADR* 2,500 83,750
----------
83,750
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CONTRACT SALES -- 0.9%
Professional Detailing* 3,200 90,400
----------
90,400
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DRUGS/PHARMACEUTICALS -- 1.8%
Catalytica* 4,600 82,800
Pathogenesis* 1,600 92,800
----------
175,600
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INFORMATION SYSTEMS -- 2.0%
Medical Manager* 3,000 94,125
Medquist* 2,500 98,750
----------
192,875
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MEDICAL DEVICES -- 1.0%
Minimed* 900 94,275
----------
94,275
----------
TOTAL HEALTH (COST $571,084) 700,975
----------
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SERVICE -- 6.3%
COMMERCIAL SERVICES -- 0.7%
Arguss Holdings* 3,600 67,500
----------
67,500
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COMMUNICATION SERVICES -- 0.8%
Pacific Gateway Exchange* 1,600 76,900
----------
76,900
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CONSULTING -- 0.9%
Metzler* 1,700 82,769
----------
82,769
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INFORMATION/COMPUTER SERVICE -- 0.7%
Factset Research Systems* 1,100 67,925
----------
67,925
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Market
Description Shares Value
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SYSTEMS INTEGRATOR -- 3.2%
Henry (Jack) & Associates 1,500 $ 74,625
International Integration* 4,300 73,100
International Network Services* 1,300 86,450
USWeb* 2,900 76,488
----------
310,663
----------
TOTAL SERVICE (COST $495,371) 605,757
----------
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TECHNOLOGY -- 32.6%
DIGITAL VIDEO RELATED -- 1.7%
Engineering Animation* 1,900 102,600
First Visual* 4,100 64,575
----------
167,175
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ELECTRONIC COMPONENTS -- 1.4%
Alpha Industries* 1,500 54,000
RF Micro Devices* 1,800 83,475
----------
137,475
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NETWORKING SECURITY -- 0.9%
SCM Microsystems* 1,200 85,275
----------
85,275
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NETWORKING SERVICES -- 0.9%
Proxim* 3,300 88,069
----------
88,069
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NETWORKING SOFTWARE -- 2.7%
Bindview Development* 3,500 96,250
Micromuse* 4,800 93,600
Visual Networks* 1,900 71,250
----------
261,100
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SEMI-CONDUCTOR MANUFACTURING -- 3.6%
Applied Micro Circuits* 2,800 95,113
Semtech* 2,500 89,688
Sipex* 2,100 73,763
Transwitch* 2,300 89,556
----------
348,120
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SEMI-CONDUCTOR PRODUCTION EQUIPMENT-- 1.0%
MIPS Technologies* 2,900 92,800
----------
92,800
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SOFTWARE-CLIENT/SERVER -- 5.7%
Business Objects Adr* 3,200 104,000
Citrix Systems* 600 58,238
Iona Technologies* 2,400 91,200
New Dimension Software* 2,000 96,250
Peregrine Systems* 2,400 111,300
Verity* 3,100 82,150
----------
543,138
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8
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PBHG ADVISOR FUNDS, INC.
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SCHEDULE OF INVESTMENTS
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As of December 31, 1998
PBHG ADVISOR NEW OPPORTUNITIES FUND
Market
Description Shares Value
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SOFTWARE-DATABASE -- 1.0%
Pervasive Software* 4,700 $ 90,475
----------
90,475
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SOFTWARE-INTERNET -- 3.7%
Concour Technologies* 3,000 91,500
Mindspring Enterprise* 1,300 79,381
Network Solutions* 600 78,525
Open Text* 4,100 99,681
----------
349,087
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SOFTWARE-MIDDLEWARE -- 2.0%
New Era Of Networks* 2,200 96,800
TSI International Software* 2,000 95,750
----------
192,550
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SOFTWARE FOR MANUFACTURING -- 1.8%
Made2manage Systems* 5,600 83,300
Symix Systems* 4,200 88,200
----------
171,500
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SOFTWARE TESTING -- 1.0%
Mercury Interactive* 1,500 94,875
----------
94,875
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TELECOMMUNICATION COMPONENTS -- 1.1%
E-Tek Dynamics* 4,000 107,000
----------
107,000
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TELECOMMUNICATION EQUIPMENT -- 3.2%
Aware* 4,900 133,219
Excel Switching* 2,600 98,800
Polycom* 3,400 75,650
----------
307,669
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VOICE/CALL TRANSACTION PROCESSING -- 0.9%
Geotel Communications* 2,300 85,672
----------
85,672
----------
TOTAL TECHNOLOGY (COST $2,231,462) 3,121,983
----------
TOTAL COMMON STOCK (COST $3,350,457) 4,486,425
----------
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Face Market
Description Amount Value
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REPURCHASE AGREEMENTS -- 39.1%
Morgan Stanley
4.50%, Dated 12/31/98, Matures
01/04/99, Repurchase Price $1,876,820
(Collateralized by U.S. Treasury Note:
Total Market Value $1,921,292)(A) $1,875,895 $1,875,895
J.P. Morgan
4.50%, Dated 12/31/98, Matures
01/04/99, Repurchase Price $1,875,678
(Collateralized by U.S. Government
Obligations: Total Market
Value $1,912,249)(A) 1,874,754 1,874,754
----------
TOTAL REPURCHASE AGREEMENTS (COST $3,750,649) 3,750,649
----------
TOTAL INVESTMENTS-- 85.9% (COST $7,101,106) $8,237,074
----------
----------
* Non-Income Producing Security
(A) -- Tri-Party Repurchase Agreement
ADR -- American Depository Receipt
The accompanying notes are an integral part of the financial statements.
9
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PBHG ADVISOR FUNDS, INC.
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SCHEDULE OF INVESTMENTS
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As of December 31, 1998
PBHG ADVISOR CORE VALUE FUND
Market
Description Shares Value
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COMMON STOCK -- 100.6%
COMMERCIAL SERVICES -- 1.4%
ADVERTISING -- 0.7%
Young & Rubicam* 300 $ 9,713
----------
9,713
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DIVERSIFIED COMMERCIAL SERVICES -- 0.7%
Reynolds & Reynolds 400 9,175
----------
9,175
----------
TOTAL COMMERCIAL SERVICES (COST $17,709) 18,888
----------
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CONSUMER DURABLES -- 4.2%
HOME FURNISHINGS -- 0.3%
Ethan Allen Interiors 100 4,100
----------
4,100
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MOTOR VEHICLES -- 3.9%
Ford Motor 900 52,819
----------
52,819
----------
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TOTAL CONSUMER DURABLES (COST $47,250) 56,919
----------
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CONSUMER NON-DURABLES -- 5.0%
MEAT/POULTRY/FISH -- 0.9%
Conagra 400 12,600
----------
12,600
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PACKAGE GOODS/COSMETICS -- 1.7%
Clorox 200 23,363
----------
23,363
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PACKAGED FOODS -- 2.4%
Quaker Oats 200 11,900
Ralston Purina 100 3,238
Sara Lee 600 16,913
----------
32,051
----------
TOTAL CONSUMER NON-DURABLES (COST $67,214) 68,014
----------
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CONSUMER SERVICES -- 4.2%
BOOKS/MAGAZINES -- 0.8%
Scholastic* 200 10,725
----------
10,725
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HOTELS/RESORTS -- 1.1%
Royal Caribbean Cruises 400 14,800
----------
14,800
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NEWSPAPERS -- 1.1%
Knight-Ridder 300 15,338
----------
15,338
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Market
Description Shares Value
- --------------------------------------------------------------------------------
RESTAURANTS -- 1.2%
Rock Bottom Restaurants* 1,200 $ 6,525
Tricon Global Restaurants* 200 10,025
----------
16,550
----------
TOTAL CONSUMER SERVICES (COST $45,994) 57,413
----------
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ELECTRONIC TECHNOLOGY -- 17.1%
COMPUTER COMMUNICATIONS -- 0.7%
Cisco Systems* 100 9,280
----------
9,280
- --------------------------------------------------------------------------------
ELECTRONIC COMPONENTS -- 3.3%
Hadco* 1,000 35,000
Plexus* 300 10,163
----------
45,163
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ELECTRONIC DATA PROCESSING -- 2.7%
Dell Computer* 200 14,638
IBM 100 18,475
NCR* 100 4,175
----------
37,288
- --------------------------------------------------------------------------------
ELECTRONIC PRODUCTION EQUIPMENT -- 1.8%
Novellus Systems* 500 24,750
----------
24,750
- --------------------------------------------------------------------------------
SEMICONDUCTORS -- 5.7%
Altera* 100 6,088
Intel 400 47,425
Level One Communications* 300 10,650
Micron Technology 100 5,056
Texas Instruments 100 8,556
----------
77,775
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 2.9%
Advanced Fibre* 2,500 27,344
Motorola 200 12,213
----------
39,557
----------
TOTAL ELECTRONIC TECHNOLOGY (COST $198,734) 233,813
----------
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ENERGY MINERALS -- 0.5%
INTEGRATED OIL COMPANIES -- 0.5%
Conoco, Cl A* 300 6,263
----------
6,263
----------
TOTAL ENERGY MINERALS (COST $6,900) 6,263
----------
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FINANCE -- 17.6%
FINANCE COMPANIES -- 1.9%
Freddie Mac 400 25,775
----------
25,775
- --------------------------------------------------------------------------------
INVESTMENT BANKERS/BROKERS/SERVICES-- 0.3%
PaineWebber Group 100 3,863
----------
3,863
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10
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PBHG ADVISOR FUNDS, INC.
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SCHEDULE OF INVESTMENTS
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As of December 31, 1998
Market
Description Shares Value
- --------------------------------------------------------------------------------
INVESTMENT MANAGERS -- 2.8%
Affiliated Managers Group* 300 $ 8,963
Federated Investors 400 7,250
Waddell & Reed Financial 900 21,319
----------
37,532
- --------------------------------------------------------------------------------
MAJOR BANKS -- 6.2%
Bankboston 700 27,256
Chase Manhattan 200 13,613
Fleet Financial Group 600 26,813
PNC Bank 300 16,238
----------
83,920
- --------------------------------------------------------------------------------
MID-SIZED BANKS -- 3.3%
Amsouth Bank 500 22,813
Hibernia, Cl A 1,300 22,588
----------
45,401
- --------------------------------------------------------------------------------
MULTI-LINE INSURANCE -- 1.4%
American International Group 200 19,325
----------
19,325
- --------------------------------------------------------------------------------
PROPERTY-CASUALTY INSURERS -- 1.3%
Progressive 100 16,938
----------
16,938
- --------------------------------------------------------------------------------
SPECIALTY INSURERS -- 0.4%
AMBAC Financial Group 100 6,015
----------
6,015
----------
TOTAL FINANCE (COST $221,388) 238,769
----------
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HEALTH SERVICES -- 0.9%
SERVICES TO THE HEALTH INDUSTRY -- 0.9%
Pharmaceutical Product* 400 12,023
----------
12,023
----------
TOTAL HEALTH SERVICES (COST $10,863) 12,023
----------
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HEALTH TECHNOLOGY -- 12.1%
MAJOR PHARMACEUTICALS -- 10.2%
Abbott Laboratories 700 34,300
Lilly (Eli) 200 17,775
Schering Plough 600 33,150
Warner Lambert 700 52,631
----------
137,856
- --------------------------------------------------------------------------------
OTHER PHARMACEUTICALS -- 1.9%
Allergan 400 25,900
----------
25,900
----------
TOTAL HEALTH TECHNOLOGY (COST $152,836) 163,756
----------
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Market
Description Shares Value
- --------------------------------------------------------------------------------
INDUSTRIAL SERVICES -- 1.1%
ENGINEERING & CONSTRUCTION -- 1.1%
Modtech* 1,000 $ 15,250
----------
15,250
----------
TOTAL INDUSTRIAL SERVICES (COST $17,500) 15,250
----------
- --------------------------------------------------------------------------------
NON-ENERGY MINERALS -- 1.5%
BUILDING MATERIALS -- 1.5%
Owens Corning 300 10,631
USG 200 10,188
----------
20,819
----------
TOTAL NON-ENERGY MINERALS (COST $17,157) 20,819
----------
- --------------------------------------------------------------------------------
PRODUCER MANUFACTURING -- 6.4%
AUTO PARTS: O.E.M. -- 0.9%
Federal-Mogul 200 11,900
----------
11,900
- --------------------------------------------------------------------------------
INDUSTRIAL MACHINERY/COMPONENTS -- 2.0%
Varlen 1,200 27,675
----------
27,675
- --------------------------------------------------------------------------------
OFFICE EQUIPMENT/SUPPLIES -- 3.5%
Lexmark International* 200 20,100
Miller (Herman) 1,000 26,875
----------
46,975
----------
TOTAL PRODUCER MANUFACTURING (COST $72,632) 86,550
----------
- --------------------------------------------------------------------------------
RETAIL TRADE -- 1.3%
FOOD CHAINS -- 1.3%
Kroger* 300 18,150
----------
18,150
----------
TOTAL RETAIL TRADE (COST $17,362) 18,150
----------
- --------------------------------------------------------------------------------
TECHNOLOGY SERVICES -- 14.0%
COMPUTER SOFTWARE -- 12.1%
Adobe Systems 700 32,725
BMC Software* 100 4,456
Computer Associates International 200 8,525
Informix* 3,000 29,625
Mapics* 500 8,250
Microsoft* 100 13,869
Novell* 2,000 36,250
Sterling Software* 300 8,119
Timberline Software 1,600 22,000
----------
163,819
- --------------------------------------------------------------------------------
EDP SERVICES -- 0.3%
Keane* 100 3,994
----------
3,994
- --------------------------------------------------------------------------------
ELECTRONICS DISTRIBUTORS -- 1.6%
Arrow Electronics* 800 21,350
----------
21,350
----------
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
PBHG ADVISOR FUNDS, INC.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
As of December 31, 1998
PBHG ADVISOR CORE VALUE FUND
Market
Description Shares Value
- --------------------------------------------------------------------------------
TOTAL TECHNOLOGY SERVICES (COST $168,762) 189,163
----------
- --------------------------------------------------------------------------------
TRANSPORTATION -- 3.4%
AIR FREIGHT/DELIVERY SERVICES -- 1.8%
Eagle Usa Airfreight* 1,000 24,500
----------
24,500
- --------------------------------------------------------------------------------
AIRLINES -- 1.6%
AMR* 300 17,813
Continental Air* 100 3,350
----------
21,163
----------
TOTAL TRANSPORTATION (COST $41,732) 45,663
----------
- --------------------------------------------------------------------------------
UTILITIES -- 9.9%
ELECTRIC UTILITIES: EAST -- 2.1%
PECO Energy 700 29,138
----------
29,138
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES: SOUTH -- 3.0%
Florida Progress 200 8,963
Houston Industries 1,000 32,125
----------
41,088
- --------------------------------------------------------------------------------
MAJOR U.S. TELECOMMUNICATIONS -- 4.3%
Ameritech 100 6,338
MCI Worldcom* 200 14,350
Sprint (Fon Group) 300 25,238
US West (New) 200 12,925
----------
58,851
- --------------------------------------------------------------------------------
OTHER TELECOMMUNICATIONS -- 0.5%
Century Telephone 100 6,745
----------
6,745
----------
TOTAL UTILITIES (COST $121,911) 135,822
----------
TOTAL COMMON STOCK (COST $1,225,944) 1,367,275
----------
- --------------------------------------------------------------------------------
Face Market
Description Amount Value
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 1.7%
Morgan Stanley 4.50%, Dated 12/31/98,
Matures 01/04/99, Repurchase Price
$22,687 (Collateralized by U.S. Treasury
Note: Total Market Value $23,225)(A)$22,676 $ 22,676
----------
TOTAL REPURCHASE AGREEMENT (COST $22,676) 22,676
----------
TOTAL INVESTMENTS-- 102.3% (COST $1,248,620) $1,389,951
----------
----------
* Non-Income Producing Security
(A) -- Tri-Party Repurchase Agreement
ADR -- American Depository Receipt
Cl -- Class
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
PBHG ADVISOR FUNDS, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
As of December 31, 1998
<TABLE>
<CAPTION>
----------------- -------------
PBHG ADVISOR PBHG ADVISOR
NEW OPPORTUNITIES CORE VALUE
FUND(1) FUND(1)
----------------- -------------
ASSETS:
<S> <C> <C>
Investments, at value (Cost $3,350,457 and $1,225,944 respectively) $4,486,425 $1,367,275
Repurchase Agreements, at value (Cost $3,750,649 and $22,676 respectively) 3,750,649 22,676
Cash 1,374,346 --
Receivable for investments sold -- 89,378
Accrued dividend and interest income 1,652 497
---------- ----------
Total assets 9,613,072 1,479,826
---------- ----------
LIABILITIES:
Payable for investment securities purchased -- (100,343)
Accrued expenses (23,857) (21,028)
---------- ----------
Total liabilities (23,857) (121,371)
---------- ----------
NET ASSETS:
Paid-in-capital (authorized 100 million shares for the PBHG Advisor New
Opportunities and the PBHG Advisor Core Value Funds - $0.001 par value)
based on 693,628
and 115,265 outstanding shares of common stock respectively 8,158,077 1,157,285
Undistributed net investment income (loss) (9,506) 15
Accumulated net realized gain on investments 304,676 59,824
Net unrealized appreciation on investments 1,135,968 141,331
---------- ----------
Net assets $9,589,215 $1,358,455
---------- ----------
Net Asset Value and Redemption Price Per Share $13.82 $11.79
---------- ----------
---------- ----------
Offering Price Per Share $14.66 $12.51
---------- ----------
---------- ----------
<FN>
(1) THE PBHG ADVISOR NEW OPPORTUNITIES FUND AND THE PBHG ADVISOR CORE VALUE FUND
COMMENCED OPERATIONS ON JUNE 30, 1998.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
PBHG ADVISOR FUNDS, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
----------------- --------------
PBHG ADVISOR PBHG ADVISOR
NEW OPPORTUNITIES CORE VALUE
FUND (1) FUND (1)
----------------- --------------
INVESTMENT INCOME:
<S> <C> <C>
Dividends $ 163 $ 6,540
Interest 6,715 1,591
---------- --------
Total Investment Income 6,878 8,131
---------- --------
EXPENSES:
Investment Advisory Fees 7,268 3,453
Administrative Fees 1,579 863
Custodian Fees 2,681 6,208
Professional Fees 3,234 1,363
Transfer Agent Fees 6,118 6,193
Printing Fees 3,938 2,696
Directors' Fees 1,191 844
Registration and Filing Fees 10,031 10,054
Distribution Fees 13,138 11,952
Insurance and Other Expenses 514 628
---------- --------
Total Expenses 49,692 44,254
---------- --------
Waiver of Investment Advisory Fees (7,268) (3,453)
Reimbursement of Other Expenses by Advisor (26,040) (32,685)
---------- --------
Net Expenses 16,384 8,116
---------- --------
NET INVESTMENT INCOME (LOSS) (9,506) 15
---------- --------
Net Realized Gain from Security Transactions 304,676 59,824
Net Change in Unrealized Appreciation on Investments 1,135,968 141,331
---------- --------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 1,440,644 201,155
---------- --------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,431,138 $201,170
---------- --------
---------- --------
<FN>
(1) THE PBHG ADVISOR NEW OPPORTUNITIES FUND AND THE PBHG ADVISOR CORE VALUE
FUND COMMENCED OPERATIONS ON JUNE 30, 1998.
AMOUNTS DESIGNATED AS -- ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
PBHG ADVISOR FUNDS, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Period Ended December 31, 1998
<TABLE>
<CAPTION>
----------------- ------------
PBHG ADVISOR PBHG ADVISOR
NEW OPPORTUNITIES CORE VALUE
FUND (1) FUND (1)
---------------- ------------
INVESTMENT ACTIVITIES:
<S> <C> <C>
Net Investment Income (Loss) $ (9,506) $ 15
Net Realized Gain from Security Transactions 304,676 59,824
Net Change in Unrealized Appreciation on Investments 1,135,968 141,331
---------- ----------
Net Increase in Net Assets Resulting from Operations 1,431,138 201,170
---------- ----------
Distributions to Shareholders From:
Net Investment Income -- --
Net Realized Gains from Security Transactions -- --
---------- ----------
Total Distributions -- --
---------- ----------
CAPITAL SHARE TRANSACTIONS (A):
Shares Issued 8,162,978 1,157,400
Shares Issued upon Reinvestment of Distributions -- --
Shares Redeemed (4,901) (115)
---------- ----------
Increase in Net Assets Derived from Capital Share Transactions 8,158,077 1,157,285
---------- ----------
Total Increase in Net Assets 9,589,215 1,358,455
---------- ----------
NET ASSETS:
Beginning of Period -- --
---------- ----------
End of Period $9,589,215 $1,358,455
---------- ----------
---------- ----------
(A) SHARES ISSUED AND REDEEMED:
Shares Issued 693,991 115,275
Shares Issued upon Reinvestment of Distributions -- --
Shares Redeemed (363) (10)
---------- ----------
Net Increase in Shares Outstanding 693,628 115,265
---------- ----------
---------- ----------
<FN>
(1) THE PBHG ADVISOR NEW OPPORTUNITIES FUND AND THE PBHG ADVISOR CORE VALUE
FUND COMMENCED OPERATIONS ON JUNE 30, 1998.
AMOUNTS DESIGNATED AS "-" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
PBHG ADVISOR FUNDS, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout Each Period
For the Period Ended December 31
<TABLE>
<CAPTION>
Ratio
of Net
Net Net Net Investment
Asset Net Realized and Distributions Distributions Asset Assets Ratio Income
Value Investment Unrealized from Net from Value End of Expenses (Loss)
Beginning Income Gains or Losses Investment Capital End Total of Period to Average to Average
of Period (Loss) on Securities Income Gains of Period Return+ (000) Net Assets* Net Assets*
- ------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------
PBHG ADVISOR NEW OPPORTUNITIES FUND
- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 1 $10.00 ($0.01) $3.83 -- -- $13.82 38.2%+ $9,589 1.56% (0.91%)
- ----------------------------
PBHG ADVISOR CORE VALUE FUND
- ----------------------------
1998 1 $10.00 $0.00 $1.79 -- -- $11.79 17.9%+ $1,358 1.41% 0.00%
</TABLE>
<TABLE>
<CAPTION>
Ratio
of Net
Ratio Investment
of Expenses Income (Loss)
to Average to Average
Net Assets Net Assets
(Excluding (Excluding
Waivers and Waivers and Portfolio
Reimburse- Reimburse- Turnover
ments)* ments)* Rate
- -------------------------------------------------------------------------
- -----------------------------------
PBHG ADVISOR NEW OPPORTUNITIES FUND
- -----------------------------------
<S> <C> <C> <C>
1998 1 4.74% (4.08%) 212.26%
- ----------------------------
PBHG ADVISOR CORE VALUE FUND
- ----------------------------
1998 1 7.73% (6.31%) 519.62%
<FN>
1 THE PBHG ADVISOR NEW OPPORTUNITIES FUND AND THE PBHG ADVISOR CORE VALUE FUND
COMMENCED OPERATIONS ON JUNE 30, 1998.
+ TOTAL RETURNS ARE NOT ANNUALIZED.
* ANNUALIZED.
</FN>
</TABLE>
AMOUNTS DESIGNATED AS "____" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
PBHG ADVISOR FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
As of December 31, 1998
1. ORGANIZATION
PBHG Advisor Funds, Inc. (the "Company"), a Maryland corporation, is registered
under the Investment Company Act of 1940, as amended, as an open-end management
investment company with seventeen series: the PBHG Advisor Core Value Fund (the
"Core Value Fund"), the PBHG Advisor Value Opportunities Fund (the "Value
Opportunities Fund"), the PBHG Advisor New Contrarian Fund (the "New Contrarian
Fund"), the PBHG Advisor REIT Fund (the "REIT Fund"), the PBHG Advisor Large Cap
Concentrated Fund (the "Large Cap Concentrated Fund"), the PBHG Advisor Growth
II Fund (the "Growth II Fund"), the PBHG Advisor New Opportunities Fund (the
"New Opportunities Fund"), the PBHG Advisor Global Technology & Communications
Fund (the "Global Technology & Communications Fund"), the PBHG Advisor Blue Chip
Growth Fund (the "Blue Chip Growth Fund"), the PBHG Advisor Growth Opportunities
Fund (the "Growth Opportunities Fund"), the PBHG Advisor Enhanced Equity Fund
(the "Enhanced Equity Fund"), the PBHG Advisor Trend Fund (the "Trend Fund") and
the PBHG Advisor Defensive Equity Fund (the "Defensive Equity Fund"),
(collectively referred to as the "Equity Funds"), the PBHG Advisor Master Fixed
Income Fund (the "Master Fixed Income Fund"), the PBHG Advisor High Yield Fund
(the "High Yield Fund"), the PBHG Advisor Cash Reserves Fund (the "Cash Reserves
Fund"), and the PBHG Advisor Short-Term Government Fund (the "Short-Term
Government Fund") (each a "Fund" and, collectively, the "Funds"). As of December
31, 1998, the Value Opportunities Fund, the New Contrarian Fund, the Reit Fund,
the Growth II Fund, the Global Technology & Communications Fund, the Growth
Opportunities Fund, the Trend Fund and the High Yield Fund had not commenced
operations. The Blue Chip Growth Fund, Cash Reserves Fund and the Large Cap
Concentrated Fund commenced operations on June 30, 1998 and ceased operations on
or before December 31, 1998. The Financial Statements presented herein do not
include the Defensive Equity Fund, Enhanced Equity Fund, Master Fixed Income
Fund or Short-Term Government Fund which are presented separately. Each of the
Funds has distinct investment objectives and policies that are described in its
prospectus. The assets of each Fund are segregated, and a shareholder's interest
is limited to the Fund in which shares are held.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed by
the Funds.
SECURITY VALUATION -- Investment securities of the Funds that are listed on a
securities exchange, and for which market quotations are readily available, are
valued at the last quoted sales price at the close of trading on the primary
exchange (currently 4:00 p.m. Eastern time). If there is no such reported sale,
these securities and unlisted securities for which market quotations are readily
available, are valued at the most recently quoted bid price. However, debt
securities (other than short-term obligations), including listed issues, are
valued on the basis of valuations furnished by 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 investments may be valued
at amortized cost which approximates market value. Foreign securities are valued
based upon quotations from the primary market in which they are traded, and are
translated from the local currency into U.S. dollars using current exchange
rates. In addition, if quotations are not readily available, or if the values
have been materially affected by events occurring after the closing of a foreign
market, assets may be valued by another method that the Board of Directors
believes accurately reflects fair value.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the date the securities are purchased or sold (trade date).
Dividend income and distributions to shareholders are recognized on the
ex-dividend date; interest income is recognized on the accrual basis. Costs used
in determining realized capital gains and losses on the sale of investment
securities are those of the specific securities sold adjusted for the accretion
and amortization of acquisition discounts and premiums during the respective
holding periods. Acquisition discounts and premiums are accreted and amortized
to maturity using a method which approximates the effective interest method.
DIVIDENDS -- Dividends from net investment income for the Funds are declared
annually, if available. Distributions of net realized capital gains, for the
Funds, are generally made to shareholders annually. Dividends from net
investment income and distributions from net realized capital gains are
determined in accordance with U.S. Federal income tax regulations, which may
differ from those amounts determined under generally accepted accounting
principles. These book/tax differences are either temporary or permanent in
nature. To the extent these differences are permanent, they are charged or
credited to paid-in-capital or accumulated net realized gain, as appropriate, in
the period that the differences arise.
FEDERAL INCOME TAXES -- It is each Fund's intention to qualify as a regulated
investment company for federal income tax purposes, and to distribute all of its
taxable income and net capital gains. Accordingly, no provision has been made
for Federal income taxes.
NET ASSET VALUE PER SHARE -- The net asset value per share is calculated each
business day by dividing the total value of each Fund's assets, less
liabilities, by the number of shares outstanding.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by a third party custodian bank until the respective
agreements mature. Provisions of the repurchase agreements and procedures
adopted by Pilgrim Baxter & Associates, Ltd. (the "Adviser") ensure that the
market value of the collateral including accrued interest thereon, is sufficient
in the event of default by the counterparty. If the counterparty defaults and
the value of the collateral declines, or if the counterparty enters into
insolvency proceedings, realization of the collateral by a Fund may be delayed
or limited.
OTHER -- Expenses that are directly related to one of the Funds are charged
directly to that Fund. Other operating expenses are prorated to the Funds on the
basis of relative net assets. Class specific expenses, such as 12b-1 service
fees and transfer agent fees, are borne directly by that class. Income, other
expenses and realized and unrealized gains and losses of a Fund are allocated to
the respective class on the basis of the relative net assets each day.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The preparation
of financial statements, in conformity with generally accepted accounting
principles, requires, management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reported period. Actual results could
differ from those estimates.
3. INVESTMENT ADVISORY FEES, ADMINISTRATIVE FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
The Funds and the Adviser are parties to an Investment Advisory Agreement (the
"Advisory Agreement"). Under the terms of the Advisory Agreement, the Adviser is
entitled to a fee, which is calculated daily and paid monthly, at
17
<PAGE>
PBHG ADVISOR FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
As of March 31, 1998
an annual rate of 0.75% of the average net assets of the New Opportunities Fund
and 0.60% of the average net assets of the Core Value Fund.
Pilgrim Baxter Value Investors ("Value Investors") serves as the sub-adviser to
the Core Value Fund. For its services provided pursuant to its Investment
Sub-Advisory Agreement with the Adviser and the Fund, Value Investors is
entitled to receive, from the Adviser, a sub-advisory fee with respect to the
average daily net assets of the Fund that is computed daily and paid monthly at
an annual rate of 0.40%. Value Investors receives no fees directly from the Core
Value Fund.
In the interest of limiting the expenses of the PBHG Advisor Funds, the Adviser
has entered into an Expense Limitation Agreement with the Company, on behalf of
each Fund. The Adviser has agreed to waive or limit its advisory fees or assume
other expenses in an amount that operates to limit the aggregate annual total of
certain operating expenses of each Fund as follows: 0.82% of the Core Value Fund
and 0.97% of the New Opportunities Fund. The expenses subject to such limitation
are those that are not specifically allocated to a class of shares of a Fund
under the Company's multiple class plan (the "Rule 18f-3 Plan") including, but
not limited to, investment advisory fees of the Adviser, but excluding: (i)
interest, taxes, brokerage commissions, and other expenditures which are
capitalized in accordance with generally accepted accounting principles; (ii)
expense specifically allocated to a class of shares of a Fund under the Rule
18f-3 Plan, such as Rule 12b-1 expenses and transfer agency fees; and (iii)
other extraordinary expenses not incurred in the ordinary course of a Fund's
business. Reimbursement by the Funds of the advisory fees waived or limited and
other expenses paid by the Adviser pursuant to the Expense Limitation Agreement
may be made at a later date when such Funds have reached a sufficient asset size
to permit reimbursement to be made without causing the total annual expense
ratio of each Fund to exceed the percentages discussed in this paragraph.
Consequently, no reimbursement by a Fund will be made unless: (i) the Fund's
assets exceed $75 million; (ii) the Fund's total annual expense ratio is less
than the specified percentage; and (iii) the payment of such reimbursement was
approved by the Board of Directors on a quarterly basis. The total amount of
reimbursement to which the Adviser may be entitled shall equal, at any time, the
sum of all investment advisory fees previously waived or reduced by the Adviser
and all other payments remitted by the Adviser to the Fund, during any of the
previous two fiscal years, less any reimbursement previously paid by such Fund
to the Adviser.
PBHG Fund Services (the "Administrator"), a wholly-owned subsidiary of the
Adviser, provides the Funds with administrative services, including regulatory
reporting and all necessary office space, equipment, personnel and facilities.
For these administrative services, the Administrator is entitled to a fee, which
is calculated daily and paid monthly, at an annual rate of 0.15% of the average
daily net assets of the Funds.
SEI Investments Management Corporation, a wholly-owned subsidiary of SEI
Investments Corporation, is the owner of all beneficial interest in SEI
Investments Mutual Fund Services (the "Sub-Administrator"). The
Sub-Administrator assists the Administrator in providing administrative services
to the Funds.
PBHG Fund Distributors, a wholly owned subsidiary of the Adviser, provides the
Funds with distribution services.
DST Systems, Inc. serves as the transfer agent, dividend disbursing agent for
the Funds under a transfer agent agreement with the Funds. PBHG Fund Services
provides shareholder support and other shareholder account-related services with
assistance from UAM Shareholder Service Center, Inc. First Union National Bank
serves as the custodian for the Funds.
The Funds have adopted Distribution Plans (the "12b-1 Plan") for those Funds
offering Class A and B shares. The Plan provides for the payment by the Funds to
the Distributor of up to 0.35% of each Fund's average net assets attributable to
Class A shares and up to 1.00% for Class B shares. The Funds' directors have
determined that payments under the 12b-1 distribution plan for Class A shares
will currently be limited to 0.25%. Class I shares are not subject to 12b-1
fees.
Certain officers and directors of the Fund who are or were officers of the
Adviser, Administrator, Sub-Administrator and the Distributor receive no
compensation from the Fund for their services.
4. INVESTMENT TRANSACTIONS
The cost of securities purchased and the proceeds from securities sold, other
than short-term investments for the funds for the year ended December 31, 1998
were as follows:
PURCHASES SALES
------------ --------------
New Opportunities Fund $7,990,880 $4,945,098
Core Value Fund 7,177,864 6,011,743
The aggregate gross unrealized appreciation and depreciation of securities held
by the Portfolios and the total cost of securities for Federal income tax
purposes at December 31, 1998 are as follows:
TOTAL COST
NET OF SECURITIES
UNREALIZED FOR FEDERAL
UNREALIZED UNREALIZED APPRECIATION/ INCOME TAX
APPRECIATION DEPRECIATION (DEPRECIATION) PURPOSES
------------ ------------ -------------- ------------
New Opportunities Fund $1,150,354 $14,386 $1,135,968 $7,101,106
Core Value Fund 155,403 14,072 141,331 1,248,620
5. LINE OF CREDIT
Each Fund may borrow, an amount up to its prospectus defined limitations, from a
committed line of credit available to (i) the Fund, (ii) The PBHG Funds, Inc.
and (iii) PBHG Insurance Series Fund, Inc. Draws on the line of credit will bear
interest at the Federal Funds Rate plus 0.40%. The PBHG Advisor New
Opportunities Fund and the PBHG Advisor Core Value Fund did not draw on the line
of credit during the period ended December 31, 1998.
18
<PAGE>
PBHG ADVISOR FUNDS, INC.
[GRAPHIC OF PILLAR OMITTED]
P.O. Box 419534
Kansas City, MO 64141-6534
Investment Adviser:
Pilgrim Baxter & Associates, Ltd.
Distributor
PBHG Fund Distributors
To open an account, receive account information
or request literature call 1-800-433-0051
BD-Advisor 1998
