<PAGE>
THE PBHG FUNDS, INC. TRUST CLASS SHARES
APRIL 1, 1996
The PBHG Funds, Inc. (the "Fund") is a mutual fund that offers a convenient
and economical means of investing in professionally managed portfolios of
securities. This Prospectus offers Trust Class shares of the PBHG Growth Fund
(the "Portfolio" or the "Growth Fund"), one of the eight portfolios of the
Fund.
This Prospectus sets forth concisely the information about the Fund and the
Portfolio 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 January 15, 1996, has been filed
with the Securities and Exchange Commission and is available upon request and
without charge by calling 1-800-433-0051. The Statement of Additional
Information is incorporated into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
SUMMARY
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The PBHG Funds, Inc. (the "Fund") is an open-end management investment com-
pany which provides a convenient way to invest in professionally managed diver-
sified portfolios of securities. This summary provides basic information about
the Trust Class shares of the PBHG Growth Fund (the "Portfolio"). This summary
is qualified in its entirety by reference to the more detailed information pro-
vided elsewhere in this Prospectus and in the Statement of Additional Informa-
tion.
WHAT ARE THE INVESTMENT OBJECTIVES, PROGRAM AND POLICIES OF THE PORTFOLIO? The
Portfolio seeks capital appreciation. There can be no assurance that the
Portfolio will achieve its investment objective. The Portfolio will invest
primarily in a variety of equity securities in accordance with its par-ticular
investment program and policies. The Portfolio invests primarily in common
stocks of small capitalization companies believed by Pilgrim Baxter &
Associates, Ltd. (the "Adviser") to have an outlook for strong earnings growth
and the potential for significant capital appreciation.
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE PORTFOLIOS? The Portfo-
lio invests in securities that fluctuate in value, and investors should expect
the Portfolio's net asset value per share to fluctuate. The Portfolio may in-
vest in stocks and convertible securities that may be traded in the over-the-
counter market. Some of these securities may not be as liquid as exchange-
listed stocks. In addition, the Portfolio invests primarily in securities of
small capitalization companies and therefore may experience greater price vola-
tility than investment companies that invest in more established, larger capi-
talized companies. The Portfolio may invest in equity securities of non-U.S.
issuers, which are subject to certain risks not typically associated with do-
mestic securities. Such risks include changes in currency rates and in exchange
control regulations, costs associated with conversions between various curren-
cies, limited publicly available information regarding foreign issuers, lack of
uniformity in accounting, auditing and financial standards and requirements,
greater securities market volatility, less liquidity, less government supervi-
sion of securities markets, changes in taxes on income on securities, and pos-
sible seizure, nationalization or expropriation of the foreign issuer or for-
eign deposits. See "Investment Objectives and Policies" and "Glossary of Per-
mitted Investments."
WHO IS THE ADVISER? Pilgrim Baxter & Associates, Ltd. serves as the invest-
ment adviser to the Portfolio. See "Expense Summary" and "The Adviser."
WHO IS THE ADMINISTRATOR? SEI Financial Management Corporation serves as the
administrator of the Fund. See "The Administrator."
WHO IS THE TRANSFER AGENT? DST Systems, Inc. serves as the transfer agent,
dividend disbursing agent and shareholder servicing agent of the Fund. See "The
Transfer Agent."
IS THERE A SALES LOAD? No, shares of each Portfolio are offered on a no-load
basis. The Portfolio, however, pays Rule 12b-1 shareholder servicing fees to
certain financial intermediaries that provide shareholder and other services to
Trust Class shareholders.
IS THERE A MINIMUM INVESTMENT? The Portfolio has a minimum initial investment
of $2,500 for regular accounts and $2,000 for individual retirement accounts
("IRAs").
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Transfer Agent on any day on which the New York Stock Exchange is
open for business ("Business Day"). A purchase order will be effective as of
the Business Day received by the Transfer Agent if the Transfer Agent receives
sufficient information to execute the order and receives payment by check or
readily available funds prior to 4:00 p.m., Eastern time. Redemption orders
placed with the Transfer Agent prior to 4:00 p.m., Eastern time on any Business
Day will be effective that day. The purchase and redemption price for shares is
the net asset value per share determined as of the end of the day the order is
effective. The Fund also offers a Systematic Investment Plan and a Systematic
Withdrawal Plan. See "Shareholder Services."
2
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EXPENSE SUMMARY
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The purpose of the following table is to help you understand the various costs
and expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in Trust Class Shares.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
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GROWTH
FUND
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<S> <C>
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees(1) None
Exchange Fees None
===============================================================================
</TABLE>
(1) A wire redemption charge, currently $10.00, is deducted from the amount of
a Federal Reserve wire redemption payment made at the request of a
shareholder.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets after applicable fee waivers)
<TABLE>
<CAPTION>
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GROWTH
FUND
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<S> <C>
Advisory Fees(2) .85%
12b-1 Fees .25%
Other Expenses(3) .60%
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Total Operating Expenses (net of reimbursement after fee waiver or ex-
pense reimbursement, if any) 1.70%
===============================================================================
</TABLE>
(2) The Adviser has agreed to waive a portion of their fee and reimburse
expenses in an amount that operates to limit annual operating expenses for
the current year to not more than 1.75% of the average daily net assets of
the Portfolio. The Adviser reserves the right to terminate its fee waivers
and reimbursements at any time in its sole discretion. No fee waivers or
reimbursements with respect to this Portfolio were necessary during the
Portfolio's prior fiscal year.
(3) "Other Expenses" is based on estimated amounts for the current fiscal
year.
EXAMPLE
<TABLE>
<CAPTION>
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C> <C>
An investor in the Portfolio would
pay the following expenses
on a $1,000 investment assuming
(1) 5% annual return, and
(2) redemption at the end of each
time period. Growth Fund $17 $54 $92 $201
===============================================================================
</TABLE>
The example is based upon total operating expenses of the Portfolio, as set
forth in the "Annual Operating Expenses" table 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 Trust Class shares of the
Portfolio. See "The Adviser" and "The Administrator."
Long-term shareholders may pay more than the economic equivalent of the maxi-
mum front-end sales charge otherwise permitted under the Rules of Fair Prac-
tice of the National Association of Securities Dealers, Inc. ("NASD").
3
<PAGE>
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FINANCIAL HIGHLIGHTS
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The following information, for the fiscal periods ended March 31, 1994 and
1995, has been audited by Arthur Andersen LLP, the Fund's independent public
accountants. Arthur Andersen LLP, has served as the Fund's independent public
accountants since August 1993. The information with respect to the Portfolio
for the periods from April 1, 1989 to March 31, 1993, has been audited by
Tait, Weller & Baker, the Fund's independent public accountants for those pe-
riods. The Fund's audited financial statements are included in the Fund's
Statement of Additional Information under "Financial Information." The follow-
ing tables should be read in conjunction with the Fund's financial statements
and notes thereto.
For a PBHG Class Share Outstanding Throughout the Period++
<TABLE>
<CAPTION>
Ratio
Net Net of Net
Asset Net Realized and Distributions Assets Ratio Income
Value Investment Unrealized from Net Distributions Net Asset End of Expenses (Loss)
Beginning Income Gains or Losses Investment from Capital Value End Total of Period to Average to Average
of Period (Loss) on Securities Income Gains of Period Return (000) Net Assets Net Assets
--------- ---------- --------------- ------------- ------------- --------- -------- ---------- ----------- ----------
- ------------------------------
GROWTH FUND
- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $14.67 $(0.05) $ 2.09 -- $(0.01) $16.70 13.92% $1,014,832 1.50% (0.69)%
1994 10.83 (0.03) 4.06 -- (0.19) 14.67 37.28% 319,059 1.55% (0.78)%
1993 10.37 (0.16) 3.07 -- (2.45) 10.83 34.47% 6,069 2.39% (1.69)%
1992 11.51 (0.06) 1.35 -- (2.43) 10.37 13.78% 7,339 1.52% (0.55)%
1991 10.86 (0.01) 1.45 -- (0.79) 11.51 16.94% 10,356 1.50% (0.09)%
1990 10.84 (0.05) 2.92 $(0.04) (2.81) 10.86 27.11% 18,849 1.32% (0.35)%
1989** 10.44 0.02 0.41 -- (0.03) 10.84 3.98% 23,494 1.19% 1.19%
1988** 16.78 0.01 (2.11) -- (4.24) 10.44 (13.10)% 28,407 1.21% 1.21%
1987** 11.52 0.05 5.28 (0.07) -- 16.78 46.57% 30,154 1.31% 1.31%
1986** 10.00 0.03 1.49 -- -- 11.52 53.50%* 15,471 1.52%* 1.52%*
<CAPTION>
Ratio
Ratio of Net
of Expenses Income (Loss)
to Average to Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
----------- ------------- ---------
<S> <C> <C> <C>
1995 1.50% (0.69)% 118.75%
1994 1.59% (0.82)% 94.28%
1993 3.04% (2.34)% 209.24%
1992 2.00% (1.03)% 114.54%
1991 1.75% (0.34)% 228.02%
1990 1.32% (0.35)% 219.41%
1989** 0.20% 0.20% 175.01%
1988** 0.02% 0.02% 208.41%
1987** 0.36% 0.36% 213.99%
1986** 0.82%* 0.82%* 97.14%
</TABLE>
* Annualized.
** Unaudited.
++ The table relates to the PBHG Class shares' financial highlights, and does
not reflect the actual performance of the newly-created Trust Class shares.
Because the Trust Class shares are subject to a service fee, under Rule
12b-1 of the Investment Company Act of 1940, expenses for the Trust Class
shares are higher than for the PBHG Class shares. As a result, performance
for the Trust Class shares may be lower than that of the PBHG Class.
4
<PAGE>
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FINANCIAL HIGHLIGHTS (UNAUDITED)
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For the period ended September 30, 1995
For a PBHG Class Share Outstanding Throughout the Period++
<TABLE>
<CAPTION>
Ratio
Net Net of Net
Asset Realized and Distributions Assets Ratio Income
Value Net Unrealized from Net Distributions Net Asset End of Expenses (Loss)
Beginning Investment Gains on Investment from Capital Value End Total of Period to Average to Average
of Period Income Securities Income Gains of Period Return/1/ (000) Net Assets Net Assets
--------- ---------- ------------ ------------- ------------- --------- --------- ---------- ----------- ----------
- ------------------------------
GROWTH FUND
- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $16.70 $(0.04) $5.12 -- -- $21.78 30.42%+ $1,729,736 1.50% (0.70)%*
<CAPTION>
Ratio
Ratio of Net
of Expenses Income (Loss)
to Average to Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
----------- ------------- ---------
<S> <C> <C> <C>
1995 1.50% (0.70)%* 23.09%
</TABLE>
* Annualized.
+ Total returns have not been annualized.
++ The table relates to the PBHG Class shares' financial highlights, and does
not reflect the actual performance of the newly-created Trust Class shares.
Because the Trust Class shares are subject to a [service fee,] expenses for
the Adviser Class shares are higher than for the PBHG Class shares. As a
result, performance for the Trust Class shares may be lower than that of the
PBHG Class.
5
<PAGE>
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THE FUND AND THE PORTFOLIO
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The Fund is an open-end investment company that currently offers shares in
eight separate series (the "Portfolios"). This Prospectus relates solely to
the Trust Class shares for the PBHG Growth Fund. Each share of the Portfolio
represents an undivided interest in the Portfolio. The Portfolio's shares are
currently divided into two classes of shares (PBHG Class and Trust Class) hav-
ing such preferences and special or relative rights and privileges as the
Board of Directors determines. Only the Portfolio's Trust Class shares are of-
fered by this Prospectus. The Trust Class shares are generally subject to the
same expenses as the PBHG Class shares, but also bear a Rule 12b-1 shareholder
servicing fee of .25% of the average daily net assets attributable to its
shares. The PBHG Class shares for the Portfolio are offered by a separate pro-
spectus, which is available without charge by calling 1-800-433-0051. Addi-
tional information pertaining to the Fund may be obtained in writing from the
Fund's transfer agent, DST Systems, Inc., P.O. Box 419534, Kansas City,
Missouri 64141-6534, or by calling 1-800-433-0051.
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INVESTMENT OBJECTIVES AND POLICIES
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GROWTH FUND
The Growth Fund seeks capital appreciation. The Portfolio will normally be as
fully invested as practicable in common stocks and securities convertible into
common stocks, but also may invest up to 5% of its assets in warrants and
rights to purchase common stocks. In the opinion of the Adviser, there may be
times when the shareholders' interests are best served and the investment ob-
jective is more likely to be achieved by having varying amounts of the Portfo-
lio's assets invested in convertible securities. Under normal market condi-
tions, the Portfolio will invest at least 65% of its total assets in common
stocks and convertible securities of small and medium capitalization companies
(market capitalization or annual revenues up to $2 billion). At certain times
that percentage may be substantially higher.
The Portfolio will seek to achieve its objective by investing in companies be-
lieved 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, al-
ternative 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 Portfolio may from time to time realize short-
term gains or losses. The Portfolio will likely have somewhat greater volatil-
ity than the stock market in general, as measured by the S&P 500 Index. Be-
cause the investment techniques employed by the Adviser are responsive to
near-term earnings trends of the companies whose securities are owned by the
Portfolio, portfolio turnover can be expected to be fairly high.
Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market.
The Portfolio may invest up to 15% of its total assets in securities of for-
eign issuers (including American Depositary Receipts ("ADRs")), and may invest
up to 15% of its net assets in illiquid securities. This limitation does not
include any Rule 144A security that has been determined to be liquid by or
pursuant to procedures established by the Board. See "Glossary of Permitted
Investments."
There can be no assurance that the Portfolio will be able to achieve its in-
vestment objective.
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GENERAL INVESTMENT POLICIES AND STRATEGIES
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INVESTMENT PROCESS
The Adviser's investment process in managing the assets of the Portfolio is
both quantitative and fundamental, and is extremely focused on quality earn-
ings growth. In seeking to identify investment opportunities for this Portfo-
lio, the Adviser begins by creating a universe of rapidly growing companies
with market capitalizations within the parameters described for the Portfolio
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 revi-
sions, and accelerating sales and earnings growth, the Adviser creates a uni-
verse 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 an investment portfolio for this Portfolio that
possesses strong growth characteristics. The Adviser tries
6
<PAGE>
to keep the Portfolio fully invested at all times. Because the universe of
companies will undoubtedly experience volatility in stock price, it is impor-
tant that shareholders in this Portfolio maintain a long-term investment per-
spective. Of course, there can be no assurance that use of these techniques
will be successful, even over the long term.
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 real-
ized gains and losses. The portfolio turnover rate for the Portfolio for the
fiscal year ended March 31, 1995 was 118.75%.
TEMPORARY DEFENSIVE POSITIONS
Under normal market conditions, the Portfolio expects to be fully invested in
its primary investments, as described above. However, for temporary defensive
purposes, when the Adviser determines that market conditions warrant, the
Portfolio may invest up to 100% of its assets in cash and money market instru-
ments (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 securi-
ties; and, to the extent permitted by applicable law and the Portfolio's in-
vestment restrictions, shares of other investment companies investing solely
in money market securities). To the extent the Portfolio is invested in tempo-
rary defensive instruments, it will not be pursuing its investment objective.
See "Glossary of Permitted Investments" and the Statement of Additional Infor-
mation.
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RISK FACTORS
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SMALL AND MEDIUM CAPITALIZATION STOCKS
Investments in common stocks in general are subject to market risks that may
cause their prices to fluctuate over time. Therefore, an investment in the
Portfolios may be more suitable for long-term investors who can bear the risk
of these fluctuations. The Portfolio invests in securities of issuers with
small and medium market capitalizations. While the Adviser intends to invest
in small and medium capitalization companies that have strong balance sheets
and that the Adviser's research indicates should exceed consensus earnings ex-
pectations, any investment in small and medium capitalization companies in-
volves 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 small size, limited markets and financial
resources, narrow product lines and frequent lack of management depth. The se-
curities of small and medium capitalization companies are often traded in the
over-the-counter market, and might not be traded in volumes typical of securi-
ties traded on a national securities exchange. Thus, the securities of such
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
The Portfolio invests in over-the-counter stocks. In contrast to the securi-
ties exchanges, the over-the-counter market is not a centralized facility
which limits trading activity to securities of companies which initially sat-
isfy certain defined standards. Generally, the volume of trading in an un-
listed 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 the Portfolio invests may not be as great as that of other securities
and if the Portfolio 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
Investing in the securities of foreign issuers involves special risks and con-
siderations not typically associated with investing in U.S. companies. These
risks and considerations include differences in accounting, auditing and fi-
nancial reporting standards, generally higher commission rates on foreign
portfolio transactions, the possibility of expropriation or confiscatory taxa-
tion, adverse changes in invest-
7
<PAGE>
ment 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
the Portfolio'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, fa-
vorably or unfavorably, the value of those securities which are denominated or
quoted in currencies other than the U.S. dollar.
For additional information regarding risks and permitted investments for the
Portfolio, see "Glossary of Permitted Investments" and the Statement of Addi-
tional Information.
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INVESTMENT LIMITATIONS
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The investment objectives of the Portfolio and the investment limitations set
forth herein and certain investment limitations contained in the Statement of
Additional Information are fundamental policies of the Portfolio. The Portfo-
lio's fundamental policies cannot be changed without the consent of the hold-
ers of a majority of the Portfolio's outstanding shares.
The Portfolio may not:
1. Purchase securities of any issuer (except securities issued or guaranteed
by the United States, its agencies or instrumentalities and repurchase agree-
ments involving such securities) if, as a result, more than 5% of the total
assets of the Portfolio would be invested in the securities of such issuer.
This restriction applies to 75% of the Portfolio's total assets.
2. Purchase any securities which would cause 25% or more of the total assets
of the Portfolio to be invested in the securities of one or more issuers con-
ducting their principal business activities in the same industry, provided
that this limitation does not apply to investments in obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities and
repurchase agreements involving such securities. For purposes of this limita-
tion, (i) utility companies will be divided according to their services, for
example, gas distribution, gas transmission, electric and telephone will each
be considered a separate industry, and (ii) financial service companies will
be classified according to the end users of their services, for example, auto-
mobile finance, bank finance and diversified finance will each be considered a
separate industry. For purposes of this limitation, supranational organiza-
tions are deemed to be issuers conducting their principal business activities
in the same industry.
The foregoing percentages will apply at the time of the purchase of a securi-
ty.
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HOW TO PURCHASE FUND SHARES
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You may purchase shares of the Portfolio directly through DST Systems, Inc.
("DST" or the "Transfer Agent"). Purchases of shares of the Portfolio may be
on any day on which the New York Stock Exchange is open for business ("Busi-
ness Day"). Shares of the Portfolio are offered only to residents of states in
which such shares are eligible for purchase. Certain brokers assist their cli-
ents in the purchase or redemption of shares and charge a fee for this service
in addition to the Portfolio's public offering price.
You may place orders by mail and wire. If you have elected the Telephone Pur-
chase Authorization option on your Account Application, you may place orders
by telephone. If market conditions are extraordinarily active, or if severe
weather or other emergencies exist, and you experience difficulties placing
redemption orders by telephone, you may wish to consider placing your order by
other means, such as mail or overnight delivery.
The Portfolio reserves the right to reject any purchase order or to suspend or
modify the continuous offering of its shares. For example, the investment op-
portunities for small 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 that the Portfolio, which invests in such
companies, indefinitely discontinue the sale of its shares to new investors
(other than directors, officers and employees of the Portfolio's Adviser and
its affiliated companies). In such event, the Board of Directors would deter-
mine whether such discontinuance is in the best interests of the Portfolio and
its shareholders.
8
<PAGE>
MINIMUM INVESTMENT
The minimum initial investment in the Portfolio is $2,500 for regular accounts
and $2,000 for IRAs. There is no minimum for subsequent purchases. The Dis-
tributor may waive the minimum at its discretion. No minimum applies to subse-
quent purchases effected by dividend reinvestment. As described below, subse-
quent purchases through the Fund's Systematic Investment Plan must be at least
$25.
INITIAL PURCHASES BY MAIL
An account may be opened by mailing a check or other negotiable bank draft
payable to--PBHG Growth Fund, in the amount of at least $2,500 for regular ac-
counts and at least $2,000 for IRAs, and a completed Account Application to
The PBHG Funds, Inc. c/o DST Systems, Inc., P.O. Box 419534, Kansas City, Mis-
souri 64141-6534.
ADDITIONAL PURCHASES BY PHONE (TELEPHONE PURCHASE AUTHORIZATION)
If you have made this election you may purchase additional shares by telephon-
ing the Transfer Agent at 1-800-433-0051. THE TELEPHONE PURCHASE AUTHORIZATION
IS AN ELECTION AVAILABLE ON THE ACCOUNT APPLICATION. THE MINIMUM TELEPHONE
PURCHASE IS $1,000, AND THE MAXIMUM IS FIVE TIMES THE NET ASSET VALUE OF
SHARES HELD BY THE SHAREHOLDER ON THE DAY PRECEDING SUCH TELEPHONE PURCHASE
FOR WHICH PAYMENT HAS BEEN RECEIVED. The telephone purchase will be made at
the offering price next computed after the receipt of the call by the Transfer
Agent. Payment for the telephone purchase must be received by the Transfer
Agent within seven days. If payment is not received within seven days, you
will be liable for all losses incurred as a result of the purchase.
INITIAL PURCHASE BY WIRE
If you have an account with a commercial bank that is a member of the Federal
Reserve System, you may purchase shares of the Portfolios by requesting your
bank to transmit funds by wire. Before making an initial investment by wire,
you must first telephone 1-800-433-0051 to be assigned an account number. Your
name, account number, taxpayer identification number or Social Security Num-
ber, and address must be specified in the wire. In addition, an Account Appli-
cation should be promptly forwarded to: DST Systems, Inc., P.O. Box 419534,
Kansas City, Missouri 64141-6534. All wires must be sent as follows: United
Missouri Bank of Kansas, N.A.; ABA #10-10-00695; for Account Number 98705-
23469; Further Credit: PBHG Growth Fund.
ADDITIONAL PURCHASES BY WIRE
Additional investments may be made at any time through the wire procedures de-
scribed above, which must include your name and account number. Your bank may
impose a fee for investments by wire.
PURCHASES BY ACH
Shares of the Fund may be purchased via Automated Clearing House ("ACH"). In-
vestors purchasing via ACH should attach a voided check to the Account Appli-
cation.
GENERAL INFORMATION REGARDING PURCHASES
A purchase order will be effective as of the day received by the Transfer
Agent if the Transfer Agent receives sufficient information to execute the or-
der and receives payment before 4:00 p.m., Eastern time. Payment may be made
by check or readily available funds. The purchase price of shares of the Port-
folio is the net asset value per share next determined after a purchase order
is effective. Purchases will be made in full and fractional shares of the
Portfolio calculated to three decimal places. The Fund will not issue certifi-
cates representing shares of the Portfolio.
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. The
Fund reserves the right to reject a purchase order when the Fund determines
that it is not in the best interests of the Fund or its shareholders to accept
such order.
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SHAREHOLDER SERVICES
- -------------------------------------------------------------------------------
SHAREHOLDER INQUIRIES AND SERVICES OFFERED
If you have any questions about the Portfolio or the shareholder services de-
scribed below, please call the Fund at 1-800-433-0051. Written inquiries
should be sent to DST SYSTEMS, INC., P.O. BOX 419534, KANSAS CITY, MISSOURI
64141-6534. The Fund reserves the right to amend the shareholder services de-
scribed below or to change the terms or conditions relating to such services
upon 60 days'
9
<PAGE>
notice to shareholders. You may, however, discontinue any service you select,
provided that with respect to the Systematic Investment and Systematic With-
drawal Plans described below, the Fund's Transfer Agent receives your notifi-
cation to discontinue such service(s) at least ten days before the next sched-
uled investment or withdrawal date.
SYSTEMATIC INVESTMENT AND SYSTEMATIC WITHDRAWAL PLANS
For your convenience, the Fund provides plans that enable you to add to your
investment or withdraw from your account(s) with a minimum of paperwork. You
can utilize these plans by simply completing the appropriate section of the
Account Application.
(1) SYSTEMATIC INVESTMENT PLAN. The Systematic Investment Plan is a convenient
way for you to purchase shares in the Portfolio at regular monthly or quar-
terly intervals selected by you. The Systematic Investment Plan enables you to
achieve dollar-cost averaging with respect to investments in the Portfolio de-
spite their fluctuating net asset values through regular purchases of a fixed
dollar amount of shares in the Portfolio. Dollar-cost averaging brings disci-
pline to your investing. Dollar-cost averaging results in more shares being
purchased when the Portfolio's net asset value is relatively low and fewer
shares being purchased when the Portfolio's net asset value is relatively
high, thereby helping to decrease the average price of your shares. Through
the Systematic Investment Plan, shares are purchased by transferring monies
(minimum of $25 per transaction) from your designated checking or savings ac-
count. Your systematic investment in the Portfolio will be processed on a reg-
ular basis at your option beginning on or about either the first or fifteenth
day of the month or quarter you select.
(2) SYSTEMATIC WITHDRAWAL PLAN. The Systematic Withdrawal Plan provides a con-
venient way for you to receive current income while maintaining your invest-
ments in the Portfolio. The Systematic Withdrawal Plan permits you to have
payments of $50 or more automatically transferred from your account(s) in the
Portfolio to your designated checking or savings account on a monthly, quar-
terly, or semi-annual basis. In order to start this Plan, you must have a min-
imum balance of $5,000 in any account utilizing 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 se-
lect.
EXCHANGE PRIVILEGES
Once payment for your shares has been received (i.e., an account has been
established), you may exchange Trust Class shares of the Portfolio into Trust
Class shares of any other Portfolio of the Fund that has Trust Class shares.
Trust Class shares of the Portfolio may not be exchanged for PBHG Class shares
of any Portfolio of the Fund. Currently, Trust Class shares are available only
for the Growth Fund.
Exchanges are limited to four (4) per year. Exchanges are made at net asset
value. The Fund reserves the right to change the terms and conditions of the
exchange privilege described herein, or to terminate the exchange privilege,
upon sixty days' notice.
Exchanges will be effected only after proper instructions in writing or by
telephone (an "Exchange Request") are received for an established account by
the Transfer Agent. Exchange purchases are subject to the minimum investment
requirements for purchases described above. An exchange will be treated as a
redemption and purchase for tax purposes. The exchange privilege may be exer-
cised only in those states in which the shares of the Portfolios purchased may
legally be sold.
TAX-SHELTERED RETIREMENT PLANS
A variety of retirement plans, including IRAs, SEP-IRAs, 401(a) Keogh and Cor-
porate money purchase pension and profit sharing plans, and 401(k) and 403(b)
plans are available to investors in the Fund.
(1) INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS"). You may save for your retirement
and shelter your investment income from current taxes by either: (a) estab-
lishing a new IRA; or (b) "rolling-over" to the Fund monies from other IRA ac-
counts 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 Portfolios. You may also invest
up to $250 per year in a spousal IRA if your spouse has no earned income.
10
<PAGE>
(2) SEP-IRAS. If you are a self-employed person, you can establish a Simpli-
fied Employee Pension Plan ("SEP-IRA"). A SEP-IRA is designed to provide per-
sons with self-employed income (and their eligible employees) with many of the
same tax advantages as a Keogh, but with fewer administrative requirements.
(3) 401(A) KEOGH AND CORPORATE RETIREMENT PLANS. Both a prototype money pur-
chase 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.
(4) 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 Portfolio on
a tax-deferred basis in order to help them meet their retirement needs.
(5) 403(B) PLANS. Section 403(b) plans are custodial accounts which are avail-
able to employees of most non-profit organizations and public schools.
OTHER SPECIAL ACCOUNTS
The Fund also offers the following special accounts to meet your needs:
(1) UNIFORM GIFT TO MINORS. By establishing a Uniform Gift to Minors Account
with the Fund 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.
(2) CUSTODIAL AND FIDUCIARY ACCOUNTS. The Fund provides a convenient means of
establishing custodial and fiduciary accounts for investors with fiduciary re-
sponsibilities.
For further information regarding any of the above retirement plans and ac-
counts, please call toll free at 1-800-433-0051. Retirement investors may,
however, wish to consult with their own tax counsel or adviser.
- -------------------------------------------------------------------------------
HOW TO REDEEM FUND SHARES
- -------------------------------------------------------------------------------
Redemption orders received by the Transfer Agent prior to 4:00 p.m., Eastern
time on any Business Day will be effective that day. The redemption price of
shares is the net asset value per share of the Portfolio next determined after
the redemption order is effective. Payment on redemption 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 pur-
chased by check (including certified or cashier's checks) will be forwarded
only upon collection of payment for such shares; collection of payment may
take up to 15 days. You may not close your accounts by telephone.
You may receive redemption payments in the form of a check or by Federal Re-
serve or ACH wire transfer.
BY MAIL
There is no charge for having a check for redemption proceeds mailed.
BY TELEPHONE
Redemption orders may be placed by telephone. Neither the Fund nor the Trans-
fer Agent will be responsible for any loss, liability, cost or expense for
acting upon wire instructions or upon telephone instructions that it reasona-
bly believes to be genuine. The Fund and the Transfer Agent will each 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 in-
structions. If reasonable procedures are not employed, the Fund and the Trans-
fer Agent may be liable for any losses due to unauthorized or fraudulent tele-
phone transactons.
If market conditions are extraordinarily active, or other extraordinary cir-
cumstances exist and you experience difficulties placing redemption orders by
telephone, you may wish to consider placing your order by other means, such as
mail or overnight delivery.
BY WIRE
The Custodian will deduct a wire charge, currently $10.00, from the amount of
a Federal Reserve wire redemption payment made at the request of a sharehold-
er. Shareholders cannot redeem shares of the Portfolio by Federal Reserve wire
on federal holidays restricting wire transfers.
11
<PAGE>
BY ACH
The Fund does not charge for ACH wire transactions; however, such transactions
will not be posted to your bank account until the second Business Day follow-
ing the transaction.
SIGNATURE GUARANTEES
A signature guarantee is a widely accepted way to protect you by verifying the
signature on certain redemption requests. The Fund requires signature guaran-
tees to be provided in the following circumstances: (1) written requests for
redemptions in excess of $50,000; (2) all requests to wire redemption pro-
ceeds; and (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. Signature guarantees
can be obtained from any of the following institutions: a national or state
bank, a trust company, a federal savings and loan association, or a broker-
dealer that is a member of a national securities exchange. The Fund does 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, the Fund re-
serves the right to redeem shares in any account if, as the result of redemp-
tions, the value of that account drops below $1,000. You will be allowed at
least 60 days, after notice by the Fund, to make an additional investment to
bring your account value up to at least $1,000 before the redemption is proc-
essed.
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.
- -------------------------------------------------------------------------------
SHARE PRICE
- -------------------------------------------------------------------------------
The net asset value per share of the Portfolio is determined by dividing the
total market value of the Portfolio's investments and other assets, less any
liabilities, by the total outstanding shares of the Portfolio. Net asset value
per share is determined daily as of the close of trading on the New York Stock
Exchange (currently 4:00 p.m., Eastern time) on any Business Day. The net as-
set value per share of the Portfolio is listed under PBHG in the mutual fund
section of most major daily newspapers, including the Wall Street Journal.
- -------------------------------------------------------------------------------
PERFORMANCE ADVERTISING
- -------------------------------------------------------------------------------
From time to time, the Portfolio may advertise its yield and total return.
These figures will be based on historical earnings and are not intended to in-
dicate future performance. No representation can be made regarding actual fu-
ture yields or returns. Yield refers to the annualized income generated by an
investment in the Portfolio over a specified 30-day period. The yield is cal-
culated 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 total return of the Portfolio refers to the average compounded rate of re-
turn on a hypothetical investment, for designated time periods (including but
not limited to the period from which the Portfolio 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.
The Portfolio may periodically compare its performance to that of other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical Serv-
ices, Inc.) or by financial and business publications and periodicals, broad
groups of comparable mutual funds, unmanaged indices which may assume invest-
ment of dividends but generally do not reflect deductions for administrative
and management costs and other investment alternatives. The Portfolio 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.
The Portfolio may use long-term performance of these capital markets to demon-
strate general long-term risk versus reward scenarios and could include the
value of a hypothetical investment in any of the capital markets. The Portfo-
lio may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.
The Portfolio may quote various measures of volatility and benchmark correla-
tion in advertising and may compare these measures to those of other funds.
Measures of vola-
12
<PAGE>
tility 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 precise-
ly.
The performance of the Fund's Trust Class shares may be lower than that of the
Fund's PBHG Class shares because of the additional Rule 12b-1 shareholder ser-
vicing expenses charged to Trust Class shares.
- -------------------------------------------------------------------------------
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 ad-
ministrative action. No attempt has been made to present a detailed explana-
tion of the federal, state or local income tax treatment of the Portfolio or
its shareholders. Accordingly, you are urged to consult your tax advisors re-
garding specific questions as to federal, state and local income taxes. See
the Statement of Additional Information.
TAX STATUS OF THE PORTFOLIO:
The Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Fund's other Portfolios. The Portfolio intends to
qualify or to continue to qualify for the special tax treatment afforded regu-
lated investment companies as defined under Subchapter M of the Internal Reve-
nue Code of 1986, as amended. So long as the Portfolio qualifies for this spe-
cial 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 share-
holders.
TAX STATUS OF DISTRIBUTIONS:
The Portfolio 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. Distributions from net investment
income will qualify for the dividends-received deduction for corporate share-
holders only to the extent such distributions are derived from dividends paid
by domestic corporations. It can be expected that only certain dividends of
the Portfolio 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
Portfolio 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 Portfolio (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. The Port-
folio will be required to include as part of its current net investment income
the accrued discount on such obligations for purposes of the distribution re-
quirement even though the Portfolio has not received any interest payments on
such obligations during that period. Because the Portfolio distributes all of
its net investment income to its shareholders, the Portfolio 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 secu-
rities 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 the Portfolio and may be exempt, depend-
ing on the state, when received by a shareholder as income dividends from the
Portfolio 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. The Portfolio will inform shareholders annually of
the percentage of income and distributions derived from direct U.S. obliga-
tions. You should consult your tax advisor to determine whether any portion of
the income dividends received from the Portfolio is considered tax exempt in
your particular state.
Dividends declared by the Portfolio 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 the Portfolio and received by the share-
holders on December 31 of that year, if paid by the Portfolio at any time dur-
ing the following January.
13
<PAGE>
The Portfolio 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 the Portfolio's shares is a taxable event
to the shareholder.
Income derived by the Portfolio from securities of foreign issuers may be sub-
ject to foreign withholding taxes.
- -------------------------------------------------------------------------------
GENERAL INFORMATION
- -------------------------------------------------------------------------------
THE FUND
The Fund, an open-end management investment company, was originally incorpo-
rated in Delaware in 1985 under the name PBHG Growth Fund, Inc. Effective
July 31, 1992, the Fund was reorganized as a Maryland corporation pursuant to
an Agreement and Articles of Merger which was approved by Fund shareholders on
July 21, 1992. On September 8, 1993, the Fund's shareholders voted to change
the name of the Fund to The Advisors' Inner Circle Fund II, Inc. On May 2,
1994, the Fund's shareholders voted to change the name of the Fund to The PBHG
Funds, Inc. The Fund has an authorized capitalization of 6.4 billion shares of
$0.001 par value common stock. All consideration received by the Fund for
shares of any of its portfolios and all assets of such portfolio belong to
that portfolio and would be subject to liabilities related thereto. The Fund
reserves the right to create and issue shares of additional portfolios.
Each Portfolio of the Fund pays its respective expenses relating to its opera-
tion, including fees of its service providers, audit and legal expenses, ex-
penses of preparing prospectuses, proxy solicitation material and reports to
shareholders, costs of custodial services and registering the shares of such
portfolio under federal and state securities laws, pricing and insurance ex-
penses and pays additional expenses including litigation and other extraordi-
nary expenses, brokerage costs, interest charges, taxes and organization ex-
penses. The Portfolio's expense ratios are disclosed under "Financial High-
lights" in this prospectus.
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 controlling shareholder of the Adviser is United
Asset Management Corporation ("UAM"), a New York Stock Exchange listed holding
company principally engaged, through affiliated firms, in providing institu-
tional investment management services and acquiring institutional investment
management firms. UAM's corporate headquarters are located at One Interna-
tional Place, Boston, Massachusetts 02110. The Adviser currently has discre-
tionary management authority with respect to approximately $8 billion in as-
sets. In addition to advising the Portfolio and other Portfolios of the Fund,
the Adviser provides advisory services to pension and profit-sharing plans,
charitable institutions, corporations, individual investors, trusts and es-
tates, and other investment companies. The principal business address of the
Adviser is 1255 Drummers Lane, Suite 300, Wayne, Pennsylvania 19087.
The Adviser serves as the investment adviser to the Portfolio under an invest-
ment advisory agreement with the Fund (the "Advisory Agreement"). The Adviser
makes the investment decisions for the assets of the Portfolio and continu-
ously reviews, supervises and administers the investment program of the Port-
folio, subject to the supervision of, and policies established by, the Board
of Directors of the Fund.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of .85% of average daily net assets. The
investment advisory fees paid by the Portfolio are higher than those paid by
most investment companies, although the Adviser believes the fees to be compa-
rable to those paid by investment companies with similar investment objectives
and policies. The Adviser has voluntarily agreed to waive a portion of its fee
and reimburse expenses in an amount necessary to limit annual operating ex-
penses to not more than 1.75% of the average daily net assets of the Portfo-
lio. The Adviser reserves the right to terminate its voluntary fee waivers and
reimbursements at any time in its sole discretion. For the fiscal year ended
March 31, 1995, the Adviser received a fee equal to .81% of the Portfolio's
average daily net assets.
Gary L. Pilgrim, CFA, has served as the portfolio manager of the Growth Fund
since its inception. Mr. Pilgrim has
14
<PAGE>
also served as the Chief Investment Officer for the Adviser for the past five
years, and has been its President since 1993.
THE ADMINISTRATOR
SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), provides the Fund 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 .20% of the
average daily net assets of the Portfolio.
THE TRANSFER AGENT
DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri 64141-6534 serves as
the transfer agent, dividend disbursing agent and shareholder servicing agent
for the Fund under a transfer agent agreement with the Fund.
DISTRIBUTION
SEI Financial Services Company (the "Distributor"), 680 East Swedesford Road,
Wayne, Pennsylvania 19087-1658, a wholly-owned subsidiary of SEI, provides the
Fund with distribution services. The Fund, on behalf of the Portfolio, has
adopted a Service Plan pursuant to which the Portfolio pays Rule 12b-1 share-
holder servicing fees at an aggregate annual rate of up to .25% of the Portfo-
lio's average daily net assets attributable to Trust Class shares. The share-
holder servicing fee is intended to compensate financial intermediaries, plan
fiduciaries and investment professionals ("Service Providers") for providing
personal services, distribution support services, and/or account maintenance
services to shareholders of the underlying beneficial owners of Trust Class
shares or to insurance companies or their affiliates for providing similar
services for which they are not otherwise compensated by variable annuity or
variable life insurance contractholders. The Fund, on behalf of the Portfolio,
will make monthly payments to Service Providers under the Service Plan based
on the average net asset value of Trust Class shares that are serviced or sup-
ported by such Service Providers. These payments to Service Providers are
characterized as compensation and are not directly tied to the expenses in-
curred by them. The Fund intends to operate the Service Plan in accordance
with its terms and all applicable NASD rules.
DIRECTORS OF THE FUND
The management and affairs of the Fund are supervised by the Board of Direc-
tors under the laws of the State of Maryland. The Directors have approved con-
tracts under which, as described above, certain companies provide essential
management services to the Fund.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote. Shareholders
of the Portfolio will vote separately on matters relating solely to the Port-
folio, such as approval of advisory agreements and changes in fundamental pol-
icies, and matters affecting some but not all Portfolios of the Fund will be
voted on only by shareholders of the affected Portfolios. Shareholders of all
Portfolios of the Fund will vote together in matters affecting the Fund gener-
ally, such as the election of Directors or selection of accountants. As a
Maryland corporation, the Fund is not required to hold annual meetings of
shareholders but shareholder approval will be sought for certain changes in
the operation of the Fund and for the election of Directors under certain cir-
cumstances. In addition, a Director may be removed by the remaining Directors
or by shareholders at a special meeting called upon written request of share-
holders owning at least 10% of the outstanding shares of the Fund. In the
event that such a meeting is requested, the Fund will provide appropriate as-
sistance and information to the shareholders requesting the meeting.
REPORTING
The Fund issues unaudited financial information semi-annually, and audited fi-
nancial statements annually for the Portfolio. The Fund also furnishes peri-
odic reports and, as necessary, proxy statements to shareholders of record.
SHAREHOLDER INQUIRIES
You may direct inquiries to the Fund by writing to The PBHG Funds, Inc., P.O.
Box 419009, Kansas City, Missouri 64141-6009, or by calling 1-800-433-0051.
15
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Substantially all of the net investment income (exclusive of capital gains) of
the Portfolio is distributed in the form of annual dividends. If any capital
gain is realized, substantially all of it will be distributed by the Portfolio
at least annually.
Shareholders automatically receive all dividends and capital gain distribu-
tions in additional shares at the net asset value determined on the next Busi-
ness 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 distribu-
tion. Shareholders may receive payments for cash distributions in the form of
a check or by Federal Reserve or ACH wire transfer.
Dividends and distributions of the Portfolio 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 distri-
bution 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 distribu-
tion.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Katten Muchin & Zavis serves as counsel to the Fund. Arthur Andersen LLP
serves as the independent public accountants of the Fund.
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadel-
phia, Pennsylvania 19101, serves as the custodian for the Portfolio (the "Cus-
todian"). The Custodian holds cash, securities and other assets of the Portfo-
lio as required by the Investment Company Act of 1940, as amended (the "1940
Act").
- -------------------------------------------------------------------------------
GLOSSARY OF PERMITTED INVESTMENTS
- -------------------------------------------------------------------------------
The following is a description of permitted investments for the Portfolio:
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 some-
times 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.
CONVERTIBLE SECURITIES -- Securities such as rights, bonds, notes and pre-
ferred 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 con-
vertible securities tends to move together with the market value of the under-
lying common stock. As a result, the Portfolio's selection of convertible se-
curities is based, to a great extent, on the potential for capital apprecia-
tion that may exist in the underlying stock. The value of convertible securi-
ties is also affected by prevailing interest rates, the credit quality of the
issuer, and any call provisions.
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 the Portfolio'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
16
<PAGE>
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 the Portfolio's securities are or may be denominated. A forward for-
eign 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 pros-
pect for changes in currency exchange rates will be incorporated into the
Portfolio's long-term investment strategies. However, the Adviser believes
that it is important to have the flexibility to enter into forward foreign
currency contracts when they determine that the best interests of the Portfo-
lio will be served.
When the Adviser believes that the currency of a particular country may suffer
a significant decline against the U.S. dollar or against another currency, the
Portfolio 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 for-
eign currency approximating the value of some or all of the Portfolio's secu-
rities denominated in such foreign currency.
At the maturity of a forward foreign currency contract, the Portfolio may ei-
ther 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 cur-
rency trader, obligating it to purchase, on the same maturity date, the same
amount of the foreign currency. The Portfolio may realize a gain or loss from
currency transactions.
Generally, the Portfolio will enter into forward foreign currency contracts
only as a hedge against foreign currency exposure affecting the Portfolio or
to hedge a specific security transaction or portfolio position. If the Portfo-
lio enters into forward foreign currency contracts to cover activities which
are essentially speculative, the Portfolio will segregate cash or readily mar-
ketable securities with its custodian, or a designated sub-custodian, in an
amount at all times equal to or exceeding the Portfolio's commitment with re-
spect to such contracts.
ILLIQUID SECURITIES -- Securities that cannot be disposed of in the ordinary
course of business within seven days at approximately the price at which the
Portfolio has valued the security.
MONEY MARKET INSTRUMENTS -- Money market securities are high-quality, dollar-
denominated, short-term debt instruments. They consist of: (i) bankers' ac-
ceptances, certificates of deposit, notes and time deposits of highly-rated
U.S. banks and U.S. branches of foreign banks; (ii) U.S. Treasury obligations
and obligations issued or guaranteed by the agencies and instrumentalities of
the U.S. Government; (iii) high-quality commercial paper issued by U.S. and
foreign corporation; (iv) debt obligations with a maturity of one year or less
issued by corporations with outstanding high-quality commercial paper; and (v)
repurchase agreements involving any of the foregoing obligations entered into
with highly-rated banks and broker-dealers.
REPURCHASE AGREEMENTS -- Agreements by which a person obtains a security and
simultaneously commits to return it to the seller at an agreed upon price (in-
cluding principal and interest) on an agreed upon date within a number of days
from the date of purchase. The Fund's Custodian or its agents will hold the
security as collateral for the repurchase agreement. Collateral must be main-
tained at a value at least equal to 102% of the purchase price. The Portfolio
bears a risk of loss in the event the other party defaults on its obligations
and the Portfolio is delayed or prevented from its right to dispose of the
collateral securities or if the Portfolio realizes a loss on the sale of the
collateral securities. The Adviser will enter into repurchase agreements on
behalf of the Portfolio only with financial institutions deemed to present
minimal risk of bankruptcy during the term of the agreement based on guide-
lines 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.
RESTRICTED SECURITIES -- Securities that may not be sold freely to the public
absent registration under the Securities Act of 1933 or an exemption from reg-
istration. The Portfolio 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 Fund. The Board of Directors will
periodically review such procedures and guidelines and will monitor the Advis-
er's implementation of such procedures and guide-
17
<PAGE>
lines. 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.
The Portfolio may purchase restricted securities sold in reliance upon the ex-
emption from registration provided by Rule 144A under the Securities Act of
1933. Restricted securities may be difficult to value because market quota-
tions may not be readily available. Because of the restrictions on the resale
of restricted securities, they may pose liquidity problems for the Portfolio.
U.S. GOVERNMENT SECURITIES--Bills, notes and bonds issued by the U.S. Govern-
ment 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. Trea-
sury, and separately traded interest and principal component parts of such ob-
ligations that are transferable through the Federal book-entry system known as
Separately Traded Registered Interest and Principal Securities ("STRIPS").
WARRANTS -- Instruments giving holders the right, but not the obligation, to
buy shares of a company at a given price during a specified period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- The Portfolio may purchase se-
curities on a when-issued or delayed-delivery basis. When the Portfolio pur-
chases securities on a when-issued or delayed-delivered basis, the price of
such securities is fixed at the time of the commitment, but delivery and pay-
ment for the securities may take place up to 120 days after the date of the
commitment to purchase. The securities so purchased are subject to market
fluctuation and no interest accrues to the purchaser during this period. When-
issued and delayed-delivery securities involve a risk of loss if the value of
the security to be purchased declines prior to the settlement date or in-
creases in value and there is a failure to deliver the security.
18
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Summary..................................................................... 2
Expense Summary............................................................. 3
Financial Highlights........................................................ 4
The Fund and the Portfolio.................................................. 6
Investment Objectives and Policies.......................................... 6
General Investment Policies and Strategies.................................. 6
Risk Factors................................................................ 7
Investment Limitations...................................................... 8
</TABLE>
<TABLE>
<S> <C>
How to Purchase Fund Shares................................................. 8
Shareholder Services........................................................ 9
How to Redeem Fund Shares................................................... 11
Share Price................................................................. 12
Performance Advertising..................................................... 12
Taxes....................................................................... 13
General Information......................................................... 14
Glossary of Permitted Investments........................................... 16
</TABLE>
<PAGE>
The PBHG Funds, Inc.
P.O. Box 419534
Kansas City, MO 64141-6534
Investment Adviser:
Pilgrim Baxter & Associates, Ltd.
Distributor:
SEI Financial Services Company PROSPECTUS
April 1, 1996
TRUST CLASS
SHARES
To open an account, PBHG Growth Fund
receive account information,
make inquiries or
request literature:
1-800-433-0051
[LOGO OF THE PBHG FUNDS INC APPEARS HERE]
<PAGE>
Fund:
THE PBHG FUNDS, INC.
Portfolios:
PBHG GROWTH FUND
PBHG EMERGING GROWTH FUND
PBHG LARGE CAP GROWTH FUND
PBHG SELECT EQUITY FUND
PBHG TECHNOLOGY & COMMUNICATIONS FUND
PBHG INTERNATIONAL FUND
PBHG CORE GROWTH FUND
PBHG CASH RESERVES FUND
Investment Adviser:
PILGRIM BAXTER & ASSOCIATES, LTD.
This Statement of Additional Information is not a prospectus and relates only to
the PBHG Growth Fund, PBHG Emerging Growth Fund, PBHG Large Cap Growth Fund,
PBHG Select Equity Fund, PBHG International Fund, PBHG Technology &
Communications Fund, PBHG Core Growth Fund and PBHG Cash Reserves Fund (the
"Portfolios"). It is intended to provide additional information regarding the
activities and operations of The PBHG Funds, Inc. (the "Fund") and the
Portfolios and should be read in conjunction with the Portfolios' Prospectuses
dated January 15, 1996. The Prospectuses for the Portfolios may be obtained by
calling 1-800-433-0051.
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE FUND..................................................... S - 2
DESCRIPTION OF PERMITTED INVESTMENTS......................... S - 2
INVESTMENT LIMITATIONS....................................... S - 4
THE ADVISER.................................................. S - 9
THE SUB-ADVISERS............................................. S - 11
THE ADMINISTRATOR............................................ S - 13
THE DISTRIBUTOR.............................................. S - 14
DIRECTORS AND OFFICERS OF THE FUND........................... S - 16
COMPUTATION OF YIELD......................................... S - 19
CALCULATION OF TOTAL RETURN.................................. S - 20
PURCHASE AND REDEMPTION OF SHARES............................ S - 21
DETERMINATION OF NET ASSET VALUE............................. S - 21
TAXES........................................................ S - 23
PORTFOLIO TRANSACTIONS....................................... S - 26
DESCRIPTION OF SHARES........................................ S - 29
5% AND 25% SHAREHOLDERS...................................... S - 29
INFORMATION ABOUT THE PBHG TECHNOLOGY & COMMUNICATIONS FUND.. S - 32
EXPERTS...................................................... S - 32
FINANCIAL STATEMENTS......................................... S - 33
</TABLE>
January 15, 1996
<PAGE>
THE FUND
This Statement of Additional Information relates only to the Fund's PBHG Growth
Fund, PBHG Emerging Growth Fund, PBHG Large Cap Growth Fund, PBHG Select Equity
Fund, PBHG International Fund, PBHG Technology & Communications Fund, PBHG Core
Growth Fund and PBHG Cash Reserves Fund (each a "Portfolio" and, together, the
"Portfolios"). Each Portfolio is a separate series of The PBHG Funds, Inc. (the
"Fund"), which was originally incorporated in Delaware on August 2, 1985 under
the name PBHG Growth Fund, Inc. and commenced business shortly thereafter as an
open-end diversified management investment company under the Investment Company
Act of 1940, as amended (the "1940 Act"). On July 21, 1992, shareholders of the
Fund approved an Agreement and Articles of Merger pursuant to which the Fund was
reorganized and merged into a new Maryland corporation, also named PBHG Growth
Fund, Inc. On September 8, 1993, the shareholders of the Fund voted to change
the name of the Fund to The Advisors' Inner Circle Fund II, Inc. On May 2,
1994, the shareholders voted to change the Fund's name to The PBHG Funds, Inc.
The articles of incorporation permit the Fund to offer separate classes of
shares of each Portfolio. Shareholders may purchase shares through two separate
classes, PBHG Class and Trust Class shares, which provide for differences in
distribution costs, voting rights and dividends. Except for these differences,
each PBHG Class share and Trust Class share of each Portfolio represents an
equal proportionate interest in that Portfolio. See "Description of Shares."
This Statement of Additional Information relates to the PBHG Class shares of the
PBHG Growth Fund, PBHG Emerging Growth Fund, PBHG Large Cap Growth Fund, PBHG
Select Equity Fund, PBHG Technology & Communications Fund, PBHG International
Fund, PBHG Core Growth Fund and PBHG Cash Reserves Fund, and Trust Class shares
of the PBHG Growth Fund and PBHG Large Cap Growth Fund. No investment in shares
of a Portfolio should be made without first reading the Portfolio's prospectus.
Capitalized terms not defined herein are defined in the Prospectuses offering
shares of the Portfolios.
DESCRIPTION OF PERMITTED INVESTMENTS
Repurchase agreements are agreements by which a person (e.g., a portfolio)
----
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 Portfolio for purposes of
its investment limitations. The repurchase agreements entered into by the
Portfolios 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 (the
Adviser or Sub-Adviser monitors
S - 2
<PAGE>
compliance with this requirement). Under all repurchase agreements entered into
by a Portfolio, the Fund's custodians or their agents must take possession of
the underlying collateral. However, if the seller defaults, the Portfolio 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 Portfolio
may incur delay and costs in selling the underlying security or may suffer a
loss of principal and interest if the Portfolio is treated as an unsecured
creditor of the seller and is required to return the underlying security to the
seller's estate.
Options are contracts that give one of the parties to the contract the right to
buy or sell the security that is subject to the option at a stated price during
the option period, and obligates the other party to the contract to buy or sell
such security at the stated price during the option period.
The Portfolios may trade put and call options on stocks and stock indices to a
limited extent, as the Adviser or Sub-Adviser determines is appropriate in
seeking a Portfolio's investment objective, and except as restricted by each
Portfolio's investment limitations as set forth below. See "Investment
Limitations."
The initial purchase (sale) of an option contract is an "opening transaction."
In order to close out an option position, the Portfolio may enter into a
"closing transaction," which is a sale (purchase) of an option contract on the
same security with the same exercise price and expiration date as the option
contract originally opened.
A put option gives the purchaser (the Portfolio) the right to sell, and imposes
on the writer the obligation to buy, the underlying security at the exercise
price during the option period. The advantage to the Portfolio of buying the
protective put is that if the price of the stock falls during the option period,
the Portfolio may exercise the put and receive the higher exercise price for the
stock. However, if the security rises in value, the Portfolio will have paid a
premium for the put, which will expire unexercised.
A call option gives the purchaser (the Portfolio) the right to buy, and imposes
on the writer the obligation to sell, the underlying security at the exercise
price during the option period. A Portfolio may buy fiduciary calls on stocks
that it is trying to buy. The advantage to the Portfolio of buying the
fiduciary call is that if the price of the stock rises during the option period,
the Portfolio may exercise the call and buy the stock for the lower exercise
price. If the security falls in value, however, the Portfolio will have paid a
premium for the call which will expire worthless, but the Portfolio will be able
to buy the stock at a lower price.
As discussed above, a call gives the purchaser the right to buy and imposes on
the writer (the Portfolio) the obligation to sell, the underlying security at
the exercise price during the option period. The advantage to the Portfolio of
writing covered call options is that
S - 3
<PAGE>
the Portfolio receives a premium, which is additional income. However, if the
security rises in value, the Portfolio may not fully participate in the market
appreciation. During the option period, a covered call option writer may be
assigned an exercise notice by the broker-dealer through whom such call option
was sold requiring the writer to deliver the underlying security against payment
of the exercise price. The Portfolio's obligation as the writer of a covered
call is terminated upon the expiration of the option period or at such earlier
time in which the writer effects a closing purchase transaction. As noted
above, a closing purchase transaction is one in which the Portfolio, when
obligated as a writer of an option, terminates its obligation by purchasing an
option of the same series as the option previously written. A closing purchase
transaction cannot be effected with respect to an option once the option writer
has received an exercise notice for such option.
The market value of an option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the pricing volatility of the underlying
security and the time remaining until the expiration date.
Although the Portfolios will engage in option transactions only as hedging
transactions and not for speculative purposes, there are risks associated with
such investments including the following: (i) the success of a hedging strategy
may depend on the ability of the Adviser or Sub-Adviser to predict movements in
the prices of the individual securities, fluctuations in markets and movements
in interest rates; (ii) there may be imperfect correlation between the movement
in prices of securities held by the Portfolio; (iii) there may not be a liquid
secondary market for options; and (iv) while the Portfolio 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.
Investment Company Shares that each Portfolio may invest in are limited to
shares of money market mutual funds, except as set forth under "Investment
Limitations" below. Since such funds pay management fees and other expenses,
shareholders of the Portfolios would indirectly pay both Portfolio expenses and
the expenses of underlying funds with respect to Portfolio assets invested
therein. Applicable regulations prohibit a Portfolio from acquiring the
securities of other investment companies if, as a result of such acquisition,
the Portfolio owns more than 3% of the total voting stock of the company; more
than 5% of the Portfolio's total assets are invested in securities of any one
investment company; or more than 10% of the total assets of the Portfolio are
invested in securities (other than treasury stock) issued by all investment
companies.
INVESTMENT LIMITATIONS
Fundamental Policies
Each Portfolio has adopted certain investment restrictions which, in addition to
those restrictions in the Prospectus, are fundamental and may not be changed
without approval
S - 4
<PAGE>
by a majority vote of the Portfolio's shareholders. Such majority is defined in
the 1940 Act as the lesser of (i) 67% or more of the voting securities of the
Portfolio 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
Portfolio.
PBHG Growth Fund
The PBHG Growth Fund may not:
1. With respect to 75% of its assets, purchase more than 10% of the outstanding
voting securities of any one issuer.
2. Pledge any of its assets, except that the Portfolio may pledge assets having
a value of not more than 10% of its total assets in order to (i) secure
permitted borrowings, or (ii) as may be necessary in connection with the
Portfolio's use of options and futures contracts.
3. Purchase or write puts, calls or combinations thereof, except that the
Portfolio may invest in and commit its assets to writing and purchasing only put
and call options that are listed on a national securities exchange and issued by
the Options Clearing Corporation to the extent permitted by the prospectus and
this Statement of Additional Information. In order to comply with the
securities laws of several states, the Portfolio (as a matter of operating
policy) will not write a covered call option if, as a result, the aggregate
market value of all portfolio securities covering call options or subject to put
options for that Portfolio exceeds 25% of the market value of that Portfolio's
net assets.
4. 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 the
Portfolio 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 Portfolio, would exceed 15% of the value of its net assets.
5. 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.
6. Engage in the underwriting of securities of other issuers, except that the
Portfolio may sell an investment position even though it may be deemed to be an
underwriter as that term is defined in the Securities Act of 1933.
S - 5
<PAGE>
7. Purchase or sell real estate, commodities or commodity contracts, except
that the Portfolio may enter into futures contracts and options thereon that are
listed on a national securities or commodities exchange where, as a result
thereof, no more than 5% of the total assets for that Portfolio (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 Commodity Futures Trading Commission regulations, may be excluded in
computing such 5% limit.
8. Invest in interests in oil, gas or other mineral exploration or development
programs.
PBHG Emerging Growth, PBHG Large Cap Growth, PBHG Select Equity, PBHG
International, PBHG Technology & Communications, PBHG Core Growth and PBHG Cash
Reserves Funds
Each of the PBHG Emerging Growth, PBHG Large Cap Growth, PBHG Select Equity,
PBHG International, PBHG Technology & Communications, PBHG Core Growth and PBHG
Cash Reserves Funds may not:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of total assets. This borrowing provision
is included solely to facilitate 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 Portfolio's total
assets will be repaid before making investments.
4. Make loans, except that each Portfolio, in accordance with that Portfolio's
investment objectives and policies, may (i) purchase or hold debt instruments,
and (ii) enter into repurchase agreements as described in the Portfolio's
prospectus and this Statement of Additional Information. In addition, the
International Fund may lend its portfolio securities in an amount not exceeding
one-third the value of its total assets.
5. Pledge, mortgage or hypothecate assets, except (i) to secure temporary
borrowings permitted by each Portfolio's limitation on permitted borrowings, or
(ii) in connection with permitted transactions regarding options and futures
contracts, in aggregate amounts not to exceed 10% of total assets taken at
current value of the time of the occurrence of such pledge, mortgage or
hypothecation.
6. Purchase or sell real estate, real estate limited partnership interests,
futures contracts, commodities or commodity contracts, except that this shall
not prevent a Portfolio from
S - 6
<PAGE>
(i) investing in readily marketable securities of issuers which can invest in
real estate or commodities, institutions that issue mortgages, or real estate
investment trusts which deal in real estate or interests therein, pursuant to
the Portfolio's investment objective and policies, and (ii) entering into
futures contracts and options thereon that are listed on a national securities
or commodities exchange where, as a result thereof, no more than 5% of the total
assets for that Portfolio (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. Each
Portfolio (as a matter of operating policy) will utilize only listed futures
contracts and options thereon.
7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that each Portfolio 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 Portfolio's
use of options and futures contracts.
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
9. Purchase securities of other investment companies except as permitted by the
1940 Act and the rules and regulations thereunder.
10. 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 Portfolio's limitation on borrowing money and each
Portfolio's limitation on permitted borrowings and each Portfolio's limitation
on pledging, mortgaging or hypothecating assets, or as permitted by rule,
regulation or order of the SEC.
11. Invest in interests in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
Non-fundamental Policies
In addition to the foregoing, and the policies set forth in each Portfolio's
Prospectus, each Portfolio has adopted additional investment restrictions which
may be amended by the Board of Directors without a vote of shareholders.
PBHG Growth Fund
The PBHG Growth Fund may not:
1. Purchase more than 10% of the outstanding voting securities of any one
issuer.
S - 7
<PAGE>
2. Purchase the security of any one issuer if such purchase would cause more
than five percent of the Portfolio's net assets (determined at the time of the
purchase) to be invested in the securities of such issuer except United States
Government securities.
3. Invest in the securities of foreign issuers if, at the time of acquisition,
more than 15% of the value of the Portfolio's total assets would be invested in
such securities.
4. Invest more than 5% of its assets in companies having a record, together
with predecessors, of less than three years continuous operation.
5. Purchase securities which are not registered under the Securities Act of
1933, except that the Portfolio may invest in securities of foreign issuers.
6. Make short sales or purchase securities on margin; but it may obtain such
short-term credits as are necessary for the clearance of purchases and sales of
securities.
7. Invest (i) more than 5% of its net assets in warrants or (ii) more than 2%
of its net assets in warrants which are not traded on the New York Stock
Exchange or the American Stock Exchange.
8. Purchase or retain securities of an issuer if, to the knowledge of the
Portfolio, an officer, trustee, partner or director of the Portfolio or any
investment adviser of the Portfolio owns beneficially more than 1/2 of 1% of the
shares or securities of such issuer and all such officers, trustees, partners
and directors owning more than 1/2 of 1% of such shares or securities together
own more than 5% of such shares or securities.
9. 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 Portfolio'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.
PBHG Emerging Growth, PBHG Large Cap Growth, PBHG Select Equity, PBHG
International, PBHG Technology & Communications, PBHG Core Growth and PBHG Cash
Reserves Funds
Each of the PBHG Emerging Growth, PBHG Large Cap Growth, PBHG Select Equity,
PBHG International, PBHG Technology & Communications, PBHG Core Growth and PBHG
Cash Reserves Funds may not:
1. Invest in illiquid securities in an amount exceeding, in the aggregate, 15%
of its net assets. This limitation does not include any Rule 144A restricted
security that has been determined by, or pursuant to procedures established by,
the Board, based on trading markets for such security, to be liquid. However,
certain state securities regulators have required that the Portfolio not invest
more than 10% of its net assets in restricted
S - 8
<PAGE>
securities; the Portfolio will so limit its investments, but intends to remove
or loosen this restriction once permitted to do so by state regulators.
2. Invest in warrants valued at lower of cost or market value in an aggregate
amount not exceeding 5% of the Portfolio's net assets. Included in that amount,
but not to exceed 2% of the Portfolio's net assets, may be warrants not listed
on the New York Stock Exchange or American Stock Exchange.
3. Invest more than 10% of its total assets in the securities of issuers which
together with any predecessors have a record of less than three years continuous
operation. To comply with certain state securities restrictions, the Portfolio
will not invest more than 5% of its total assets in securities of such issuers;
however, if these restrictions are loosened, the Portfolio reserves the right to
invest up to 10% of its total assets in securities of such issuers without
advance notice to its shareholders.
4. Purchase securities of other investment companies, except to the extent such
purchase is limited to shares of money market funds and the Adviser will waive
its fee on that portion of the assets placed in such money market funds.
5. Purchase or retain securities of an issuer if, to the knowledge of the
Portfolio, an officer, trustee, partner or director of the Portfolio or any
investment adviser of the Portfolio owns beneficially more than 1/2 of 1% of the
shares or securities of such issuer and all such officers, trustees, partners
and directors owning more than 1/2 of 1% of such shares or securities together
own more than 5% of such shares or securities.
6. Purchase puts, calls, straddles, spreads, and any combination thereof, if by
reason thereof the value of its aggregate investment in such classes of
securities will exceed 5% of its total assets.
The foregoing percentages will apply at the time of the purchase of a security.
THE ADVISER
The Fund and Pilgrim Baxter & Associates, Ltd. (the "Adviser") have entered into
an advisory agreement (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 Fund 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: (1) provide a program of
continuous investment management for the Fund in accordance with the Fund's
investment objectives, policies and limitations; (2) make investment decisions
for the Fund; and (3) place orders to purchase and sell securities for the Fund,
subject to the supervision of the
S - 9
<PAGE>
Board of Directors. The Advisory Agreement requires the Adviser to pay its
overhead and employee costs and the compensation and expenses of all its
partners, officers and employees who serve as officers and executive employees
of the Fund. The Advisory Agreement provides that the Adviser is not
responsible for other expenses of operating the Fund. See the Prospectuses for
a description of expenses borne by the Fund.
For the fiscal years ended March 31, 1993, 1994 and 1995, the Portfolios paid
the following advisory fees:
<TABLE>
<CAPTION>
========================================================================================
Fees Paid Fees Waived
==================================================================
Portfolio 1993 1994 1995 1993 1994 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PBHG Growth Fund/+/ $5,407 $362,516 $4,883,694 $21,421 $29,276 $ 0
- ----------------------------------------------------------------------------------------
PBHG International * * $ 98,194 * * $12,025
Fund/1/
- ----------------------------------------------------------------------------------------
PBHG Emerging * $214,910/1/ $ 726,696 * $ 0 $ 0
Growth Fund/++/
========================================================================================
</TABLE>
* Not in operation during the period.
/+/ Fiscal year ended March 31.
/++/ The PBHG Emerging Growth Fund retained the October 31 fiscal year end of
its predecessor only for fiscal year 1994. The Portfolio changed its fiscal year
end to March 31 in 1995 and is reporting financial information for the fiscal
period from November 1, 1994 to March 31, 1995.
/1/ For the period from June 3, 1994 (commencement of operations) through
October 31, 1994.
As of the fiscal year ended March 31, 1995, the PBHG Large Cap Growth, PBHG
Select Equity, PBHG Technology & Communications, PBHG Core Growth and PBHG Cash
Reserves Funds had not yet commenced operations.
The Adviser has voluntarily agreed to waive a portion of its fee and reimburse
expenses in an amount that operates to limit total annual operating expenses to
not more than a specified percentage of each class of shares of certain of the
Portfolios. For the PBHG Class shares of each of the PBHG Growth, PBHG Emerging
Growth, PBHG Large Cap Growth, PBHG Select Equity, PBHG Technology &
Communications and PBHG Core Growth Funds, the percentage is 1.50%; for the PBHG
Class shares of the PBHG Cash Reserves Fund, the percentage is .70%; and for the
Trust Class shares of the PBHG Growth and PBHG Large Cap Growth Funds, the
percentage is 1.75%. In addition, the Adviser and Murray Johnstone
International Limited, the PBHG International Fund's Sub-Adviser, each has
voluntarily agreed to waive a portion of its fee pro rata in an amount based on
the percentage that such entity's fee bears to the total fees paid or due to the
Adviser by the Fund in order to limit total annual operating expenses to not
more than 2.25% of the average daily net assets of the PBHG International Fund.
The Adviser and Sub-Advisers reserve the right to terminate their voluntary fee
waivers and reimbursements at any time in their sole discretion.
S - 10
<PAGE>
The annual fees of the Adviser will be reduced to the extent that the Fund's
ordinary expenses for any fiscal year (including advisory fees, but excluding
brokerage commissions, interest, local, state and Federal taxes and
extraordinary expenses) exceed the expense limitations of any state having
jurisdiction over the Fund. In such event, the annual advisory fees will be
reduced pro rata (but not below zero) to the extent necessary to comply with
such expense limitations. At the date of this Statement of Additional
Information, the strictest expense limitation applicable to the Fund is 2.5% of
the first $30 million of the Fund's average net assets, 2.0% of the next $70
million of average net assets, and 1.5% of the remaining average net assets of
any fiscal year.
To the extent a Portfolio is registered in the State of California and purchases
securities of open-end investment companies, the Adviser will waive its advisory
fee on that portion of that Portfolio's assets invested in such securities.
The continuance of the Advisory Agreement after the first two years must be
specifically approved at least annually (a) by the Fund's Board of Directors or
by vote of a majority of the Fund's outstanding voting securities and (b) 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 (a)
at any time without penalty by the Fund upon the vote of a majority of the
directors or by vote of the majority of the Fund's outstanding voting securities
upon 60 days' written notice to the Adviser or (b) by the Adviser at any time
without penalty upon 60 days' written notice to the Fund. The Advisory
Agreement will also terminate automatically in the event of its assignment (as
defined in the 1940 Act).
THE SUB-ADVISERS
PBHG International Fund
The Fund, on behalf of the PBHG International Fund, and the Adviser have entered
into a sub-advisory agreement (the "Murray Johnstone Sub-Advisory Agreement")
with Murray Johnstone International Limited ("Murray Johnstone"). The Murray
Johnstone Sub-Advisory Agreement provides certain limitations on Murray
Johnstone's liability, but also provides that Murray Johnstone shall not be
protected against any liability to the Fund 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 Murray Johnstone Sub-Advisory Agreement obligates Murray Johnstone to: (1)
manage the investment operations of the PBHG International Fund and the
composition of the Portfolio's portfolio, including the purchase, retention and
disposition thereof in accordance with the Portfolio's investment objectives,
policies and limitations; (2) provide supervision of the Portfolio's investments
and determine from time to time what investments and securities will be
purchased, retained or sold by the Portfolio, and what portion of the assets
will be invested or held uninvested in cash; and (3) determine the
S - 11
<PAGE>
securities to be purchased or sold by the Portfolio 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 Portfolio's Prospectus or as the Board of
Directors or the Adviser may direct from time to time, in conformity with
federal securities laws.
The continuance of the Murray Johnstone Sub-Advisory Agreement after the first
two years must be specifically approved at least annually (a) by the Fund's
Board of Directors or by vote of a majority of the Fund's outstanding voting
securities and (b) 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 Murray Johnstone
Sub-Advisory Agreement may be terminated (a) by the Portfolio at any time,
without the payment of any penalty, by the vote of a majority of Directors of
the Fund or by the vote of a majority of the outstanding voting securities of
the Portfolio, (b) 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 (c) by Murray Johnstone at any time, without the payment of
any penalty, on 90 days' written notice to the other parties. The Murray
Johnstone Sub-Advisory Agreement will also terminate automatically in the event
of its assignment (as defined in the 1940 Act).
PBHG Cash Reserves Fund
The Fund, on behalf of the PBHG Cash Reserves Fund, and the Adviser have entered
into a sub-advisory agreement (the "WMC Sub-Advisory Agreement") with Wellington
Management Company ("WMC"). The WMC Sub-Advisory Agreement provides certain
limitations on WMC's liability, but also provides that WMC shall not be
protected against any liability to the Fund 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 WMC Sub-Advisory Agreement obligates WMC to: (1) manage the investment
operations of the PBHG Cash Reserves Fund and the composition of the Portfolio's
portfolio, including the purchase, retention and disposition thereof in
accordance with the Portfolio's investment objectives, policies and
restrictions; (2) provide supervision of the Portfolio's investments and
determine from time to time what investments and securities will be purchased,
retained or sold by the Portfolio, and what portion of the assets will be
invested or held uninvested in cash; and (3) determine the securities to be
purchased or sold by the Portfolio 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 Portfolio'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 WMC 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 Fund (a) by the Fund
at any time, without the payment
S - 12
<PAGE>
of any penalty, by the vote of a majority of Directors of the Fund or by the
vote of a majority of the outstanding voting securities of the Fund, (b) 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 (c) by WMC
at any time, without the payment of any penalty, on 90 days' written notice to
the other parties. The WMC Sub-Advisory Agreement shall terminate automatically
and immediately in the event of its assignment.
THE ADMINISTRATOR
The Fund and SEI Financial Management Corporation (the "Administrator") have
entered into an administration agreement (the "Administration Agreement"). The
Administration Agreement provides that the Administrator shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Administrator in the performance of its duties or from
reckless disregard by it of its duties and obligations thereunder. The
Administration Agreement shall remain in effect for a period of five years after
its effective date and shall continue in effect for successive periods of two
years unless terminated by either party on not less than 90 days' prior written
notice to the other party.
The Administrator, a wholly-owned subsidiary of SEI Corporation ("SEI"), was
organized as a Delaware corporation in 1969 and has its principal business
offices at 680 East Swedesford Road, Wayne, PA 19087-1658. Alfred P. West,
Jr., Henry H. Greer and Carmen V. Romeo, constitute the Board of Directors of
the Administrator. Mr. West is the Chairman of the Board and Chief Executive
Officer of the Administrator and of SEI. Mr. Greer is the President and Chief
Operating Officer of the Administrator and of SEI. SEI and its subsidiaries are
leading providers of funds evaluation services, trust accounting systems, and
brokerage and information services to financial institutions, institutional
investors and money managers. The Administrator also serves as administrator to
the following other mutual funds: SEI Liquid Asset Trust; SEI Tax Exempt Trust;
SEI Institutional Managed Trust; SEI Index Funds; SEI International Trust; SEI
Daily Income Trust; Stepstone Funds; FFB Lexicon Funds; The Compass Capital
Group; The Pillar Funds; STI Classic Funds; CUFund; CoreFunds, Inc.; First
American Funds, Inc.; First American Investment Funds, Inc.; Rembrandt Funds(R);
The Arbor Fund; 1784 Funds; The Advisors' Inner Circle Fund; Marquis/sm/ Funds;
Morgan Grenfell Investment Trust; Inventor Funds, Inc.; The Achievement Funds
Trust; Bishop Street Funds; CrestFunds, Inc.; Conestoga Family of Funds; and
Insurance Investment Products Trust.
S - 13
<PAGE>
For the fiscal years ended March 31, 1993, 1994 and 1995, the Portfolios paid
the following administration fees:
<TABLE>
<CAPTION>
================================================================================
Fees Paid Fees Waived
---------------------------------------------------------
Portfolio 1993 1994 1995 1993 1994 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PBHG Growth Fund/+/ $13,414/1/ $153,125/2/ $1,200,047 $ 0 $ 0 $ 0
- --------------------------------------------------------------------------------
PBHG International * * $ 59,384 * * $ 0
Fund/+/
- --------------------------------------------------------------------------------
PBHG Emerging * $ 50,567/3/ $ 170,987 * $ 0 $ 0
Growth Fund/++/
===============================================================================
</TABLE>
* Not in operation during the period.
/+/ Fiscal year ended March 31.
/++/ The PBHG Emerging Growth Fund retained the October 31 fiscal year end of
its predecessor only for fiscal year 1994. The Portfolio changed its fiscal
year end to March 31 in 1995 and is reporting financial information for the
fiscal period from November 1, 1994 to March 31, 1995.
/1/ Amounts paid to Capstone Asset Management Company ("Capstone"). Prior to
September 10, 1993, the administrator of the Fund was Capstone.
/2/ For the period from September 10, 1993 to the fiscal year ended March 31,
1994, the Fund paid to the Administrator fees totalling $153,125. The
amount paid by the PBHG Growth Fund to Capstone during the fiscal year
ended March 31, 1994 totalled $18,465.
/3/ For the period from June 3, 1994 (commencement of operations) through
October 31, 1994.
As of the fiscal year ended March 31, 1995, the PBHG Large Cap Growth, PBHG
Select Equity, PBHG Technology & Communications, PBHG Core Growth and PBHG Cash
Reserves Funds had not yet commenced operations.
From July 22, 1992 to September 10, 1993, the Adviser and Capstone each bore its
pro rata share of any fee reduction or reimbursement necessary to comply with
the expense limitations discussed above under "The Adviser." Such pro rata fee
reduction or reimbursement was based on the percentage that such entity's fee
bore to the total fees paid or due to the Adviser and to Capstone by the Fund
under the Advisory Agreement and under the administration agreement between the
Fund and Capstone.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, and the Fund are parties to a distribution agreement (the "Distribution
Agreement"). The Distributor will receive no compensation for distribution of
PBHG Class shares of the Portfolio.
The Distribution Agreement is renewable annually. The Distribution Agreement
may be terminated by the Distributor, by a majority vote of the Directors who
are not interested persons and have no financial interest in the Distribution
Agreement or by a majority vote
S - 14
<PAGE>
of the outstanding securities of the Fund upon not more than 60 days' written
notice by either party or upon assignment by the Distributor.
The Fund has adopted a Distribution Plan for Trust Class shares in accordance
with the provisions of Rule 12b-1 under the 1940 Act which regulates
circumstances under which an investment company may directly or indirectly bear
expenses relating to the distribution of its shares.
The Trust Class Plan provides for compensation payable to the Distributor at an
annual rate of .25% of the Trust Class average daily net assets. The
Distributor may use these payments to compensate financial institutions and
intermediaries such as banks, savings and loan associations, insurance
companies, investment counselors, broker-dealers and the Distributor's
affiliates and subsidiaries as compensation for services or reimbursement of
expenses incurred in connection with distribution assistance or provision of
shareholder services. These institutions may also charge separate fees for
these and related services. It is possible that an institution may offer
different class of shares to its customers and thus receive compensation with
respect to different classes. The distribution-related services that may be
provided under the Plan include establishing and maintaining customer accounts
and records; aggregating and processing purchase and redemption requests from
customers; placing net purchase and redemption orders with the Distributor;
automatically investing customer account balances; providing periodic statements
to customers; arranging for wires; answering customer inquiries concerning their
investments; assisting customers in changing dividend options, account
designations, and addresses; performing sub-accounting functions; processing
dividend payments from the Fund on behalf of customers; and forwarding
shareholder communications from the Fund (such as proxies, shareholder reports,
and dividend distribution, and tax notices) to these customers with respect to
investments in the Fund. Certain state securities laws may require those
financial institutions providing such distribution services to register as
dealers pursuant to state law.
Except to the extent that the Administrator or Adviser benefitted through
increased fees from an increase in the net assets of the Fund which may have
resulted in part from the expenditures, no interested person of the Fund nor any
Director of the Fund who is not an interested person of the Fund had a direct or
indirect financial interest in the operation of the Distribution Plan or related
agreement.
No compensation was paid to the Distributor for distribution services for the
fiscal period from July 16, 1993 to March 31, 1994 for the PBHG Growth Fund.
Prior to July 16, 1993 sales of the shares of the PBHG Growth Fund were subject
to a sales charge, and Capstone Asset Planning Company ("CAPCO") served as the
principal underwriter of the Fund. For the period from April 1, 1993 to July 16,
1993, CAPCO received $11,009 in underwriting commissions from sales of shares of
the PBHG Growth Fund. During the fiscal year ended March 31, 1993, CAPCO
received $4,306 in commissions from the PBHG Growth Fund. No compensation was
paid by the PBHG Emerging Growth Fund to the Distributor for distribution
services for the period from June 3, 1994 (commencement
S - 15
<PAGE>
of operations) through October 31, 1994, the fiscal year end of its predecessor
fund, the Pilgrim Baxter Emerging Growth Fund. As of the fiscal year ended
March 31, 1995, the PBHG Large Cap Growth, PBHG Select Equity, PBHG Technology &
Communications, PBHG Core Growth and PBHG Cash Reserves Funds had not yet
commenced operations.
Certain officers of the Fund also serve as officers of SEI Liquid Asset Trust;
SEI Tax Exempt Trust; SEI Institutional Managed Trust; SEI Index Funds; SEI
International Trust; SEI Daily Income Trust; Stepstone Funds; FFB Lexicon Funds;
The Compass Capital Group; The Pillar Funds; STI Classic Funds; CUFund;
CoreFunds, Inc.; First American Funds, Inc.; First American Investment Funds,
Inc.; Rembrandt Funds(R); The Arbor Fund; 1784 Funds; The Advisors' Inner Circle
Fund; Marquis/sm/ Funds; Morgan Grenfell Investment Trust; Inventor Funds, Inc.;
Bishop Street Funds; The Achievement Funds Trust; CrestFunds, Inc.; Conestoga
Family of Funds; and SEI Insurance Investment Products Trust.
DIRECTORS AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Directors under the
laws of the State of Maryland. The Directors and executive officers of the Fund
and their principal occupations for the last five years are set forth below.
Each may have held other positions with the named companies during that period.
Unless otherwise noted, the business address of each Director and executive
officer is SEI Financial Management Corporation, 680 East Swedesford Road,
Wayne, PA 19087-1658.
JOHN R. BARTHOLDSON - Director - Triumph Group Holdings, Inc., 1255 Drummers
Lane, Suite 200, Wayne, PA 19087-1590. Chief Financial Officer and Director,
The Triumph Group Holdings, Inc. since 1992. Senior Vice President and Chief
Financial Officer, Lukens, Inc., 1978-1992.
HAROLD J. BAXTER* - Director, Chairman and Chief Executive Officer - 1255
Drummers Lane, Suite 300, Wayne, PA 19087-1590. Chairman, Chief Executive
Officer and Director, Pilgrim Baxter & Associates, Ltd. (and its predecessor
firms) since 1982.
JETTIE M. EDWARDS - Director - Syrus Associates, 76 Seaview Drive, Santa
Barbara, California 93108. Consultant, Syrus Associates since 1986; Trustee,
Provident Investment Counsel Trust (investment company) since 1992.
ALBERT A. MILLER - Director - 7 Jennifer Drive, Holmdel, New Jersey 07733.
Principal and Treasurer, JK Equipment Exporters since 1995; Advisor and
Secretary, The Underwoman Shoppes Inc. since 1980; Merchandising Group Vice
President, R.H. Macy & Co. 1958-1995 (retired).
GARY PILGRIM - President - President, Secretary, Treasurer and Director, Pilgrim
Baxter & Associates, Ltd., since 1982.
S - 16
<PAGE>
CARMEN V. ROMEO - Treasurer, Assistant Secretary - Director, Executive Vice
President, Chief Financial Officer and Treasurer of SEI. Director and Treasurer
of the Administrator and Distributor since 1981.
SANDRA K. ORLOW - Vice President, Assistant Secretary - Vice President and
Assistant Secretary of SEI, the Administrator and Distributor since 1983.
KEVIN P. ROBINS - Vice President, Assistant Secretary - Senior Vice President,
Secretary and General Counsel of SEI, the Administrator and Distributor since
1994. Vice President and Assistant Secretary of SEI, the Administrator and
Distributor since 1992. Associate, Morgan, Lewis & Bockius LLP (law firm),
1988-1992.
JEFFREY A. COHEN, CPA - Controller, Assistant Secretary - Director,
International and Domestic Funds Accounting, SEI Corporation since 1991. Audit
Manager, Price Waterhouse prior to 1991.
ROBERT B. CARROLL - Vice President, Assistant Secretary - Vice President,
Assistant Secretary of SEI, the Administrator and Distributor since 1994.
United States Securities and Exchange Commission, Division of Investment
Management, 1990-1994. Associate, McGuire, Woods, Battle and Boothe (law firm)
before 1990.
KATHRYN L. STANTON - Vice President, Assistant Secretary - Vice President,
Assistant Secretary of SEI, the Administrator and Distributor since 1994.
Associate, Morgan, Lewis & Bockius LLP (law firm), 1989-1994.
TODD CIPPERMAN - Vice President, Assistant Secretary - Vice President, Assistant
Secretary of SEI, the Administrator and Distributor since 1995. Associate,
Dewey Ballantine (law firm) 1994-1995, Associate, Winston & Strawn (law firm)
1991-1995.
JOSEPH LYDON - Vice President, Assistant Secretary - Director of Business
Administration, SEI Corporation since April, 1995; Vice President of Fund Group,
Vice President of the Advisor - Dreman Value Management, LP, President of Dreman
Financial Services, Inc. from 1989 to 1995.
MICHAEL HARRINGTON - Assistant Treasurer - Mutual Fund Coordinator, Pilgrim
Baxter & Associates since 1994; Account Manager, SEI Corporation, 1991-1994.
BRIAN BEREZNAK - Vice President, Assistant Secretary - Director, Chief Operating
Officer, Pilgrim Baxter & Associates, Ltd. since 1983.
JOSEPH LYDON - Vice President, Assistant Secretary - Director of Business
Administration, SEI Corporation since 1995; Vice President of Fund Group, Vice
President of the Advisor - Dreman Value Management LP, President of Dreman
Financial Services, Inc., 1989-1995.
S - 17
<PAGE>
DARLENE DEREMER - Vice President - President, DeRemer Associates, 155 South
Street, Wrentham, MA 02093 since 1987.
JANE A. KANTER - Secretary - Partner, Katten Muchin & Zavis (law firm) since
1994; Partner, Freedman Levy Kroll & Simonds (law firm), 1987-1994.
_________
*Mr. Baxter is a Director who may be deemed to be an "interested person" of the
Fund, as that term is defined in the 1940 Act.
As of the date of this Statement of Additional Information, the Directors and
officers of the Fund as a group owned 9.93% of the outstanding shares of the
PBHG Class of the PBHG Core Growth Fund and owned less than 1% of the
outstanding shares of each other Portfolio. The Fund pays the fees for
Directors who are not "interested persons" of the Fund, as that term is defined
in the 1940 Act.
The following table lists the current Directors of the Fund who are expected to
receive compensation for each regular meeting of the Board during the fiscal
year ending March 31, 1996, and the amount of such compensation:
<TABLE>
<CAPTION>
===================================================================================
Total
Compensation
Aggregate Pension from
Compensation or Estimated Registrant
From Retirement Annual and Fund
Name of Person, Position Registrant Benefits Benefits Complex
for Fiscal Accrued Upon Paid to
Year Ended as Part Retirement Directors
1995 of Fund for Fiscal
Expenses Year Ended
1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John R. Bartholdson, $3,000 N/A N/A $3,000 for
Director services on
one Board
- -----------------------------------------------------------------------------------
Harold J. Baxter, Director* N/A N/A N/A N/A
- -----------------------------------------------------------------------------------
Jettie M. Edwards, Director $3,000 N/A N/A $3,000 for
services on
one Board
- -----------------------------------------------------------------------------------
Albert A. Miller, Director $3,000 N/A N/A $3,000 for
services on
one Board
===================================================================================
</TABLE>
- ---------
*Mr. Baxter is a Director who may be deemed to be an "interested person" of the
Fund, as that term is defined in the 1940 Act, and consequently will be
receiving no compensation from the Fund.
S - 18
<PAGE>
COMPUTATION OF YIELD
From time to time the PBHG 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 Cash Reserves Fund refers to the income generated by an investment in
the PBHG Cash Reserves 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 PBHG Cash Reserves 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 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 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 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 PBHG Cash Reserves Fund will actually yield in the future. Actual yields
will depend on such variables as asset quality, average asset maturity, the type
of instruments the PBHG Cash Reserves Fund invests in, changes in interest rates
on money market instruments, changes in the expenses of the PBHG Cash Reserves
Fund and other factors.
Yields are one basis upon which investors may compare the PBHG 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. As of the date of this
S - 19
<PAGE>
Statement of Additional Information, the Cash Reserves Fund had not yet
commenced operations.
From time to time, the PBHG Growth Fund, PBHG Emerging Growth Fund, PBHG Large
Cap Growth Fund, PBHG Select Equity Fund, PBHG International Fund, PBHG
Technology & Communications Fund and PBHG Core Growth Fund may advertise yield.
These figures will be based on historical earnings and are not intended to
indicate future performance. The yield of these Portfolios refers to the
annualized income generated by an investment in these Portfolios over a
specified 30-day period. In accordance with Item 22(b)(ii) of Form N-1A under
the Securities Act of 1933 and the 1940 Act, the yield is computed by dividing
the net investment income per share earned during the period by the maximum
offering price per share on the last day of the period, according to the
following formula:
Yield = (2 (a-b/cd + 1)/6/ - 1) where a = dividends and interest earned
during the period; b = expenses accrued for the period (net of
reimbursement); c = the current daily number of shares outstanding during
the period that were entitled to receive dividends; and d = the maximum
offering price per share on the last day of the period.
For the 30-day period ended March 31, 1995, yields on the Portfolios were as
follows:
<TABLE>
<CAPTION>
===============================================================================
Portfolio 30 Day Yield
- -------------------------------------------------------------------------------
<S> <C>
PBHG Growth Fund (.89)%
- -------------------------------------------------------------------------------
PBHG Emerging Growth Fund (.23)%
===============================================================================
</TABLE>
The PBHG Large Cap Growth Fund, PBHG Select Equity Fund, PBHG Technology &
Communications Fund, PBHG Core Growth Fund, and PBHG Cash Reserves Fund had not
commenced operations as of March 31, 1995.
CALCULATION OF TOTAL RETURN
From time to time, the PBHG Growth Fund, PBHG Emerging Growth Fund, PBHG Large
Cap Growth Fund, PBHG Select Equity Fund, PBHG International Fund PBHG
Technology & Communications Fund and PBHG Core Growth Fund may advertise total
return. The total return of these Portfolios 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 the Portfolios 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.
S - 20
<PAGE>
Based on the foregoing, the average annual total returns for the Portfolios from
inception through March 31, 1995 and for the one and five year periods ended
March 31, 1995, were as follows:
<TABLE>
<CAPTION>
===============================================================================
Average Annual Total Return
----------------------------------------------
Portfolio One Year Five Year Since Inception
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
PBHG Growth Fund 13.92% 22.84% 19.97%/1/
- -------------------------------------------------------------------------------
PBHG International Fund N/A * (8.33)%/2/
- -------------------------------------------------------------------------------
PBHG Emerging Growth Fund 31.98% * 36.58%/3/
===============================================================================
</TABLE>
* Not in operation during the period.
/1/ The PBHG Growth Fund commenced operations on December 19, 1985.
/2/ The PBHG International Fund commenced operations on June 14, 1994.
/3/ The PBHG Emerging Growth Fund commenced operations with its predecessor on
June 15, 1993.
Quotations of total return, which are not annualized, represent historical
earnings and asset value fluctuations. Total return is based on past
performance and is not a guarantee of future results. For the one and five year
periods ended March 31, 1995 and the period December 19, 1985 (commencement of
operations) to March 31, 1995 the PBHG Growth Fund's aggregate total return was
13.92%, 179.70% and 442.19%, respectively. For the one year period ended March
31, 1995 and the period June 15, 1993 (commencement of operations) to March 31,
1995, the PBHG Emerging Growth Fund's aggregate total return was 31.98% and
74.97%, respectively.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Distributor on any day on
which the New York Stock Exchange is open for business. Currently, the
following holidays are observed by the Fund: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Shares of the Portfolios are offered on a continuous basis.
It is currently the Fund's policy to pay all redemptions in cash. The Fund
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 Portfolios
in lieu of cash. Shareholders may incur brokerage charges on the sale of any
such securities so received in payment of redemptions.
The Fund 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 Portfolio's securities is not reasonably practicable,
or for such other periods as the SEC has by order
S - 21
<PAGE>
permitted. The Fund also reserves the right to suspend sales of shares of a
Portfolio for any period during which the New York Stock Exchange, the Adviser,
the Administrator, the Transfer Agent and/or the Custodian are not open for
business.
DETERMINATION OF NET ASSET VALUE
The securities of the PBHG Growth Fund, PBHG Emerging Growth Fund, PBHG Large
Cap Growth Fund, PBHG Select Equity Fund, PBHG International Fund, PBHG
Technology & Communications Fund and PBHG Core Growth Fund are valued by the
Administrator. The 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 Fund
under the general supervision of the Directors.
Portfolio 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 mean
between the most recent bid and asked prices. 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 mean between the most recent bid
and asked prices. 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 Fund,
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 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 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 PBHG Cash Reserves Fund resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in the
PBHG Cash Reserves Fund would be able to obtain a somewhat higher yield than
would result from investment in a company utilizing solely market values, and
S - 22
<PAGE>
existing investors in the Portfolio 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 Cash Reserves Fund and the
maintenance of the Portfolio'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 security rating organizations (one if it is the only
organization rating such obligation) in the highest short-term rating category
or, if unrated, determined to be of comparable quality (a "first tier
security"), or (ii) rated according to the foregoing criteria in the second
highest short-term rating category or, if unrated, determined to be of
comparable quality ("second tier security"). The Adviser will determine that an
obligation presents minimal credit risks or that unrated instruments are of
comparable quality in accordance with guidelines established by the Directors.
The Directors must approve or ratify the purchase of any unrated securities or
securities rated by only one rating organization. In addition, investments in
second tier securities are subject to the further constraints that (i) no more
than 5% of a Portfolio'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 Portfolio'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
Portfolio. 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 Portfolio's current net asset value per unit
calculated using available market quotations from the Portfolio'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 any Portfolio
incurs a significant loss or liability, the Directors have the authority to
reduce pro rata the number of shares of that Portfolio 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 Portfolio and its shareholders, and is not intended as a
substitute for careful tax
S - 23
<PAGE>
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.
Each Portfolio intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By maintaining its qualifications as a
RIC, each Portfolio intends to eliminate or reduce to a nominal amount the
federal taxes to which it may be subject.
In order to qualify for treatment as a RIC under the Code, a Portfolio 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") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Portfolio's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities, or certain other income; (ii) the
Portfolio must derive less than 30% of its gross income each taxable year from
the sale or other disposition of stocks or securities held for less than three
months; (iii) at the close of each quarter of the Portfolio'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 other
securities, with such other securities limited, in respect to any one issuer, to
an amount that does not exceed 5% of the value of the Portfolio's assets and
that does not represent more than 10% of the outstanding voting securities of
such issuer; and (iv) at the close of each quarter of the Portfolio's taxable
year, not more than 25% of the value of its assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of any
one issuer or of two or more issuers which are engaged in the same, similar or
related trades or businesses if the Portfolio owns at least 20% of the voting
power of such issuers.
Notwithstanding the Distribution Requirement described above, which requires
only that a Portfolio 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
Portfolio 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
S - 24
<PAGE>
losses) for the one-year period ending on October 31 of that calendar year, plus
certain other amounts.
In certain cases, a Portfolio will be required to withhold, and remit to the
U.S. Treasury, 31% of any distributions paid to a shareholder who (1) has failed
to provide a correct taxpayer identification number, (2) is subject to backup
withholding by the Internal Revenue Service, or (3) has not certified to the
Portfolio that such shareholder is not subject to backup withholding.
If a Portfolio 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 Portfolio's current and accumulated
earnings and profits and such distributions will generally be eligible for the
corporate dividends-received deduction.
State Taxes
Distributions by a Portfolio to shareholders and the ownership of shares may be
subject to state and local taxes.
Foreign Taxes
Dividends and interest received by the PBHG International Fund may be subject to
income, withholding or other taxes imposed by foreign countries and U.S.
possessions that would reduce the yield on the Portfolio'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 the PBHG
International Fund meets the Distribution Requirement and if more than 50% of
the value of the Portfolio's total assets at the close of its taxable year
consists of securities of foreign corporations, the Portfolio 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 Portfolio.
Pursuant to the election, the Portfolio 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. If the Portfolio makes the
election, it will report annually to its Shareholders the respective amounts per
share of the Portfolio's income from sources within, and taxes paid to, foreign
countries and U.S. possessions.
S - 25
<PAGE>
The PBHG International Fund's transactions in foreign currencies and forward
foreign currency contracts will be subject to special provisions of the Code
that, among other things, may affect the character of gains and losses realized
by the Portfolio (i.e., may affect whether gains or losses are ordinary or
capital), accelerate recognition of income to the Portfolio and defer Portfolio
losses. These rules could therefore affect character, amount and timing of
distributions to shareholders. These provisions also may require the Portfolio
to mark-to-market certain types of the positions in its portfolio (i.e., treat
----
them as if they were closed out) which may cause the Portfolio to recognize
income without receiving cash with which to make distributions in amounts
necessary to satisfy the 90% and 98% distribution requirements for avoiding
income and excise taxes. The Portfolio will monitor its transactions, will make
the appropriate tax elections, and will make the appropriate entries in its
books and records when it acquires any foreign currency, option, futures
contract, forward contract, or hedged investment in order to mitigate the effect
of these rules and prevent disqualification of the Portfolio as a regulated
investment company and minimize the imposition of income and excise taxes.
PORTFOLIO TRANSACTIONS
The Adviser or Sub-Advisers are authorized to select brokers and dealers to
effect securities transactions for the Portfolios. The Adviser or Sub-Advisers
will seek to obtain the most favorable net results by taking into account
various factors, including price, commission, if any, size of the transactions
and difficulty of executions, the firm's general execution and operational
facilities and the firm's risk in positioning the securities involved. While
the Adviser or Sub-Advisers generally seek reasonably competitive spreads or
commissions, the Fund will not necessarily be paying the lowest spread or
commission available. The Adviser or Sub-Advisers seek to select brokers or
dealers that offer the Portfolios best price and execution or other services
which are of benefit to the Portfolios. 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 Portfolio'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
Portfolios, 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
Portfolio 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;
S - 26
<PAGE>
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 supplemental information, and such services may
not be used exclusively, or at all, with respect to the Portfolio or account
generating the brokerage, and there can be no guarantee that the Adviser or Sub-
Advisers will find all of such services of value in advising the Portfolio.
It is expected that the Portfolios 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
and rules promulgated by the SEC. Under these provisions, the Distributor is
permitted to receive and retain compensation for effecting portfolio
transactions for the Portfolios on an exchange if a written contract is in
effect between the Distributor and the Portfolio expressly permitting the
Distributor to receive and retain such compensation. These rules further
require that commissions paid to the Distributor by the Portfolio for exchange
transactions not exceed "usual and customary" brokerage commissions. The rules
define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." 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 Portfolio's or the Fund's expenses. Because
shares of the Portfolios are not marketed through intermediary broker-dealers,
it is not the Portfolios' practice to allocate brokerage or effect principal
transactions with broker-dealers on the basis of sales of shares that may be
made through such firms. However, the Adviser or Sub-Adviser may place orders
for the purchase or sale of Portfolio securities with qualified broker-dealers
who refer clients to the Portfolios. The Directors, including those who are not
"interested persons" of the Fund, have adopted procedures for evaluating the
reasonableness of commissions paid to the Distributor and will review these
procedures periodically.
S - 27
<PAGE>
For the fiscal year ended March 31, 1995, the Portfolios paid brokerage fees as
follows:
<TABLE>
<CAPTION>
===================================================================================================
Total Amount
Total Total Amount of Brokerage Total Amount
Brokerage of Brokered Commissions of Brokered
Total Amount Commissions Transactions Paid for Transactions
of Brokerage Paid to through Research for Research
Commissions Affiliates Affiliates Services 1995
Fund Paid in 1995 in 1995 1995 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PBHG Growth $802,803 N/A N/A $57,402 $14,548,917
Fund/+/
- ---------------------------------------------------------------------------------------------------
PBHG $ 87,658 N/A N/A N/A N/A
International
Fund/+/
- ---------------------------------------------------------------------------------------------------
PBHG Emerging $ 64,058 N/A N/A $ 5,976 $ 2,277,598
Growth Fund/++/
===================================================================================================
</TABLE>
* Not in operation during the period.
/+/ Fiscal year ended March 31.
/++/ The PBHG Emerging Growth Fund retained the October 31 fiscal year end of
its predecessor for fiscal year 1994. The Portfolio changed its fiscal year end
to March 31 in 1995 and is reporting financial information for the fiscal period
from November 1, 1994 to March 31, 1995.
For the fiscal years ended March 31, 1993 and 1994, the PBHG Growth Fund and the
PBHG Emerging Growth Fund paid the brokerage fees set forth below. The PBHG
Large Cap Growth, PBHG Select Equity, PBHG International, PBHG Technology &
Communications and PBHG Core Growth Funds were not in operation during these
periods.
<TABLE>
<CAPTION>
=================================================================================================================================
Total Total Amount of Total Amount of
Total Amount of Brokerage Brokered Brokerage Paid for Total Amount of Brokered
Brokerage Commissions Commissions Transactions through Research Services Transactions for Research
Paid Affiliates
to Affiliates
----------------------------------------------------------------------------------------------------------------------
Fund 1993 1994 1993 1994 1993 1994 1993 1994 1993 1994
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PBHG $12,950 $162,012 $ 0 $8,466 $ 0 $9,638,200 $ 0 $14,568 $ 0 $6,761,998
Growth
Fund
- ---------------------------------------------------------------------------------------------------------------------------------
PBHG $36,785 $ 37,177 $ 0 $ 80 $ 0 $ 177,916 $2,868 $ 2,442 $1,679,977 $ 872,532
Emerging
Growth
Fund
=================================================================================================================================
</TABLE>
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking best execution and such
other policies as the Board of Directors may determine, the Adviser may
consider sales of Fund shares
S - 28
<PAGE>
as a factor in the selection of dealers to execute portfolio transactions for
the Fund.
DESCRIPTION OF SHARES
The Fund is authorized to issue an unlimited number of shares of each
Portfolio and to create additional portfolios of the Fund. Each share of a
Portfolio represents an equal proportionate interest in that Portfolio with
each other share. Shares are entitled upon liquidation to a pro rata share in
the net assets of the Portfolio available for distribution to shareholders.
Shareholders have no preemptive rights. All consideration received by the
Fund for shares of any Portfolio and all assets in which such consideration is
invested would belong to that Portfolio and would be subject to the
liabilities related thereto.
5% AND 25% SHAREHOLDERS
As of January 15, 1996, 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 Portfolios. The Fund believes that most of the
shares referred to below were held by the persons indicated in accounts for
their fiduciary, agency or custodial clients.
PBHG Growth Fund - PBHG Class
Charles Schwab & Co. Inc. 22.58%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 9.63%
P.O. 3908
Church Street Station
New York, New York 10008-3908
S - 29
<PAGE>
PBHG Emerging Growth Fund - PBHG Class
Charles Schwab & Co. Inc. 20.47%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 12.98%
P.O. Box 3909
Church Street Station
New York, New York 10008-3908
Los Angeles County Employees Retirement 9.73%
Association/Pension Fund
c/o Pilgrim Baxter Greig & Associates
1255 Drummers Lane, Suite 300
Wayne, PA 19087-1565
PBHG Large Cap Growth Fund - PBHG Class
Charles Schwab & Co. Inc. 32.65%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 20.25%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Select Equity Fund - PBHG Class
Charles Schwab & Co. Inc. 29.46%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 21.60%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
S - 30
<PAGE>
PBHG International Fund - PBHG Class
Charles Schwab & Co., Inc. 10.49%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 9.54%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Technology & Communications Fund - PBHG Class
National Financial Services Corp. 22.22%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Charles Schwab & Co., Inc. 15.92%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
PBHG Core Growth Fund - PBHG Class
National Financial Services Corp. 21.29%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Harold J. Baxter & Christine E. Baxter 9.93%
1054 S. Leopard Street
Berwyn, PA 19312-2027
PBHG Cash Reserves Fund - PBHG Class
Pilgrim Baxter Partners I LP 62.28%
1255 Drummers Lane, Suite 300
Wayne, PA 19087-1565
Pilgrim Baxter Partners II LP 19.26%
1255 Drummers Lane, Suite 300
Wayne, PA 19087-1565
S - 31
<PAGE>
INFORMATION ABOUT THE PBHG TECHNOLOGY & COMMUNICATIONS FUND
The PBHG Technology & Communications Fund seeks opportunities in many
explosive growth fields.
Computers and Software
----------------------
. The Adviser believes that the home personal computer market is
currently only 38% penetrated and could reach 50% penetration by the
year 2000.
. At the end of 1993, there were 50 personal computers for every 100
U.S. workers, compared to only 22 per 100 workers in Europe, 17 per
100 in Japan, and 1 per 100 in Asia Pacific -- so the Adviser
believes that worldwide market for personal computers could be
significant.
. Software companies are currently averaging 30% - 70% annual revenue
growth rates.
Communications
--------------
. The Adviser believes that the wireless equipment market could grow
to $20 billion over the next four years -- a 20-fold increase.
. 48% of all U.S. capital investment is in information technology, up
from 35% in the early '90s and 25% in the early '80s.
. 60% of U.S. households are wired for cable -- triple the number ten
years ago.
Semiconductors and Electronics
------------------------------
. The Adviser believes semiconductor sales growth could go as high as
20% per year from now until 2000.
. The Adviser believes the CD-ROM market could potentially deliver a
45% compound annual growth between 1995 and 2000.
EXPERTS
The financial statements in this Statement of Additional Information, with
respect to the PBHG Growth Fund, for the fiscal year ended March 31, 1995,
have been audited by Arthur Andersen LLP, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said report. The financial statements, with
respect to the PBHG Growth
S - 32
<PAGE>
Fund for the fiscal years ended prior to and including the fiscal year ended
March 31, 1993, have been audited by Tait, Weller & Baker, independent public
accountants as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said report. The financial statements of the PBHG Emerging Growth Fund
and PBHG International Fund in this Statement of Additional Information, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance on said firm as experts in giving said report. Arthur Andersen LLP
has been selected to serve as the Fund's independent public accountants for
the fiscal year ending March 31, 1996.
FINANCIAL STATEMENTS
The audited financial statements for the fiscal year ended March 31, 1995,
including the financial highlights, appearing in the Annual Report to
Shareholders, and the unaudited financial statements for the period ended
September 30, 1995, appearing in the Semi-Annual Report to Shareholders, are
incorporated herein by reference and made a part of this document.
S - 33
